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Commercial and residential tenants, whether due to operational closures or loss of jobs or income, will face difficulties meeting their rent obligations, and some may even abandon their properties. Landlords may face both a loss of rents, as well as physical closures or abandonment of properties making sites more vulnerable to vandalism or theft. We provide this brief overview regarding how each party’s rights and obligations may be impacted by the COVID-19 crisis.
Regulations have recently been enacted in New York, Boston, Los Angeles, San Francisco and St. Louis banning evictions for nonpayment of rent, often in both the residential and commercial settings. Some states, such as California and New York have also instituted statewide eviction moratoriums. Federal agencies, such as U.S. Department of Housing and Urban Development, have also announced that they are suspending evictions and foreclosures until April 30, 2020, with the CARES Act placing a 120-day eviction moratorium on tenants in special housing assistance (Section 8) or federally backed mortgage loan programs. While these provisions prevent evictions, they do not address the tenants’ ongoing rent payment obligations.
Lease Provisions and the Impact on Rent
Unless they are on a month-to-month tenancy, the parties’ rights and obligations are evaluated under their leases. The most likely lease provisions relating to potential efforts to avoid rent payments include:
Withholding Rent/Rent Strikes
While evictions might be halted, tenant groups are seeking the additional right to not just delay rent payments, but to also negate rent obligations during the COVID-19 crisis. Finding a legal justification for the failure to pay rent may be difficult.
For month-to-month residential renters, as long as the premises remains “habitable,” rent can almost always be compelled in the absence of an overriding statute or regulation. Because personal homes should remain “habitable,” absent very odd circumstances, residential renters should seemingly owe their rent. Many jurisdictions do not apply the “habitability concept” to commercial properties. In commercial and residential lease agreements, while there may be provisions allowing for “rent holidays,” such provisions often remain “landlord friendly” as well. Consequently, there may be few (if any) instances where a commercial tenant can also legally avoid a rent payment obligation, even if their business has been shut down (unless the force majeure or civil authority provisions apply).
Yet, threatened “rent strikes” and general intent to not pay rent, particularly in cases where evictions are not presently permitted and money may be needed for other necessities, are likely to occur. To avoid the loss of funds, without any benefit or potential chance of later recoupment due to possible bankruptcies or lack of collection opportunities, landlords may wish to consider lease alterations. A renegotiated lease (extended period/modified terms), or an interim lease credit, may generate opportunities to work with a tenant to find the most satisfactory outcome in an adverse economic climate. Such an approach, with a jointly signed writing, can also avoid later issues of “waiver’ or “estoppel” in seeking to enforce lease terms. Involving both “business” and “legal” considerations, finding a path to try and continue a positive income stream for landlords, and a workable payment plan for tenants, might be in the best interests of all concerned.
Breakdown of COVID-19 Rules on Housing Across the Nation
A breakdown of COVID-19 rules on housing across the country can be accessed here.
If you have any questions or would like more information, the National Contract and Risk Management Team at Freeman Mathis & Gary, LLP is here to help. Most circumstances are case and state-specific. To learn more, or if you have specific questions regarding your situation, please contact A. Ali Sabzevari at firstname.lastname@example.org, Michael P. Bruyere at email@example.com, or Ryan J. Greenspan at firstname.lastname@example.org.
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