Surviving COVID-19: Tools for Struggling Airport Tenants

June 11, 2020

Since the early days of the COVID-19 pandemic, our office has been inundated with questions about what airport-based businesses can do to aid in their long-term survival.  Many airport tenants have applied for and received funds and benefits through the various programs available under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), including the Payroll Protection Program (“PPP”) and the Air Carrier Payroll Support Grant (“ACPSG”).  Both of those programs, however, preclude the recipient from engaging in work force reduction and payroll reduction measures.  With general aviation operations down by 70% and airline passengers down by 90-95%, even with the support of the CARES Act programs, many airport tenants are still struggling to maintain their businesses and looking for other ways to reduce costs and overhead.

Accordingly, many airport tenants are asking for advice and assistance regarding whether they can renegotiate the terms of their existing lease.  Airport tenants in these circumstances should ask their landlords for rent concessions.  To borrow the old adages, “it never hurts to ask” and “you never know unless you try.”  Airport tenants can approach their landlords and seek modification to the terms of their existing lease. Being armed with knowledge and information as you approach your landlord to seek a concession will enhance the likelihood of success. 

First, familiarize yourself with your lease.  What is your remaining term?  Are there remaining options?  Are there provisions for termination? What are the requirements for amending/modifying your lease? Does your lease have a force majeure clause that is implicated?  A force majeure clause is a clause in a contract that excuses or suspends a party’s obligation to perform under the contract if a major event beyond a party’s control renders them unable to perform.  If your lease does not have a force majeure clause, can you avail yourself of common law remedies to excuse or suspend your obligations under the lease?

Second, engage in your own business planning.  Develop a proposal for lease concessions that would allow your business to continue.  Prepare arguments as to whether a force majeure clause is implicated and any common law remedies you may have.  You should also be prepared to state any negative impacts that the loss of your business would have on the airport and local community. 

Third, determine whether your landlord is an Airport Sponsor at a federally obligated airport.  Airport Sponsor is defined by the Federal Aviation Administration (“FAA”) in the Airport Compliance Manual as “[a] public agency or tax-supported organization such as an airport authority, that is authorized to own and operate the airport, to obtain property interests, to obtain funds, and to be able to meet all applicable requirements of current laws and regulations both legally and financially.”  If an Airport Sponsor has received grant monies through the Airport Improvement Program (“AIP”) in the last 20 years, the airport is a federally obligated airport.  An airport may also be federally obligated if it was acquired by the Airport Sponsor pursuant to the Federal Surplus Property Act. 

If your landlord is an Airport Sponsor at a federally obligated airport it is required to adhere to the Federal Grant Assurances.  Included within the Federal Grant Assurances are obligations for the Airport Sponsor to operate and maintain the airport under fair and reasonable terms that are not discriminatory.  Additionally, Airport Sponsors are expressly precluded from providing exclusive rights.  The Airport Sponsor’s obligations pursuant to the Federal Grant Assurances may give you leverage in your discussions relating to lease concessions. 

On April 4, 2020 the FAA issued guidance to Airport Sponsors (”Guidance”) instructing that whether to provide rent abatements to tenants was a local decision and a decision to provide a rent abatement to airport tenants should be: (1) tied to changed circumstances caused by the public health emergency; and (2) must comply with Grant Assurances 22 and 24.  Grant Assurance 22 precludes the Airport Sponsor from economic discrimination.  Grant Assurance 24 obligates the Airport Sponsor to “maintain a fee and rental structure for the facilities and services at the airport which will make the airport as self-sustaining as possible under the circumstances existing at the particular airport, taking into account such factors as the volume of traffic and economy of collection.” 

The Guidance specifically provides that granting a rent abatement to tenants is not barred by the Federal Grant Assurances.  The Guidance further encourages Airport Sponsors to consider: (1) the business situation of the tenant; (2) the changed circumstances created by COVID-19; (3) the desirability of having solvent tenants that can resume normal operations once the pandemic passes; (4) availability of other relief (including governmental or insurance relief) that may be received by the tenant; (5) appropriate terms for the relief; and (6) terms that would end the period of abatement. 

The Guidance acknowledges that an airport may be restricted from offering rent abatements for a number of reasons, including a preclusion of offering rent abatements under a bond restriction.  In such circumstances, the FAA suggests considering whether deferral of rents or fees may be possible. 

Fourth, you should determine whether the Airport Sponsor has provided any lease concessions to other airport tenants.  If your Airport Sponsor has provided rent concessions to other tenants in similar circumstances, it should be open to entertaining a comparable request from you.  If an Airport Sponsor provides one tenant with a concession but fails to provide another similarly situated tenant with a comparable concession, it may create a scenario where the Airport Sponsor has violated its obligations under the Federal Grant Assurances.  In particular, such conduct may be tantamount to economic discrimination and/or providing an exclusive right in violation of Grant Assurance 22 (Economic Non-Discrimination) and 23 (Exclusive Rights).  

If you are unaware of whether your Airport Sponsor has made concessions to another similarly situated tenant, you could seek out this information by making a public records request to the Airport Sponsor pursuant to your state’s freedom of information statute. 

Lastly, determine whether the airport has received funds under the CARES Act.  Under the CARES Act, $10 Billion is being set aside for airports.  The $10 Billion is being distributed to airports across the country in the following ways: (1) $500 Million is being set aside to increase the federal share of AIP Grants in 2020; (2) at least $7.4 Billion will go to commercial service airports; (3) up to $2 Billion is available for small, medium and large hub airports; and (4) $100 Million is available for general aviation airports.  You can determine if your airport received funds under the CARES Act by referring to the list available at FAA.gov. If your landlord has received CARES Act funding, it may be more receptive to providing you with the concessions you are seeking. 

To recap, before you approach your landlord, you should be prepared with knowledge of: (1) your lease terms; (2) your own business plan; (3) whether the airport is federally obligated; (4) whether other tenants have been afforded lease concessions; and (5) whether the airport has received CARES Act funds.  Once you have done your research, set up a meeting with your Airport Sponsor or Manager and present your proposal for lease concessions that will allow your business to survive COVID-19 and the corresponding economic downturn.  With appropriate preparation, you should be able to make a compelling argument as to why the Airport Sponsor should consider granting you the lease concessions you are seeking. 

If the Airport Sponsor and/or Airport Manager are unwilling to provide you with any lease concessions despite a compelling argument, consider whether such is a violation of the Airport Sponsor’s obligations and if so, whether you should consider making your claim to the FAA in the form of a Part 13 Informal Complaint or a Part 16 Formal Complaint. 

Paul M. Grocki, Esq., who regularly handles contract negotiations, and Amber M. Monck, Paralegal, who regularly assists in the Firm’s handling of airport matters, contributed to this article.

Alison L. Squiccimarro is an attorney with the Law Offices of Paul A. Lange, LLC with offices in New York and Connecticut. Alison’s nationwide practice focuses on aviation related commercial litigation with an emphasis on FAA and DOT Regulatory Issues, Airports, Insurance Coverage and Employment matters.