It’s the Start of the Month—Rent Is Due or Is It?
The coronavirus pandemic, together with the government response thereto, has impacted everyone’s life. The governmental measures, while prudent, have also placed an incredible strain on nearly every business. In an effort to lessen the impact on businesses, many cities and counties have enacted rent protection measures to assist businesses with their commercial lease obligations.
Below we discuss these measures and, specifically, address the following:
(1) Recent laws enacted to protect businesses as well as older laws which may also afford protection to struggling businesses;
(2) A deep-dive look into the City of San Diego’s ‘Moratorium on Evictions’ designed to assist and protect businesses; and,
(3) How a business can (and should) provide notice in order to avail itself of these protections, along with a sample notification letter for businesses.
I. Commercial Tenant Protections, New and Old
At nearly every level of government—state, county and municipal—laws have recently been enacted to protect struggling businesses from eviction and rent payment obligations during these difficult times.
At the state level, Governor Newsom issued Executive Order N-37-20 on March 27, 2020, which halts evictions of renters who are unable to pay rent due to reasons related to COVID-19 through May 31, 2020. This executive order expands on Governor Newsom’s previous Executive Order N-28-20, which enables local governments to enact regulations limiting landlords’ ability to evict residential or commercial tenants.
At the county and city level, many local governments have enacted legislation placing moratoriums on eviction of both residential and commercial tenants. On March 25, 2020, San Diego enacted Ordinance Number O-21177, which bars evictions for nonpayment of rent by both residential and commercial tenants who are directly impacted by COVID-19. Similarly, Los Angeles has enacted similar prohibitions on evictions of residential and commercial tenants through at least April 19, 2020 (see Executive Order of Mayor Garcetti; LA Board of Supervisors Executive Order).
Local governments in Northern California have enacted similar measures. The City and County of San Francisco has prohibited commercial evictions from March 17, 2020, through at least April 16, 2020 (30 days), (see Executive Order of Mayor Breed). Other localities in the Bay Area have also placed limitations on evictions, with Oakland (Emergency Ordinance), Santa Clara County (Ordinance NS-9.287), and the City of San Mateo (Ordinance 2020-3) prohibiting both residential and commercial evictions through May 31, 2020.
It should be noted that, while many local governments in California have temporarily halted evictions, tenants’ rent obligations are not forgiven and must be repaid within the timeframe specified in the particular regulations. Moreover, all local legislation specifies specific procedures that tenants affected by COVID-19, or impacts thereof, must follow in order to avail themselves to eviction protections.
Additionally, there are laws already on the books providing relief for force majeure events, i.e., extraordinary events that could not have been reasonably anticipated. California Civil Code § 1511 expressly provides that performance under a contract is excused where, by “operation of law” or “superhuman cause,” such performance is prevented or delayed. Likewise, California Civil Code § 3526 provides that “[n]o man is responsible for that which no man can control.” Although none of the statewide or local moratoriums on evictions excuse tenants from paying rent, where, as here, “superhuman causes” like COVID-19 and governmental orders requiring people to shelter-in-place have caused commercial tenants to be unable to operate their businesses and pay rent, an argument can be made that performance under the leasing contracts (i.e., paying rent) should be excused.
II. City of San Diego Ordinance O-21177 (“TEMPORARY MORATORIUM ON EVICTIONS DUE TO NONPAYMENT OF RENT FOR RESIDENTIAL AND COMMERCIAL TENANTS”)
On March 25, 2020, the City of San Diego enacted Ordinance O-21177 which not only placed a moratorium on evictions of residential tenants for nonpayment of rent, but commercial tenants as well. Specifically, in an effort to assist businesses, the Ordinance provides:
- “No landlord shall take action to evict a tenant for not timely paying rent that was due on or after March 12, 2020, if the tenant provided written notice to the landlord, on or before the date the rent was due, that the tenant is unable to pay rent due to financial impacts related to COVID-19.”
