Frustration of purpose/impossibility of performance lease clauses

If you’re a commercial landlord, these last few months have probably been challenging. Not only are many of your tenants unable to make their lease payments, but some may no longer see a reason to renew. Meanwhile, your expenses haven’t gone down.

There may not be much you can do about the market, but a frustration of purpose/impossibility of performance clause could help you compete. This isn’t a clause that says your tenants have no choice but to pay in a pandemic. That is already the underlying assumption of your lease.

The clause we’re talking about is one that gives your tenants a bit of a break if another emergency comes along that shuts down the regular operation of the markets.

Let’s face it. If a pandemic or other economic emergency shuts down your tenants, they won’t be able to pay you. Rent is usually one of a retail or commercial tenant’s biggest expenses. Your goal with this type of clause is to offer a bit of wiggle room during emergency situations.

For example, you could agree that, during a pandemic or similar emergency, you would cut back the rent by a certain percentage to make it easier for your tenant to pay. That could allow you at least some income during down times.

Another option might be to offer a deferment of rent for a period of time while your tenant is unable to operate. You may find that this is the practical reality, anyway. As you attempt to collect from your tenants, you may find that the debts are, at least temporarily, uncollectible. You can generally evict non-paying tenants, but with no competing tenants in the marketplace, you may simply be opening up unrentable space.

A frustration of purpose/impossibility of performance clause could make your lease more competitive

If you worry that your space will be empty and competing against many other empty spaces, you may be able to sweeten the pot by offering a break if a pandemic or other economic emergency arises. Signal your willingness to work with tenants who are stuck. It’s likely that commercial tenants will have these concerns on their mind for the foreseeable future. You may be able to succeed by offering to be reasonable.