Smith Anderson (North Carolina): Impact of COVID-19 on Real Estate, Construction and Supply Contracts

As coronavirus (COVID-19) continues to disrupt lives and businesses, it is important to consider how it may affect your real estate, construction, and supply businesses. Every situation and contract will be different, so it is important to consider your exposure and know how to respond.

It Could Happen to You . . .

The duration and extent to which COVID-19 will affect the real estate and construction sectors is unclear, but it will have an impact.

  • Project owners may suspend or try to terminate construction contracts due to funding or other concerns.
  • Construction projects may experience labor and material shortages, crews may be restricted in onsite activities or barred from entering a site, or there may be payment disruptions.
  • Tenant upfits may be delayed, disrupting access to new office space and causing problems exiting prior rental space. Tenants may be late with rent, or percentage rental income may drop due to decreased economic activity. Tenants may seek to exercise break clauses due to being denied access to rental space.
  • Suppliers may experience supply chain disruptions, material shortages or shipping restrictions affecting their ability to fill orders, particularly those originating in overseas markets.
  • Owner-developers may be delayed in delivering projects, impacting access to rental space.
  • Lenders may become slower to approve new loans or draws on existing lines of credit, restrict access to such funds or seek further security before extending credit.
  • Government owners may experience slow-downs in project letting, or order project suspensions as agencies redirect attention and resources elsewhere or experience operational disruptions.
  • Municipalities may cease all in-person activities and reduce meetings related to plan review and approval proceedings or limit onsite inspections.

While these are just a few examples of how COVID-19 may impact the development and construction process, it is important to review your contracts in order to be prepared for whatever may arise. Before taking action under an existing contract or entering into a new one, it is imperative that you know your rights and remedies, and those of the other contracting parties.

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