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Alicia N. Vaz
310.284.2273

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Daniel M. Engler
415.262.5134

Real Estate

Update: The Impact of Shelter in Place or Safer at Home Orders on the Real Estate Industry

On March 17, 2020, we issued a Client Alert after seven counties in California enacted the first shelter in place orders in the State.  Since then, many other counties and some cities have instituted their own “shelter in place” or “stay at home“ orders or directives. On March 19, 2020, Governor Gavin Newsom issued the first statewide Executive Order “to preserve the public health and safety, and to ensure the healthcare delivery system is capable of serving all, and prioritizing those and the highest risk and vulnerability.” The Executive Order is in place until further notice. 

Executive Order N-33-20, which impacts California’s nearly 40 million residents, has been touted by some as the most “dramatic” action taken in the U.S. to date. But for California businesses, it has caused mass confusion and uncertainty both as to what the Executive Order does and how it relates to the orders issued by local and other agencies.

The Executive Order incorporates the Order of the Public Health Officer (Public Health Order) of the same date, stating that the Public Health Order is consistent with the March 19, 2020, Memorandum on Identification of Essential Critical Infrastructure Workers During COVID-19 Response issued by the U.S. Department of Homeland Securities as an advisory (Memorandum).

However, the Public Health Order mandates “all individuals living in the State of California to stay home or at their place of residence except as needed to maintain continuity of operations of the federal critical infrastructure sectors, as outlined at https://www.cisa.gov/identifying-critical-infrastructure-during-covid-19.”  Those 16 federal critical infrastructures sectors are far broader than those deemed critical during the COVID-19 pandemic as determined by Homeland Securities. In particular, they include a Commercial Facilities Sector, which includes 8 subsectors such as lodging, real estate and retail, which, for the most part, are excluded from the essential sectors during the COVID-19 pandemic. However, most of these locations and businesses are places that public health officials have been warning people not to go because they draw large crowds. Their inclusion in the exception seems to be out of sync with those warnings and the Governor’s message of protecting the health and safety of California residents.

Real estate industry groups have already been reaching out to the Governor’s office to get clarification about the Executive Order and to what extent “real estate” sector workers are exempted, and whether it preempts similar orders of local jurisdictions.

On March 20, 2020, the California Public Health Officer issued its own list of essential workers, which is similar to the Memorandum but contains some differences. On March 22, 2020, a replacement list of “Essential Critical Infrastructure Workers” was issued.  However, the introductory language can be read to suggest that the list contains “additional sectors” that are critical or essential, not that it is a replacement for the 16 federal critical infrastructure sectors (that included “Commercial Facilities”) which were incorporated into the original Public Health Order. In light of the intent behind the Executive Order of protecting the health and safety of individuals, it is more likely that the March 22 list identifies the only the sectors and jobs that are deemed essential by the State of California, but that is not entirely clear.

While the March 22 list is quite long, it does identify the following jobs – which are most notable to those in the real estate industry – as essential:

  • All construction workers who support construction, operation, inspection and maintenance of construction sites and construction projects (including housing construction)
  • Workers to ensure continuity of building functions
  • Security staff to maintain building access control and physical security measures
  • Workers such as plumbers, electricians and other service providers who provide services that are necessary to maintaining the safety, sanitation and essential operation of residences and construction sites and construction projects (these are split up in separate sections of the list), and who support removal of solid and hazardous waste
  • Retail stores that supply essential sectors – convenience stores, pet supplies, auto supplies, hardware
  • Workers needed to process and maintain systems for processing financial transactions and services

However, even with these additions, the Executive Order has led to substantial confusion for the California real estate industry, especially those in hospitality affected by the lack of travel, landlords trying to determine what to do vis-à-vis their tenants, retail centers not certain about whether they should close, and developers and contractors struggling to decide whether they can continue to build or need to halt their construction projects during this mandate. This is particularly the case since the inclusion of Commercial Facilities and its subsectors as essential seems to be out of sync with the warnings of public health officials and the Governor’s message of protecting the health and safety of California residents.

And, despite the express inclusion of construction workers by the Public Health Officer in the March 20 list, the fate of construction projects throughout the State remains unclear as parties are grappling with many unanswered questions. For example, does the Executive Order preempt local orders, many of which have halted construction entirely for now (such as the City of Menlo Park), or have limited it in some way, e.g., to construction of public works and infrastructure as well as the “construction of housing” (such as San Francisco County)? The Mayor of San Francisco issued a press release stating that parties should comply with the restrictions in both the local order and the Executive Order. But other cities and counties, as well as the State, have remained silent for now.

Although there is little clarity as to any of these issues at the moment, businesses are encouraged to do what they can to comply with the restrictions set forth in the Executive Order as well as any issued by local authorities – including both cities and counties – where the business is operating. Importantly, if operations are permitted to proceed, efforts should be undertaken to ensure that the work is in compliance with social distancing requirements.

Cox Castle has created a Task Force to monitor, analyze and advise about these difficult issues and other questions that arise as a result of the COVID-19 pandemic. 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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