California’s Executive Branch, judiciary and local governmental authorities have responded to the Covid-19 pandemic by issuing a succession of Executive Orders, Judicial Council Emergency Rules and enacting a series of ordinances. These Executive Orders, Emergency Rules from the California Judicial Council and numerous local ordinances have eroded the rights of private property owners in the name of protecting the public against economic dislocation and homelessness.
As a result, the impact on commercial lease transactions has been significant. In fact, the orders and rules issued by state and local governments, at least in the short term, seem to shift all economic obligations and responsibilities for a commercial property to the landlord and away from the tenants (both residential and commercial). This is extremely complicated by the fact this shift is taking place for commercial landlords during an operational disruption and economic downturn “of first impression” as the Covid-19 Virus adversely and significantly impacts real estate ownership, and business in general.
The following are some practical guidelines for landlords and tenants as a result of these recent government actions:
Given these governmental actions, the rights of private property owners are being eroded in California in the name of public safety and to “protect” tenants (residential and commercial) from a vulnerability that is perceived to be greater than that of landlords. New regulations from different sources are constantly being enacted at a rapid pace and are, in some cases, inconsistent or in conflict with one another. As a result, commercial landlords and tenants and their counsel will need to keep current on new developments emanating from all levels of government.
In evaluating the regulatory overlay that is impacting the landlord/tenant relationship in California, the parties need to examine (1) the State Executive Orders, (2) any new statutes, (3) the Judicial Council Emergency Rules, (4) applicable local County ordinances, and (5) any specific City ordinances. In addition, it is important to keep abreast of potentially impactful regulatory propositions that are currently only in the discussion stage but may be a part of the regulatory landscape in the near future.
For example, California Senate Bill 939 provides for a state-wide moratorium on commercial evictions and a 12-month rent deferment for commercial tenants, which meet the criteria as an “eligible Covid-19 impacted” tenant. In its current form, SB 939 would permit certain eligible tenants who operate primarily in California and operate eating and drinking establishments, places of entertainment and/or performance venues to modify the rent or economic requirements under their lease. This would also entitle those tenants to terminate their lease if they are unable to reach a mutually satisfactory lease modification with their landlord within 30 days after the date the landlord receives a negotiation notice, meeting the requirements set forth in the proposed bill, from the tenant. If the landlord has already received an eviction judgement for nonpayment of rent, the tenant can move to have that judgment set aside. Although SB 939 is a statewide bill, it expressly states it will not preempt local law that addresses the same or similar provisions or that may impose a more severe penalty.
The bill’s sponsor has announced his intent to offer amendments to the bill to remove the lease termination provision and shorten the time frame for eviction, but those amendments have not been submitted. When SB 939 came before the California Appropriations Committee, it was moved to “Suspense” which means the bill has significant fiscal impacts. The bill will remain in committee until a vote on June 18, 2020.
As of the date of this article, the Judicial Council is considering a roll back of certain Emergency Rules, including those related to unlawful detainer and foreclosure as California considers its next steps in re-opening the economy. The Judicial Council is considering an August 3rd sunset date on these Emergency Rules.
With each local government able to enact its own eviction and foreclosure regulations, including moratoriums, it is a very complicated patchwork of laws affecting commercial properties in California. Given the complexity of these regulations and the variation across different counties and states, it is important to consult a real estate attorney in order to gain a better understanding of your rights under these new ordinances.
The fast-changing legal landscape is expected to continue, so please feel free to reach out if you have any follow up questions about your specific obligations.
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