Landlords and tenants need help restructuring lease agreements to preserve their legal rights and obligations and limit damages. Numerous laws banning evictions, rent increases, and foreclosures by state and local governments create complex compliance issues and increased liability for parties during Covid-19.
Below is a comprehensive Dos’ & Don’ts for landlords and tenants to help assess problem areas, find solutions with newly available resources, and apply best practices moving forward.
How Can I Best Take Advantage of Force Majeure Provisions in My Real Estate Lease?
Force Majeure (FM) clauses in a contract fully or partially excuse a party from performing its obligations under the contract when certain specified events occur that are unforeseen or unanticipated and beyond the control of that party. E.g., war, natural disasters, pandemics, strikes.
What Alternatives Do I have When Restructuring a Lease?
How Can I Restructure my Lease if I am in the Build-Out Phase?
How Can I Restructure a Construction Contract?
For construction projects, contractors can seek to invoke force majeure benefits because of closed government offices, materials shortages, domestic and international supply chain delays. The Stay Home orders and local government restrictions on constructions could also support a force majeure claim. For certain cities like Los Angeles, which have no moratoriums on construction, contractors will need to focus on project delays caused by supply chain disruptions, labor shortages, and public health and safety mandates.
How Can the Government Orders Shuttering Businesses Help Me?
What Should I Do If My Tenant is Not Able to Pay Rent?
What Should I Do If I Can Not Pay Rent to my Landlord because of Covid-19?
Is there a Pending Bill Limiting Eviction of Commercial Tenants in California?
There is a proposed senate bill before the California legislature that would prohibit landlords from evicting tenants in commercial properties, including businesses and non-profit organizations, during a state of emergency. The bill applies retroactively to make any commercial evictions that occurred after March 4, 2020 void and unenforceable. A violation of this proposed law would be a misdemeanor, an unlawful business practice, and an act of unfair competition. The bill has not yet passed. This fact sheet will be updated as and when the bill becomes law.
Will the Real Estate Loan/Mortgage with My Lender be Impacted if I Restructure My Tenant’s Lease?
Is there a Moratorium on Recording Foreclosures & an Extension of Time to Make Mortgage Payments in California?
Based on Executive Orders issued by the Governor of California, the California Department of Business Oversight negotiated informal agreements with lenders to provide financial relief for commercial and residential borrowers during Covid-19. To obtain relief, borrowers must contact their financial institution.
Financial institutions holding home or commercial mortgages including, Citigroup, JPMorgan Chase, U.S. Bank, Wells Fargo, and nearly 200 state-chartered banks and credit unions, are permitting a 90-day informal moratorium on recording foreclosures and a 90-day grace period to make mortgage payments for Californians economically impacted by Covid-19 as follows.
Also, those institutions will:
Is there a suspension of Judicial Foreclosures in California?
The Executive Orders issued by the California Governor permitted local governments to suspend judicial foreclosures of mortgaged properties for homeowners affected by Covid-19 through May 31, 2020. To comply with the Executive Order, the Judicial Council of California amended the laws of mortgage foreclosures as follows:
What are the provisions for Loan Forbearances on Federally Backed Loans under the CARES Act?
Starting from March 27, 2020, and until the termination of the state of emergency by the President or December 31, 2020, whichever comes sooner, borrowers with federally backed mortgage loans (Fannie May, Freddie Mac, FHA, VA, USDA) experiencing financial hardships due, directly or indirectly, to the Covid-19 emergency may request forbearances on their federally backed mortgage loans, regardless of delinquency status, by (a) submitting a request to the borrower’s servicer and (b) affirming that the borrower is experiencing financial hardship during the Covid-19 emergency.
Upon a request by a borrower, such forbearance shall be granted for up to 180 days, and shall be extended for an additional period of up to 180 days at the request of the borrower, provided that, at the borrower’s request, either the initial or extended period of forbearance may be shortened.
During a period of forbearance, no fees, penalties, or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract, shall accrue on the borrower’s account.
What are the provisions for Loan Forbearances for Multifamily Properties with Federally Backed Loans under the CARES Act?
Multifamily borrowers with federally backed multifamily mortgage loans experiencing financial hardships due, directly or indirectly, to the Covid–19 emergency may request forbearances on loan payments if the borrowers were current on their payments as of February 1, 2020. Such borrowers may submit oral or written requests for forbearances to the borrowers’ servicer, affirming that the multifamily borrower is experiencing financial hardship during the Covid–19 emergency.
Based on documented financial hardships, lenders may provide the forbearances for up to 30 days, and extend the forbearances for up to 2 additional 30 day periods upon requests from the borrowers provided that, the borrowers’ requests for extensions are made during the covered period, and, at least 15 days before the end of the prior forbearance period. Multifamily borrowers shall have the option to discontinue the forbearances at any time.
Multifamily borrowers who receive forbearances under this section may not, for the duration of the forbearance:
Does the federal CARES Act impose a moratorium on Mortgage Foreclosures?
Except for vacant or abandoned property, servicers of federally backed mortgage loans may not initiate any judicial or non-judicial foreclosures, move for foreclosure judgments or orders of sale, or execute foreclosure-related evictions or foreclosure sales for at least 60-days beginning on March 27, 2020.
What Lessons Should I Take Away from This Discussion?
For additional information and questions, please contact AlvaradoSmith real estate attorneys, Monisha Coelho at email@example.com, Craig Hardwick at firstname.lastname@example.org, Jerry Ruiz at email@example.com, or at 213.229.2400.
Monisha Coelho has particular expertise handling a wide range of real estate issues involving commercial landlords/tenants, traditional and hard money lenders, and developers.
DISCLAIMER: The information contained herein is intended for informational purposes only and should not be construed as professional counsel or legal advice. Seek legal counsel for advice with respect to any legal matter. The information in this document may not reflect the most current developments as the subject matter is extremely fluid and may change daily. The content and interpretation of the issues addressed herein are subject to change.