COVID-19’s Impact on Residential Lease Terms

July 1, 2020 | Newsletter

By David Goldfischer, Esq.

Nearly four months after a State of Emergency was declared in New York due to the COVID-19 pandemic, the NYC real estate market is beginning to come back to life. The rental market in particular was faced with many challenges, the likes of which we have never seen before. Owners of such rentals were left grappling with how to deal with situations involving tenants breaching leases, not paying rent, illegally subletting/assigning their leases, as well as a host of other issues. Many tenants of course also faced their own set of difficulties resulting from the pandemic which at time made it nearly impossible to abide by their lease terms. Based on the feedback I have been receiving from both landlords and tenants alike over the past few weeks, it is apparent that there will many changes to the terms we are accustomed to seeing within residential leases.

The COVID-19 pandemic has brought to the forefront many clauses not ordinarily found within residential leases. Terms such as ‘force majeure,’ ‘Unavoidable Delay,’ and ‘acts of god,’ while relatively common under commercial leases, were rarely found in their residential counterparts. However, this may all change going forward. Both landlords and tenants will not soon forget the upheaval the ongoing pandemic caused to the rental market and each party is surely going to insist on legal protection should another outbreak occur. Client requests for such clauses to be included in residential leases has understandably increased dramatically over the past few weeks and the expectation is that this trend will only continue.

Another common theme expressed these days is the goal for both landlords and tenants to maintain a level of flexibility within the terms of their lease. Opt-out clauses and termination fees which used to be relatively obscure amongst residential leases are now becoming the new norm. We are also seeing many instances of landlords foregoing annual rent increases in exchange for longer lease terms which is a strong indication as to how landlords’ value a secure tenant vs. potential future monetary gains. While the idea of a multi-year lease at a flat rate used to be unheard of, it serves as yet another example of the changing landscape in the world of residential leases.

As with many other things in life, the COVID-19 pandemic has changed the way residential leases will be negotiated for the foreseeable future. All parties involved in these leases will insist on clauses which ensure that they are both well protected from any unforeseen events while also maintaining a level of flexibility should circumstances drastically change. Terms and conditions which we never would have considered applying in leases six months ago are now standard discussions when negotiating lease. The events of the past few months have led us all to ‘expect the unexpected’ and this concept has clearly manifested itself to the drafting of residential leases as well.