The COVID-19 pandemic and related stay-at-home orders have resulted unprecedented economic upheaval and distress. No one knows what will happen in the coming weeks and months. This uncertainty is leading businesses of all sizes, but especially smaller businesses, to conserve cash resulting in missed rent or other scheduled payments. Landlords and lenders understandably will want to take action. But, what will they do? Evict tenants or foreclose on loans? Not only are many courts and governmental agencies functioning at extremely reduced capacities, but eviction or foreclose under the current circumstances may not benefit the landlord or lender in any appreciable way. The same applies to other contracts, such as service or supply contracts.
Given the uncertainty, rather than thinking about pursuing claims, the parties to a lease, loan or other contract may want to just hit the “pause button” and give themselves some time to communicate and to make adjustments to the contractual relationship. A standstill agreement, also known as a standstill and tolling agreement, can be that “pause button.”
Among other things, a standstill agreement will describe the contractual relationship between the parties, the current status of that relationship (such as the obligations the parties are not fulfilling), the duration of the standstill and what actions the parties will, or will not take, during the standstill period. A standstill agreement, generally, seeks to maintain the status quo and preserve the rights of each party. For example, a standstill agreement for a lease may described the lease, tenant’s failure to pay rent, tenant’s agreement to pay reduced rent, and landlord’s agreement to not call a default, seek eviction or other legal remedies. Often, standstill agreements obligate each party to use good faith efforts to resolve the ongoing issues.
Given the current economic and societal upheaval and uncertainty, landlord and tenants, borrowers and lenders and other contractual counterparties, rather than pursing claims, may prefer to just hit the “pause button” by entering into a standstill agreement. A standstill agreement can give the parties time to adjust their relationship while preserving their respective rights in the event they are unable to reach a more permanent agreement resolution.
