Property Management During a Global Pandemic: How COVID-19 is Affecting Commercial Real Estate
With each passing day, different industries are figuring out how to function as COVID-19 continues to spread across the country, and the commercial real estate industry is no exception. State and local governments are now issuing guidance and passing bills on how property managers must notify tenants of COVID-19 exposure and whether or not evictions are legal during the global pandemic. Some states and local governments have taken action regarding commercial evictions and rent adjustments/reductions, while HUD, Fannie Mae and Freddie Mac have implemented a moratorium on residential evictions for 60 days. Here is what we know so far:
Notice of Exposure
- Obligation: While there is no “obligation” to inform tenants of a positive case of COVID-19 that has become known in the building, there is also the opinion that landlords may be deemed to have some liability if they fail to notify tenants, and putting people at risk.
- Notice Language: Any notices to tenants regarding a positive case should not name either the person of the tenant. A generic note to all tenants of the building will suffice.
Adjusting Rental Obligations
- Many landlords and property management companies are looking to provide some relief to their tenants during this uncertain time – here are a few strategies to address rent payments:
- Reduce/abate rent for a set period of time with no repayment or reduce/abate rent for a set period of time, then amortize across the remainder of the term.
- Abate rent for a set period of time but tack additional months on to the end of the term.
- Some combination of the above.
- For retail tenants that remain open, reduce the rent to a percentage of sales (only), even if the tenant does not typically pay percentage rent. This might be useful for restaurant/food service tenants that have had to reduce density or close for all but takeout/delivery.
Commercial Evictions by Location
- Minnesota: so far, Minnesota has not implemented any action yet, but a bill was proposed earlier in the week that would put a moratorium on evictions. Under the bill for Minnesota, rental property owners would not be able to file for eviction for 30 days in places where public health emergencies have been declared. Additionally, late fees and unpaid rent could not be charged for 60 days. The bill does not forbid landlords from collecting rent during the public health crisis, nor does it require landlords to provide rental rate cuts. It is unclear at this time if this bill only applies to a residential scenario or also commercial tenants.
- New York: Temporarily banned commercial evictions.
- California: Temporarily banned commercial evictions.
- Los Angeles County: Proposed a plan that would temporarily ban evictions and late fees, as well as require landlords and residential-mortgage holders to work out payment plans with affected residents; it appears that the ban on evictions and late fees applies to commercial tenants as well.
- Seattle, Miami-Dade County, and Chicago Cook County: Either banned evictions or have shut down court systems thereby suspending evictions
- If state or local governments have not taken action, or in addition to such action, landlords are working with tenants to provide some relief. Some landlords are agreeing to alternative payment arrangements such as deferring payments for 90 days. The deferred payments will either be tacked on to the end of their lease to be paid at its expiration, or the deferred payments will be spread incrementally over the remaining term. Some landlords are agreeing to apply the security deposit to April rent. This is a case by case scenario, depending on the landlord and the tenant.
There will likely be more developments in the coming weeks, and we will continue to monitor what becomes a market response. If you have any questions about how to provide notices regarding a COVID-19 positive case in a multitenant building, if a landlord can evict a tenant right now, or charge interest and late fees, FMJ’s Real Estate team can help. Reach out to Kristi Riley at email@example.com, Nate Brandenburg at firstname.lastname@example.org, or AJ Kupstis at email@example.com.
*Updated March 24, 2020
On March 23, 2020, Governor Walz signed Emergency Executive Order 20-14, suspending evictions of residential tenants during the COVID-19 Peacetime Emergency. Beginning no later than March 24, 2020, at 5:00 pm and continuing for the duration of the peacetime emergency declared in Executive Order 20-01 (or until this Order 20-14 is rescinded), no residential property owner, residential mortgage holder or other persons entitled to recover residential premises after March 1, 2020, may file an eviction action under Minnesota Statutes 2019, section 504B.285 or 504B.291. Additionally, all residential landlords must cease terminating residential leases during the pendency of the emergency, unless the termination is due to the tenant seriously endangering the safety of other residents. Order 20-14 directs financial institutions holding residential mortgages to implement an immediate moratorium on all pending and future foreclosures and related evictions when the foreclosure or foreclosure-related eviction arises out of a substantial decrease in income or substantial out of pocket medical expenses caused by the COVID-19 pandemic or government response to COVID-19. The goal of Order 20-14 is to promote public health and safety through the stabilization of households and to provide security for Minnesota residents during such an unstable time.