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  • Writer's pictureDavis Yu

California Issues Another Stay-at-Home Order: What’s at Stake for Commercial Landlords and Tenants?

December 17, 2020

Recent coronavirus case numbers have surged resulting in the enforcement of another stay-at-home restriction throughout most of Southern California. With another shutdown, the economy has been hit hard yet again. Around 4 million small businesses across the country could be permanently closed this year alone. Despite their efforts in adhering to the guidelines in place, businesses are struggling to stay afloat and keep their employees working.

Another major consequence of the pandemic is the inability of commercial tenants to meet the terms of their lease and pay rent on time. As landlords fail to recover rental payments, many grow more concerned about making their own mortgage payments. The uncertainty that both commercial landlords and tenants commonly face today requires open communication and negotiation between both parties more than ever before. Here are a few things commercial landlords and tenants should consider when deciding their next steps.

What are the terms of the lease agreement?

To determine certain rights and obligations, both landlords and tenants should first refer to their lease agreement. The agreement may contain a force majeure clause, which may delay or dismiss a party from performing. Certain language within a contract that would trigger the enforcement of the force majeure clause is “pandemic” or “public health emergencies,” although many would not have considered this unprecedented event when executing their lease agreement.

Language that may prevent a commercial tenant from breaching the contract for nonpayment of rent may include an “act of God,” “government order or action,” or “national emergency.” Generally, courts will narrowly construe the validity of a force majeure clause and defer to the specific language of the agreement. Courts will also look at the surrounding facts and circumstances.

Yes, landlords can sue for missed rent but should they?

Landlords have the option to bring an action for breach of contract and sue for monetary damages. This option is not only costly but will also result in the loss of a tenant and thus, loss of income. In addition, many courts are currently closed and are already experiencing a backlog of cases. Given the uncertainty of the pandemic, the prospect of finding a replacement tenant is very slim. With several shutdowns and reduced capacities, businesses have very little to no cash flow and many may be on the brink of filing for bankruptcy. As such, landlords and tenants should consider alternative solutions.

What are your legal considerations?

Eviction Moratoria – Governor Newsom issued an executive order that provides local jurisdictions with the discretion to enact or extend their own eviction moratoria on commercial tenants until May 31, 2021. Counties including San Francisco and Los Angeles have already followed suit and modified their existing commercial eviction moratorium. Both landlords and tenants should refer to their applicable moratorium to discuss their options.

Financial Assistance Programs – Government programs have been implemented to financially assist struggling businesses such as the Paycheck Protection Program (PPP) established by the CARES Act. Some states including California have also enacted programs that provide tax relief to businesses impacted by COVID-19. Landlords should inquire as to whether their tenants received any financial assistance and discuss if these funds can be used toward the rent balance.

Renegotiating the Terms of the Lease Agreement – Open communication, creativity, and understanding are at the heart of reaching an effective resolution during these difficult circumstances. To some, opting for reduced rental payments in exchange for a tenant to stay for the duration of the agreement may be the most ideal. Many landlords certainly understand the difficulty in finding a replacement tenant especially in today’s market.

Others have established a payment plan in writing to defer any payments until a certain time period or pay the landlord a percentage of the sales made each month. Some tenants have also proposed deferring rent for a period of time in exchange for express agreement to extend the lease. Oftentimes, with the cost of litigation and the delay in court proceedings, it is possible for the landlord to lose more money by filing a claim versus working out a revised lease agreement with a tenant. Although negotiation is not always possible, it is crucial for both parties to understand the specific challenges that both sides are facing during these difficult times.

DY LAW, APC assists landlords and tenants with commercial property disputes. We are prepared to review any existing lease agreements, draft amendments/revisions, and answer any other questions regarding your legal rights and obligations. Contact us today to review your lease agreement and discuss your options.

This article is specific to the laws of the State of California and is intended for informational purposes only. The article should not be construed as legal advice or a legal opinion based on any specific facts or circumstances. For specific questions related to this article, please contact an attorney.



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