COVID-19: Eviction and Foreclosure Moratoria and Business Regulations
California Order to Minimize Housing Security and Business Continuity Impacts
In response to growing economic concerns during the COVID-19 pandemic, California Gov. Gavin Newsom issued an Executive Order that temporarily expands protections against residential eviction and reduces limits on local governments’ ability to impose their own “substantive limitations on residential or commercial evictions” through May 31. The Order, issued last week, also encourages the development of financial assistance.
The rising unemployment rates, loss of income and business closures make it difficult for individuals and businesses to continue paying rents, mortgages and utility bills. The Order attempts to curb foreclosures and evictions during this period to decrease already rising homelessness rates and promote housing security and business continuity.
Reduced Limits on City Protections Against Evictions
Under the Order, “[a]ny provision of state law that would preempt or otherwise restrict a local government’s exercise of its police power to impose substantial limitations on residential or commercial evictions … is … suspended to the extent that it would preempt or restrict” the local government’s regulation, as long as the eviction is due to a failure to pay rent because of lost income caused by the COVID-19 pandemic. Every “statutory cause of action that could be used to evict or otherwise eject a residential or commercial tenant or occupant … is suspended … to the extent of [any] limitation imposed by … local government.”
In short, the Governor has cleared the statutory way for cities to impose more limits on both residential and commercial evictions under their police power, and removed any uncertainty about preemption in this complex area of the law. Rent is still owed to the landlord during this period and can eventually be recovered after this period under the lease. The Order states, “[n]othing in this Order shall relieve a tenant of the obligation to pay rent, nor restrict a landlord’s ability to recover rent due.”
Moratorium on Foreclosures and Evictions by Financial Institutions
Newsom requests that financial institutions place a moratorium on foreclosures and evictions of home or commercial mortgages that result from a “substantial decrease in household or business income, or substantial out-of-pocket medical expenses… caused by the COVID-19 pandemic.”
Regulation of Certain Businesses
Last week, some counties issued shelter in place orders and others simply placed restrictions on large gatherings. Newsom issued Executive Order N-33-20, which went into effect midnight Thursday, requiring people to remain at their residences “except as needed to maintain continuity of operations of the federal critical infrastructure sectors.”
Next Steps
The Order regarding foreclosures and evictions attempts to give commercial businesses and individuals a brief respite from COVID-19’s economic impacts.
During the coming months, challenges will arise for landlords caught between loan requirements and payments if tenants are unable to pay due to the economic impacts of mandated business closures. Landlords must tread carefully before taking any prohibited action described by this Order.
Landlords are advised to maintain open dialogues with their tenants regarding the tenants’ current economic situation. Possible solutions to tenant financial distress include rent deferral, amortization of deferred rent over the remaining term, extending the lease term and rent abatement. Tenant businesses may want to also request waiver of any go dark, abandonment and late fee provisions during any time of government-mandated closures or reduced service period. Mutual understanding on these issues will go far toward maintaining amicable business relationships. All understandings discussed orally should be captured in a follow-up email or other writing or formal amendment to ensure record of agreements between parties. If needed, refer tenants to resources available under the Small Business Administration disaster relief loan funds, which may also be available to landlords as well. In addition, some communities have set up loan funds for local constituents for financial assistance. In anticipation of delays in tenant payments, landlords with existing banking relationships may wish to reach out to their lenders. Finally, landlords are advised to seek legal counsel before beginning any eviction actions that might run afoul of this Executive Order.
This is an area where legal issues are developing quickly and directives are being issued almost daily from federal, state and county government. Best Best & Krieger LLP is tracking developments in real time and will provide updates continually. For further information about evictions and business closure measures, contact the authors of this Legal Alert in the Business practice group listed at right, or your BB&K attorney.
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Disclaimer: BB&K Legal Alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.
