In response to the growing COVID-19 crisis, an increasing number of state and local governments will be issuing Executive Orders that mandate the closure of private businesses and require citizens to "stay home" or "shelter in place." Several jurisdictions, including San Francisco, Los Angeles, and New York, are trying to mitigate the downstream economic impact of such Orders by limiting or banning commercial evictions during the pendency of the COVID-19 epidemic. These measures are of critical importance for owners and renters of commercial property, as they significantly alter the rights and available remedies in commercial lease disputes.
San Francisco Establishes Eviction Controls for Certain Commercial Tenants for up to Six Months
On March 18, 2020, Mayor London Breed of San Francisco issued an order that requires landlords to negotiate with commercial tenants suffering financial impacts1 related to COVID-192, if the tenant is registered to do business in San Francisco and has combined worldwide gross receipts for tax year 2019 of $25 million or less.3 The Order is applicable for the shorter of thirty days until April 17, 2020, until the Proclamation of Local Emergency is terminated, or until the Mayor issues a further order.
For rent payments due on or after March 17, 2020, the landlord must provide written notice specifying a cure period of at least one month. During the cure period(s) the landlord and tenant are to hold good faith discussions and attempt to develop a payment plan for the missed rent.
Upon receipt of the landlord's written notice, the tenant's obligation to pay is automatically extended to the end of the cure period, at which time the tenant must either pay the rent due or provide documentation of a financial impact related to COVID-19. If the tenant provides documentation of a financial impact related to COVID-19, the cure period is automatically extended for an additional month, at the end of which the tenant must either pay in full or provide documentation of a continuing financial impact related to COVID-19.
Although the cure period can be automatically extended, the city-mandated forbearance does not last forever: "under no circumstances shall the landlord be prohibited from evicting for non-payment for more than six months after the date the rent was originally due." Additionally, a landlord is explicitly not prohibited from recovering rent through non-eviction means, and could choose to pursue guarantees and letters of credit, if available under a lease.
Los Angeles Establishes Eviction Controls for All Commercial Tenants
On March 17, 2020, Mayor Eric Garcetti of Los Angeles ordered a moratorium on commercial evictions through March 31, 2020, unless extended.4 Under this moratorium, "[n]o landlord shall evict a commercial tenant in the City of Los Angeles during this local emergency period of the tenant is able to show an inability to pay rent due to circumstances related to the COVID-19 pandemic. These circumstances include loss of business income due to a COVID-19 related workplace closure, child care expenditures due to school closures, health care expenses related to being ill with COVID-19 or caring for a member of the tenant's household who is ill with COVID-19, or reasonable expenditures that stem from government-ordered emergency measures." Eligible tenants will have up to three months following the expiration of the order to repay back due rent.
New York State Establishes a State-Wide Ban on Enforcement of Commercial Evictions
On March 20, 2020, Governor Andrew Cuomo of New York issued an order providing that there "shall be no enforcement of either an eviction of any tenant residential or commercial, or a foreclosure of any residential or commercial property for a period of ninety days."5 This followed the March 16, 2020 guidance from the Chief Administrative Judge of the State of New York unified Court System suspending all eviction proceedings and pending eviction orders until further notice. On March 22, 2020, the Chief Administrative Judge ordered that no paper or electronic filings will be accepted for filing except in essential matters. The orders to date do not temporarily suspend rent payment obligations.
The commercial eviction bans in San Francisco, Los Angeles, and New York State will likely serve as the model for other jurisdictions looking to reduce the economic impacts of COVID-19. Mintz will continue to track emerging trends as governmental entities seek to control and mitigate the effects of the pandemic.
1 "Financial impact" is defined as "a substantial decrease in business income due to illness or other disruption, reduced open hours or reduced consumer demand, or temporary closure of the business, including temporary closure required to comply with restrictions or in response to restrictions under the shelter in place or other orders of the Health Officer."
2 "Related to COVID-19" is define as "caused by the COVID-19 pandemic, or by any local, state, or federal government response to COVID-19."
4 Release regarding the Moratorium on Commercial Evictions. The executed Order was not available at time of publication.
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