Business Interruption and Impact on Real Estate | JAMS

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Four neutral JAMS representatives share their views on how COVID-19 has impacted real estate issues

COVID-19 has had a huge impact on any business. But organizations in the real estate sector, both commercial and residential, have been particularly hard hit. The aftermath of the pandemic has sparked numerous disputes between landlords and tenants over non-payment of rent. Developers and contractors have found themselves in similar disagreements – in their case, due to work stoppages due to the pandemic and a shortage of manpower and materials.

Of course, conflicts between these parties are not unusual. What kind is an unusual – even unprecedented – is that “we have government involvement in the real estate sector that has never happened before,” says JAMS neutral Caroline Antonacci. In the case of commercial disputes between a landlord and a tenant in relation to non-payment of rent: “You have an economic impact that causes non-payment, but there is a social policy behind it that some businesses are currently unable to operate due to this pandemic.” At the same time, government-imposed moratoriums on evictions have deprived homeowners of their most powerful weapon against insolvent tenants. In addition, the closure of civilian courts – again by government decree – has reduced the ability of all parties to resolve real estate disputes using traditional channels.

You might think that such an unusual set of circumstances would lead to more cases for JAMS, but this was more of a constant flow, with a recent spike in landlord-tenant cases involving mediation. “From what I see,” says Michael Ornsteel, neutral to JAMS, “business is very sensitive to how tough they want to be and how tough they want to be in the midst of a crisis.” He continues: “It felt like we were all together. So while we anticipated the potential for an onslaught of lawsuits and arbitration claims for breach of contractual requirements, it was less than expected, but we are starting to see this escalating. ” As soon as normal life is restored – when the moratorium on evictions is lifted and businesses resume normal operations – “I expect we will see a flood of requests,” says JAMS neutrality Joe Farina, especially in the commercial area.

Mediation in such cases, when they gush out, will require a dexterous touch. “You really need to show some sensitivity to the situation,” notes David Garcia, neutral at JAMS. After all, says Antonacci, “these are not times when the parties have charted their own course. The course was imposed on them by forces beyond their control. “

In Ornstil’s experience, reaching out to the humanity of the parties is important: “I found it resonating when I said,“ Yes, there was a breach of contract, ”or“ Yes, they failed to fulfill their obligations. But they have a damn good excuse. ” It is also important to be practical and pragmatic. “After all, homeowners may well need less than a dollar to generate cash flow to satisfy their own lenders,” says Farina. Fortunately, he notes, “These real estate people are quite accommodating, and many of them have a long way to go, not an immediate kickback.”

“These cases require creative solutions,” says Antonacci. This makes them particularly suited to problem-solving with ADR, which can offer a range of mutually beneficial solutions that might not be available in more traditional settings. “The jury is asked to abide by the law and to follow the instructions given by the jury to the judge,” explains Ornstil. On the contrary, “mediation allows you to design a deal, develop a payment plan, develop a new lease.”

ADR offers other benefits as well. One of them is a more timely settlement, which is especially attractive in our current environment, since many courts are delayed for several months, if not years. The other is privacy. “Usually the landlord is the one who wants privacy,” Garcia says, “because” they might not want to publicize that they forced an eviction, or create stress for other tenants. ” He continues: “But it’s the same with tenants – they need privacy for their personal protection, because publicly disclosing evictions can affect their ability to find new housing.”

Finally, ADR offers all parties the opportunity to meet in person, online, or both, depending on their preferences. JAMS has invested heavily in the technology needed for virtual and hybrid procedures, even after the pandemic has passed. Farina, for example, welcomes this transition. “The participation of people from home or office gives them a certain level of comfort and helps them feel at ease. Less stress, less anxiety, ”he notes. “And when they think that way, I think they are more likely to make better decisions.”

Virtual trials won’t be the only long-term remnant of the COVID-19 pandemic. Another reason will be the ongoing disruption in the real estate sector. “When COVID is no longer a clear and real danger, I think companies will reassess their real estate needs and how they use their real estate,” Ornstil says. “And I think it will take some time before we all digest what happened and what adjustments make sense.” Garcia agrees. “Particularly in the commercial area, I expect there will be many revised leases, with both parties striving for stability.” Garcia also predicts that landlords will choose their tenants more carefully in the coming years and that tenants will pay more attention to choosing living conditions that are within their limits.

In addition, Antonacci expects changes in property rentals, especially regarding Force Majeure… “Previously, Force Majeure reservations were afterthoughts buried at the end of contracts, if they were there at all, ”she says. However, now “attorneys are carefully studying these provisions, and I think that in the future they will become very important in contracts.” Ornstil agrees. “The fine print will become really important. Lawyers on both sides will start to get very creative with the lease terms. ”

One thing is for sure: JAMS will be dealing with these pandemic-related cases for years to come. Although she is sensitive to the difficulties faced by parties on all sides, Antonacci is encouraged by the prospect of helping them. “If you enjoy working with law and social policy, if you understand the economic conflicts that are happening here, it really tests the legal capacity and creativity of the person who works in this area,” she says. “This is a very exciting, challenging and dynamic time to work on these issues.”

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