Client Alert

            Update on California City and County Moratoriums on Commercial Tenant Evictions

In a client alert circulated last week, we highlighted the moratoriums on commercial tenant evictions announced by the cities of San Francisco and Los Angeles in response to the COVID-19 coronavirus (“COVID-19”), and promised updates regarding further moratoriums on commercial evictions imposed by California local governments.  Since last Wednesday, numerous cities and counties in California have followed the lead of San Francisco and Los Angeles and issued their own moratoriums on commercial evictions.  Our firm has been following ordinances as they are issued, and consolidated information regarding those ordinances in a tracking chart that can be found on our firm’s COVID-19 Additional Resources website page.  Please check the tracking chart (which we intend to update periodically) for ordinances affecting various jurisdiction(s). 

This article is not intended to summarize each individual local government ordinance issued to date, but instead attempts to explain the general trends we are seeing and what impact they may have on landlord and tenant rights and obligations.  We encourage landlords and tenants to review their jurisdiction’s ordinances to determine where such ordinances fall within the trends discussed below.

Are All Commercial Evictions Prohibited?

The ordinances that we have reviewed to date do not place moratoriums on all eviction actions against commercial tenants.  They only limit commercial eviction actions for the non-payment of rent (often with additional conditions), including, most frequently, based on a demonstrated showing by the tenant of an inability to pay rent caused by the COVID-19 pandemic or local, state, or federal government responses to the pandemic.  In some cases, the local ordinances also restrict a landlord’s ability to pursue no-fault evictions (e.g., when a tenant’s lease expires and they are holding over in the premises).

Except for the limitations described in the paragraph above, it appears that landlords retain eviction rights for other breaches of the lease, e.g., tenant committing nuisance or waste in violation of the lease.

Further, some ordinances limit eviction moratorium protections to small and mid-sized businesses.  For instance, the City of San Francisco limits protections to businesses with less than $25 million in annual gross receipts.  The draft City of Emeryville ordinance contains a similar gross receipt threshold concept, but the threshold amount remains to be determined. 

Does a Tenant Remain Obligated to Pay Rent, Late Charges, and Late Fees?

The ordinances do not relieve a tenant, who may be otherwise prohibited from being evicted, of its obligation to pay rent.  In fact, many ordinances expressly provide that the tenant is not excused from paying rent.  The ordinances generally further provide that landlords may seek back rent after the local emergency is lifted or after some period of time thereafter (e.g., 3 or 6 months after the local emergency is lifted).

While the ordinances are uniform in providing that rent remains payable by a tenant, the ordinances are uneven in their treatment of that tenant’s obligation to pay late charges and fees.  Roughly half the ordinances are silent on the issues of late charges and fees, and it is unclear whether such charges may be assessed.  The others expressly provide that a landlord may not charge or collect late fees or charges for rent that is delayed for an eviction-protected tenant.  Presumably delayed rent can begin to accrue late charges and fees when a landlord is able pursue eviction remedies after the local emergency is lifted.

What Other Rights and Remedies Does a Landlord Retain?

As of the writing of this article, we have not seen an ordinance that expressly prohibits a landlord from exercising non-eviction remedies against an eviction-protected tenant (e.g., applying security deposits; drawing down on letters of credit; or making claims against guarantors) and at this point it is unclear if such remedies are also prohibited.  That said, any pursuit of those non-eviction remedies would remain subject to the terms and conditions of the lease.  There are other practical concerns a landlord also must consider in determining whether to exercise non-eviction remedies against an eviction-protected tenant.  For instance, whether landlord will have near-term access to courts in order to enforce remedies, many of which have temporarily paused unlawful detainer actions; whether landlord wants to risk straining the future business relationship with that tenant; and public and marketplace perceptions.  Any landlord considering exercising any non-eviction remedies should proceed cautiously and consider consulting with its counsel.

When do the Commercial Eviction Moratoriums Expire? 

Most of the ordinances provide for expiration dates that fall into one of the following categories: (a) May 31, 2020 (to coincide with the current expiration of Governor Newsom’s Executive Order N-28-20); (b) co-terminus with Executive Order N-28-20 (such that if it is extended the local ordinance would be as well); or (c) effective as long as the local emergency exists.  But some have other deadlines.  Note that all such orders and ordinances may be extended or rescinded as state and local government deem appropriate.  It would be safe to assume that the eviction moratoriums will likely remain in place as long as the state and local emergency are declared.

We will continue to track moratoriums on commercial evictions and periodically update this article and our firm resources.  As we near April 1, when rent actually becomes due for most tenants, we expect to see more rubber hitting the road as landlords and tenants continue to evaluate their positions and options.

Please stay healthy and safe.

Cox Castle has created a Task Force to monitor, analyze and advise on a wide array of business and legal challenges arising from the COVID-19 pandemic, including the matters discussed in this alert.  Coordinating across multiple practice groups and industries, the Task Force is keeping track of the latest developments with COVID-19 and working to provide the best advice possible to our clients in the real estate industry and beyond.  If you have any questions about these matters or responding to the COVID-19 pandemic more generally, please reach out to any Cox Castle professional or member of the Task Force.

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