By Jamie Buggy

Law360 (April 1, 2020, 2:12 PM EDT) --

Jamie Buggy

As part of the nationwide response to the coronavirus epidemic, states and cities around the country have issued orders requiring residents to stay in their homes — ordering businesses such as restaurants, bars, night clubs, gyms, movie theaters and other businesses deemed nonessential to close or restrict their operations.

Local and state governments have further imposed moratoriums on unlawful detainer actions — i.e., evictions of residential and commercial tenants. Consequently, landlords are increasingly concerned about the enforceability of lease obligations for the duration of the crisis.

Unlawful Detainers Still an Option

Despite moratoriums in cities such as Los Angeles, New York and San Francisco, commercial unlawful detainer actions may still be available as a remedy to evict nonpaying tenants in jurisdictions across the country. For example, despite a 90-day statewide moratorium on residential and commercial evictions imposed by Gov. Andrew Cuomo in New York state, which suspended all pending evictions effective March 17, landlords are still able to file new unlawful detainer cases. Such new cases will not be decided for about 45 days, according to the New York Housing Court website.  

In California, there is presently no statewide moratorium against unlawful detainer actions, but Gov. Gavin Newsom has delegated authority to municipalities to limit residential and commercial evictions. Such limitations may only be imposed in instances where tenants can prove that their failure to pay rent is due to COVID-19.

At this time, numerous cities, including San Diego and Los Angeles, have set in motion the enactment of temporary bans on residential and commercial evictions. Moratoriums have already taken effect in various Bay Area municipalities, including a moratorium in San Francisco until at least April 13. Landlords nationwide should actively seek updates regarding moratoriums enacted in jurisdictions where they own real property.

In addition to moratoriums, other obstacles to eviction of nonpaying tenants have been posed by nationwide court closures. Even in jurisdictions where no moratoriums are in effect, landlords around the country are presently unable to file lawsuits, including unlawful detainer actions, because courts are closed for purposes of nonemergencies.

In New York, state courts are closed except for essential services until further notice. In California, courts are closed until at least early April except for emergency matters, and closures are likely to be extended. Court closures nationwide are likely to affect the legal landscape beyond eviction proceedings. For example, courts in California and New York are unavailable to grant nonemergency civil restraining orders.

Despite widespread moratoriums on evictions, neither federal, state nor local governments have issued legislation relieving tenants' obligations to pay rent — even as governments have ordered businesses to close in order to prevent the spread of the virus. That means tenants will owe many months of back rent once businesses and courts reopen.

In contrast, in France President Emmanuel Macron has suspended rent and utility obligations for small businesses for the duration of the pandemic. While rent relief may not yet be available in the U.S. via legislation, force majeure clauses within leases and legal doctrines such as "frustration of purpose" may limit tenants' obligations to pay rent.

Force Majeure Clauses, Frustration of Purpose Legal Doctrine

Force majeure clauses — included in many commercial contracts, including commercial leases — may provide relief when natural and unavoidable catastrophes prevent parties to the contract from fulfilling their obligations. Force majeure events include war, strikes, government orders, acts of God — and, arguably, pandemics.

While force majeure clauses could theoretically suspend a tenant's obligation to pay rent, many commercial leases specifically exclude rent payment from force majeure protection. Whether a force majeure clause applies to relieve tenant's rent obligation depends on the language in each particular lease. Landlords should review the force majeure clauses in their leases and seek legal advice if necessary.

The legal doctrine of frustration of purpose may also apply to prevent landlords from enforcing rent obligations. Frustration of purpose may apply to excuse a tenant's obligation to pay rent where the fundamental purpose underlying the contract — e.g., operating a successful restaurant business — has been hindered by an unanticipated event, such as government-mandated closure due to COVID-19, and the value of the contract is destroyed for one or both parties.

It is unclear how courts nationwide will apply frustration of purpose to the COVID-19 pandemic, but past crises suggest that the doctrine may come to tenants' aid. For example, during World War II, where war regulations prohibited the operation of certain businesses, in some instances courts excused tenants' obligations to pay rent.

In the past, courts have focused on the foreseeability of the unanticipated event (it must have been reasonably unforeseeable at the time of contracting), and the extent to which the purpose of the contract has been frustrated (the value of the contract to the party seeking to be excused must be totally or substantially destroyed).

Take Steps Now

Until eviction moratoriums are lifted and courts reopen, commercial landlords should take specific steps to protect their rights if their tenants stop paying rent. First, landlords should continue serving notices of default, to the extent authorized by lease, to ensure that they are in a position to take legal action when appropriate.

Landlords may want to add language to their standard notices to address the COVID-19 pandemic and assure tenants that the landlord is aware of the unprecedented strains facing small businesses, and willing to work with tenants to find reasonable solutions (e.g., "If tenant's business operations have been affected by the COVID-19 pandemic, please contact landlord immediately to discuss tenant's options.").

When accepting tenants' partial payments of rent, landlords should send written correspondence indicating that they accept such partial payments without waiving any legal or equitable rights, including the right to later recover the balance of unpaid rent.

While they may (at this time) continue imposing late fees and interest on late payments of rent, landlords should be prepared to provide relief from such fees when warranted by the circumstances. Landlords should also expect to receive requests for rent relief from tenants, and should consider providing relief to those tenants severely impacted by COVID-19.

Additionally, it is advisable for landlords to develop methods to determine whether tenants' needs for rent relief are legitimate, and to establish uniform criteria for evaluating tenants' requests, in order to treat tenants fairly and equitably.

Maintaining positive tenant relationships will help landlords best adapt to the rapidly changing legal landscape and ideally return to normal operations once the pandemic subsides.

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Jamie Altman Buggy is an associate at Crosbie Gliner Schiffman Southard & Swanson LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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