One of the struggles in dealing with the realities of and the responses to the COVID-19 pandemic is finding an appropriate balance between acting in a self-serving manner and doing what is right for the community. Even in the best of times, no two entities are more intrinsically aligned than the landlord and tenant. Although each has their own separate interests and individual interactions may become adversarial, both need each other and often find their fortunes tied together. The following six financial issues are critically important as landlords and tenants work their way through these unprecedented times.
Government actions superseding normal business interactions
In times of emergency, governments have plenary power to act to minimize threats, contain losses and reduce suffering. As has occurred in several other states, the governor of California created an executive order halting evictions for renters through May 31, 2020. One point of emphasis is that the rent owed still must be paid.
Difference between commercial and residential lending
This statewide edict in California applies only to residential tenants, although some local municipalities have extended the moratorium to include commercial tenants, as well. However, as a practical matter, California’s state-wide rules of court were recently modified to preclude all unlawful detainer lawsuits, residential and commercial, until 90 days after the governor declares the COVID-19 related state of emergency to be over.
The landlord, in addition to the tenant, needs some form of relief
If relief is provided the tenant in some form of rent abatement, what, then, is the landlord’s remedy when mortgage payments come due? Those landlords with residential loans may qualify for mortgage relief but not those with non-residential, commercial-only loans.
Express terms of the lease regarding such events
Many leases contain provisions regarding unforeseen occurrences that prevent one party from complying with its obligations. Seminal issues are the specific events identified in the lease and the type of relief contemplated. For example, a lease likely does not refer to a “pandemic” but may specify a “public health emergency” or other similar language. In most instances, commercial leases will not forgive past due rent but may offer some period of rent abatement.
Even if a commercial landlord has sufficient legal grounds to pursue an eviction, there may be strategic considerations in not choosing that remedy. A commercial landlord/tenant issue will be delayed, and this is far from an optimal time to be seeking to secure a new tenant. It may prove more advantageous to try and work with the existing tenant.
COVID-19 has created an environment where landlords and tenants may fare better if they work in conjunction. It can pay dividends for a landlord to contact the tenants to understand their individual situations and expectations and perhaps craft a mutually beneficial solution that will allow all parties to weather this storm with as little harm as possible.
Primior’s professionalism and expertise can be of great value in assisting you through these difficult days. Contact us today; we’re here to help.