The economic dislocations of COVID 19 are just being felt. A tsunami is heading toward our financial system. Businesses are shutting down. Tenants can’t pay landlords. Property owners can’t pay lenders. And, even if they can pay, commercial borrowers can’t demonstrate the good financial health that their lenders often require. All of these conditions can lead to technical defaults and even legal proceedings.
How will it end? No one knows. The government is trying hard to minimize the financial impacts to businesses and individuals, but erasing the full effects of COVID 19 will be impossible. After the virus has run its course, the financial relationships of business owners, landlords, tenants, and lenders will have to be reset.
Everyone will have to form new, realistic expectations of the parties with whom they deal. The parties to many leases and mortgages will agree to modify the terms. Borrowers will ask their lenders to excuse their defaults. These accommodations may, of course, be temporary or permanent.
Will a handshake do? Can you rely on an email? Of course not. Many leases and loan documents specify that they cannot be changed unless the parties sign a new written document that details the new arrangement. As someone famously said, “an oral contract is not worth the paper it’s written on.”
In the midst of the unprecedented disruption caused by this pandemic, practically everyone is cooperative and hopeful. Eventually, as life returns to a new normal, people and businesses may assume more adversarial roles. Lease and loan accommodations that are not reflected in a new, detailed document, signed by all parties, may come back to haunt the participants.
As you make new deals, our transactional lawyers can help to solidify them.
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