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Creating Clarity for Business Landlords and Their Tenants During COVID-19

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COVID-19 Special Issue

Landlords and Tenants Work Together for the Best Outcome

By Roy Jimenez, Esq., TLD Law

While the laws for residential landlords and their renters in the wake of the pandemic have been reasonably clear, there is still some misunderstanding about whether or not business tenants must pay rent, or whether a building owner can legally collect rent even if the business is closed. As overstressed citizens face job losses, social unrest, and the coronavirus itself, the patchwork of laws on commercial leases adds stress for both the tenants and their landlords. Landlords have their own expenses—loans, maintenance, utilities, taxes—they must pay.

Business owners of all sizes across many industries are scrambling to make ends meet, pay their employees, and capture any sales that might keep their business afloat. Both payroll and property rentals can be devastatingly high—especially in Southern California, and particularly with little or no revenue.

Local ordinances vary widely and frequently change, especially as the outbreak seems to be reappearing in many Southern California counties. It’s best to check with your city’s government for the current laws on business leases, however, the following are useful guidelines

Renters are not off the hook

Regardless of what happens in the very short term, existing commercial eviction bans in Los Angeles do not mean the tenant is off the hook for their rent: It must be paid eventually. From the COVID-19 Renter Protections Fact Sheet for the City of Los Angeles:

“THE CITY ORDINANCE DOES NOT RELIEVE TENANTS OF THE OBLIGATION TO PAY RENT. TENANTS HAVE UP TO 12 MONTHS FROM THE EXPIRATION OF THE LOCAL EMERGENCY TO PAY BACK RENTS. LANDLORDS MAY NOT CHARGE INTEREST OR A LATE FEE ON THE RENT OR REQUEST TENANTS TO USE THEIR STIMULUS MONEY FOR RENT.”

Meanwhile, it is essential to remember that any companies that have received governmental assistance in the form of the Paycheck Protection Program loan will be able to use these funds to pay their rent and payroll costs, as noted in the Fact Sheet above.

Below are tips for how both landlords and their business tenants can work together productively and fairly through these uncertain times to keep both the landlords and their tenants in business for a healthy Post-Covid economic recovery.

Tips for tenants and landlords

Tenant responsibilities:

  1. Know the lease terms of your lease. Here’s an example: “Rent is due on the ___day of the month. Tenant must let landlord know of an inability to pay before the rent is due but no later than seven (7) days after that date. Notification must be via [email, phone call, certified mail].” Lease language varies, so knowing your lease is paramount. Furthermore, to be considered for rent relief, the reason for missing your rent must be stated as an inability to pay due to COVID-19 and not just a reduction in income. Avoiding lease payments because you don’t think you will be caught is, well, bad karma as well as a breach of your lease agreement.
  2. Communicate: One of the easiest ways to assure mutual survival is to communicate as outlined in the lease terms per the above.

It may seem unnecessary in light of the pandemic to be so formal. However, “It’s obvious if the business is closed that I can’t meet my rent,” will not meet the terms of the lease language. Conforming to the letter of the signed lease shows the intention of complying as best as possible. Legal forms have been created to communicate an inability to pay rents due to the coronavirus situation. As a tenant, particularly if you are totally unable to pay rent by any means, it is best to use a government-approved document like this form, which may or may not exist in your locale. Use the official form if one is available.

Landlord responsibilities:

  1. Respond to notices. Some tenants have complained that they cannot get hold of their landlord or they have sent notifications with no responses. Concerned, responsible tenants need to feel their efforts are being acknowledged.
  2. Stay current. Check counties and cities for the latest ordinances, forgiveness, or eviction bans, moratoriums, etc.  Landlords may want to send blanket information to their renters to keep them abreast of the latest pronouncements. Landlords may also need to keep their bankers and their properties’ counties and cities apprised of their situation to protect themselves and their investments.  Another strategy is to let their tenants and their bankers know of any negotiated repayment schedules, which could be calculated on a monthly, bi-weekly, or weekly basis, for instance.

BOTH landlords and tenants:

Both parties need to document and remain open and honest about their situations (i.e., COVID-19 relief funding, challenges, changes). Keep copies of all communications and documents in the event there are misunderstandings when the pandemic situation has passed.

What’s at stake?

In Los Angeles, as of this writing, companies have three months to repay their landlords after the end of the coronavirus emergency. In Long Beach, they have until November 30, 2020.

Some companies worry they will never be able to pay “catch-up” rent and will go out of business, which puts the landlord in a bad position too. The spiral can bring everyone down. That’s a worse case. Instead, thriving businesses of all kinds are the way for our economy to bounce back. Both tenants and landlords need to come out whole on the other end of the pandemic with win-win being the goal, and using open, two-way communication, and good-faith negotiations as a means to that end.

Sometimes people need a little nudge or reminder that they need to pay their rent. Everyone needs to communicate with one another, even during and especially throughout pandemics.

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Disclaimer: This information is subject to change and your location within the State of California. It is not intended as legal advice but is more informational in nature.  Always check with your own company’s attorney, financial adviser, accounting professional, and lending institutions before proceeding.

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About the Author:

Roy Jimenez, managing partner at TLD Law, has over 23 years of experience in business and real estate litigation. Mr. Jimenez has extensive experience in resolving or litigating large, small, and complex business disputes.

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