Ever since Governor Newsom issued his State of Emergency Executive Order on March 4, 2020, there has been almost nonstop Executive Orders from the Governor and local government regarding COVID 19 relief. One of the major issues has been the curtailment of Unlawful Retainer cases and the ability of tenants to delay paying their rent if they have been impacted by COVID 19. However, these restrictions covered not only residential leases, but also covered commercial leases. These actions have significantly impacted both commercial landlords and tenants. Our focus in this article is specifically on commercial leases.
First a little history. After the Governor’s State of Emergency Order, he issued Executive Order N-28-20 on March 16 regarding several issues. In item 2 of this Executive Order, local government was authorized to exercise its police power to impose substantive limitations on commercial evictions. This authorization was limited to the following:
“i) The basis for the eviction is nonpayment of rent, or a foreclosure, arising out of a substantial decrease in household or business income(including, but not limited to, a substantial decrease in household income caused by layoffs or a reduction in the number of compensable hours at work, or a substantial decrease in business income cause by a reduction in opening hours or consumer demand or substantial out-of-pocket medical expenses.
(ii) The decrease in household or business income or the out-of-pocket medical expenses described in subparagraph (i) was caused by the COVID-19 pandemic, or by any local, state or federal government response to COVID-19, and is documented.”
This Order also suspended judicial foreclosures and unlawful detainers to evict commercial tenants if a local government has imposed a limitation on evictions. Finally, the Order stated it did not relieve a tenant of its obligation to pay rent, nor restrict a landlord’s ability to recover rent due. This provision of the Order was to be in effect through May 31, 2020. The deadline was extended on May 29, 2020 for an additional 60 Days in Executive Order N-66-20 (Paragraph 21). On June 30, 2020 in Executive Order N-71=20 (Paragraph 2), the Governor further extended the deadline to September 30, 2020. Finally, in Executive Order N-80-20 the Governor extended these provisions as they pertained to commercial evictions to March 31, 2021.
The result of these Executive Orders by Governor Newsom is that most local governments have enacted emergency ordinances delaying, or deferring, the rent payments of commercial tenants and placing moratoriums on evictions. A good source of detailed information is found from the State Department of Real Estate and can be found at landlordtenant.dre.ca.gov.
Locally, the City of Los Angeles enacted Ordinance No. 186585 on March 27 and amended it with Ordinance No. 186606 on May 6. This Ordinance has been consistently extended as the City’s Emergency Declaration has been extended. It is currently in effect through the end of October, and the Governor’s extension of his Executive Order to March 31, 2021 is the best indication that this, and all local ordinances, will continue to be extended at least until next year. The key provisions of this Ordinance regarding commercial property are:
“SEC. 49.99.1. DEFINITIONS.
A. Commercial Real Property. “Commercial real property” is any parcel of real property that is developed and used in part or in whole for commercial purposes. This does not include commercial real property leased by a multi-national company, a public traded company, or a company that employees more than 500 employees.
SEC. 49.99.3. PROHIBITION ON COMMERICAL EVICTIONS.
During the Local Emergency Period and for three months thereafter, no Owner shall endeavor to evict or evict a tenant of Commercial Real Property for non-payment of rent during the Local Emergency Period if the tenant is unable 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 or family who is ill with COVID-19, or reasonable expenditures that stem from government-ordered emergency measures. Tenants shall have up to three months following the expiration of the Local Emergency Period to repay any rent deferred during the Local Emergency Period. Nothing in this article eliminates any obligation to pay lawfully charged rent. No Owner shall charge interest or a late fee on rent not paid under the provisions of this article”
Los Angeles County also enacted a moratorium on commercial lease payments and evictions in Executive Order by the Board Chair on March 19, 2020 and a Resolution by the full Board of Supervisors on March 31, 2020. Its initial term was until May 31, 2020 and has also been consistently extended along with LA County’s Emergency Declaration. While the City of Santa Clarita initially had its own commercial eviction moratorium, in September it did not extend its ordinance and the City’s residents are now covered by the Los Angeles County Ordinance. The key provisions of the LA County ordinance are:
-Tenants with 9 or less employees can self-certify that they can’t pay rent due to COVID 19. Tenants with 10-99 employees must provide written documentation to their landlord stating how they have been impacted and can’t pay rent. Multi-national companies, publicly traded companies and those with more than 100 employees are not protected by this moratorium.
-The repayment period is 12 months for tenants with 9 or less employees and 6 months for tenants with 10-99 employees.
-Encourage landlords and tenants to agree on a payment plan that would allow landlords to accept partial rent payments during the Moratorium if tenants are able to make such payments.
-Landlords are not allowed to harass or intimidate tenants that exercise their rights under the moratorium.
Complete details on Los Angeles County’s rules can be found at dcba.lacounty.gov/noevictions.
As you can see the local ordinances are different and Commercial tenants and landlords should study carefully the local ordinances where they are located. In addition, they should expect that these restrictions will continue for an extensive period and that is why both need to be prepared. The restriction on filing Unlawful Detainers has been lifted by the courts and landlords can now proceed if they are not in violation of any of these ordinances. In addition, there are new rules for UD filings in local courts such as LA Superior Court which landlords must follow.
We have been advising clients, whether landlords or tenants, since these moratoriums were first enacted to keep good communication between themselves and to work on early solutions. None of these moratoriums relieve any tenant from ultimately having to pay past due rent and it is in their interest to negotiate relief now through amendments to their written leases. Likewise, a landlord should consider reaching agreements with their tenants to adjust rent payments and potentially extend leases. These efforts will bring certainty to the parties especially with the uncertainty of how the courts will consider Unlawful Detainer Actions going forward. The courts are still delayed in handling all matters and may have enhanced sympathy for tenants.
Finally, it should be noted that these moratoriums are for non-payment of rent and does not apply to any other breaches of commercial leases. We are available to work with both landlords and tenants to discuss how to work through these issues.
Hunt C. Braly