COVID-19: Pennsylvania Business Closures Impacting Commercial Real Estate Leases | Practical Law

COVID-19: Pennsylvania Business Closures Impacting Commercial Real Estate Leases | Practical Law

In response to the COVID-19 pandemic, Pennsylvania's Governor has issued an order implementing statewide business closures, including retail closures, effective as of March 19, 2020.

COVID-19: Pennsylvania Business Closures Impacting Commercial Real Estate Leases

Practical Law Legal Update w-024-6602 (Approx. 5 pages)

COVID-19: Pennsylvania Business Closures Impacting Commercial Real Estate Leases

by Practical Law Real Estate
Published on 26 Mar 2020 • Pennsylvania
In response to the COVID-19 pandemic, Pennsylvania's Governor has issued an order implementing statewide business closures, including retail closures, effective as of March 19, 2020.
In response to the 2019 novel coronavirus disease (COVID-19) pandemic, Pennsylvania's Governor has implemented statewide business closures, including retail closures, by his order (the March 19 Order) issued on March 19, 2020. The governor also issued an attached list of life-sustaining businesses identifying which types of businesses may remain open under the March 19 Order. The March 19 Order supersedes any prior order or guidance regarding business closures.
Effective March 19, 2020, the brick-and-mortar premises of all businesses and other organizations that are not life-sustaining businesses as defined in the list attached to the March 19 Order must close to workers, customers, and the public indefinitely. The closure order does not apply to virtual or telework operations as long as they follow social distancing and other mitigation measures.
Enforcement actions became effective at 8:00 a.m. on March 23, 2020.
On March 22, 2020, the Mayor and Commissioner of Health of the City of Philadelphia issued Emergency Order No. 2 (Order No. 2). This Order provides Philadelphia-specific definitions and examples of life-sustaining businesses in coordination with the March 19 Order. Order No. 2 became effective on March 23, 2020, and is to remain in effect indefinitely.

Life-Sustaining Businesses

Life-sustaining businesses:
Life-sustaining businesses include the following categories of retail tenants:
  • Health care and social assistance, including:
    • medical facilities, including dental offices (except that all elective medical procedures are prohibited);
    • nursing and residential care facilities;
    • social assistance services; and
    • certain child day care providers assisting employees of life-sustaining businesses subject to a stay-at-home order.
  • Certain professional and business services, including:
    • legal services (but only as permitted under the Pennsylvania Supreme Court's order of March 18, 2020, or similar federal court directive);
    • accounting, tax preparation, bookkeeping, and payroll services;
    • scientific research and development services;
    • veterinary services;
    • translation/interpreter services;
    • waste management and remediation services; and
    • services to buildings and dwellings, including janitorial, pest control, and landscaping services.
  • Retail trade, including:
    • automotive parts, accessories, and tire stores;
    • building material and supplies dealers;
    • grocery stores;
    • specialty food stores;
    • beer distributors;
    • pharmacies;
    • gas stations;
    • dry cleaning and laundry services;
    • general merchandise stores (except for department stores);
    • pet supply stores; and
    • electronic shopping and mail-order houses.
  • Transportation and warehousing, including:
    • airports, rail, and ground passenger transportation (except for charter buses);
    • postal service;
    • couriers;
    • local messengers and local delivery; and
    • warehousing and storage.
  • Financial services, including:
    • banks and credit unions with drive-through, ATM, and limited lobby services;
    • insurance companies; and
    • insurance agencies and brokerages (except for in-person sales or services).
  • Rental and leasing services, including:
    • automotive equipment rental and leasing;
    • consumer goods rental;
    • general rental centers; and
    • commercial and industrial machinery and equipment rental and leasing.
For the complete list of life-sustaining businesses, see the list attached to the March 19 Order. The governor has updated the list on March 20, March 21, and March 24, 2020, and may issue further updated versions of this list on an ongoing basis.

Restaurants and Bars

The March 19 Order makes separate provisions for businesses offering carry-out, delivery, and drive-through food and beverage service, including restaurants and bars. These businesses:
  • May operate during their normal business hours.
  • May only offer carry-out, delivery, and drive-through food and beverage service.
  • Must follow social distancing and other mitigation measures to protect workers and patrons.
Enforcement actions became effective against:
  • Establishments with a liquor license at 8.00 p.m. on March 18, 2020.
  • All other food establishments at 8:00 p.m. on March 19, 2020.

Retail Businesses That Must Close

Specific categories of retail businesses that must close include:
  • Vehicle dealers.
  • Furniture and home furnishings stores.
  • Lawn and garden equipment and supplies stores.
  • Beer, wine, and liquor stores (except for beer distributors).
  • Clothing and clothing accessories stores (except for sales of uniforms, accessories, and supplies for public safety and health care professionals).
  • Sporting goods, hobby, book, and music stores (except for restricted in-person sales by firearms dealers).
  • Department stores.
  • Florists.
  • Office supplies, stationary, and gift stores.
  • Used merchandise stores.
  • Stores offering personal care services, including barber shops, beauty salons, and fitness centers.
Businesses that are required to close under the March 19 Order may continue operations through remote means where possible.

Practical Implications

The evolving COVID-19 pandemic and the mandated closures or reductions of operations for businesses and stores are creating uncertainty for commercial landlords and tenants. Parties should consult with counsel to evaluate possible risks and liabilities, under both their lease agreements and applicable state law, and should proactively negotiate to:
  • Adjust the terms of the lease, either:
    • for the duration of the COVID-19 pandemic; or
    • permanently.
  • Avoid future lease disputes.
  • Mitigate damages.
To assist with future negotiations or dispute resolution, tenants should carefully document:
  • The dates when governmental orders become effective against the tenant.
  • All impacts of regulations and orders on the tenant's business at the premises.
  • All expenses that they are incurring in responding to the COVID-19 pandemic.
  • All efforts by the tenant:
    • to perform under the lease; and
    • to mitigate losses.
For a collection of resources related to global coronavirus, COVID-19, pandemics, and business interruption content, see Global Coronavirus Toolkit.