- “‘[F]inancial impacts’ means a substantial decrease in … business income for a commercial tenant, due to business closure, loss of compensable hours of work or wages, layoffs, or substantial out-of-pocket medical expenses.”
- “A financial impact is ‘related to COVID-19’ if it is caused by the COVID-19 pandemic or any governmental response to the COVID-19 pandemic, including complying with any public health orders or recommended guidance related to COVID-19 from local, state, or federal governmental authorities.”
The Ordinance further requires that, “[w]ithin one week of providing notice under subsection (a), the tenant shall provide the landlord documentation or objectively verifiable information that the tenant is unable to pay rent due to financial impacts related to COVID-19.” Critically, “[i]f the tenant does not provide evidence of financial impacts related to COVID-19 within this time frame, the landlord may pursue any enforcement action in accordance with state and local laws.”
“If a tenant complies with the requirements of this Ordinance, a landlord shall not take any of the following actions based on the tenant’s nonpayment of rent: charge or collect any late fees for rent that is delayed for the reasons set forth in this Ordinance, serve a notice, file, or prosecute any action to obtain possession of the property rented by that tenant or otherwise endeavor to evict that tenant for nonpayment of rent.”
The Ordinance further provides that affected tenants “shall have up to six months from the date this Ordinance is effective or the withdrawal of Governor Newsom’s Executive Order N-28-20, whichever occurs soonest, to pay their landlords all unpaid rent” unless they move out sooner, in which all unpaid rent becomes due upon move out. Importantly, the Ordinance does not “relieve the tenant of liability for unpaid rent after expiration of the provisions of this Ordinance,” but simply defers the obligation for up to six months or more.
III. How a Business Can (and Should) Provide Notice in Order to Avail Itself of These Protections (Sample Letter)
How businesses can (and should) provide notice of inability to pay to their landlords will vary depending upon the location of the business, the particular ordinances and laws affecting the lease and particular leasing circumstances. Below we have provided an excerpt from a sample letter that a business operating in the City of San Diego may send:
We are currently unable to pay rent due to the financial impact of COVID-19. The COVID-19 pandemic has impacted all aspects of our business at _________________. We have experienced a substantial decrease in business income due to COVID-19, California’s shelter-in-place order and related travel bans.
This letter serves as notice under City of San Diego Emergency Ordinance No. O-21177 of our inability to pay rent at this time and assertion of protected rights thereunder. We further assert protections under Civil Code §§ 1511 and 3526 and reserve all rights thereunder. Please see attached for documentation regarding our inability to pay rent due to the financial impact of COVID-19.
(You may click on this link for a fully editable copy of the sample letter; nonetheless, we encourage you to consult with your legal counsel before sending any such notification to ensure that the notification addresses your particular circumstances.)
While not an exhaustive list, below are a few important points to keep in mind when sending such a notification:
- Timing. Rent is typically due on the first day of each month; thus, businesses should get these notifications out as soon as possible. In fact, the San Diego Ordinance requires that notice be provided on or before the date that rent is due.
- Notice. Commercial leases typically contain a provision indicating to whom notice must be provided, where notice must be provided and how it needs to be provided. While the San Diego Ordinance, for instance, appears to relax these standards (allowing for notice by email or text if tenant communicates with landlord in such fashion), it is most prudent to still abide by the notification requirements set forth in the lease.
- Entity/Entities. Be sure to list each and every tenant on the lease on whose behalf you are providing notice. For instance, if you operate several different businesses out of the same location which are all tenants under the lease, be sure to list each and every one of those businesses.
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In these unprecedented times, we are here to help both commercial landlords and tenants navigate these state and local eviction guidelines. Contact the Ponist Law Group today to set up a consultation with one of our experienced attorneys.
The information provided on this website is for informational purposes only and does not constitute legal advice. You should contact a licensed attorney to discuss any particular issue or problem. Use of and access to this website or any of the email links contained within the site does not create an attorney-client relationship.