Workouts. This article addresses the legal and enforcement landscape concerning eviction of commercial tenants who were, or will be, unable to meet their lease obligations. However, we know that most landlords are focused on keeping tenants, not evicting them. The willingness to work with your tenants to reach deals during the current crisis may appear, on its face, to be altruistic; the reality, however, is that often it is just as necessary for landlords to work with their tenants out of self-preservation. To that end, we offer the following guidance and hope you will find it helpful in dealing with troubled tenants.
We know that most landlords reading this probably already have reached out to their tenants and are proactively working to negotiate deals to help guide them through the changes in their business and to maintain open lines of communication. This is important because communication now, along with an acknowledgment of what your tenants are facing, will make your tenants more likely to continue to communicate with you throughout their struggles. The more you know, the better you can prepare. There is nothing worse than surprise.
Be flexible. It often is said that “necessity is the mother of invention.” We anticipate that workouts between landlords and tenants in the time of COVID-19 will lead to creative solutions – both financial and nonfinancial – that strike a balance between tenants’ reduced revenues and landlords’ need for cash flow. There is no one-size-fits-all approach, so it is important to listen to your tenants’ requests and be clear with them about ways in which you can, and cannot, have flexibility in reaching a workout.
Review leases. While this guidance applies generally, it applies most forcefully to inherited leases. Before you begin negotiating a workout, carefully review your leases to see what unexpected exposure you may have.If you have questions about any of the above guidance, we recommend reaching out to your attorney, accountant or other professionals who can answer your questions and provide specific advice. Evictions. The primary change in terms of evicting tenants involves limitations on evictions at the national, state and local levels. The city and county of Denver, along with other municipalities, has ordered the suspension of evictions. Sheriffs statewide interpret this order as applying to both residential and commercial evictions and will not undertake such evictions. At the state level, Gov. Jared Polis’ Executive Order D 2020 012 (March 20) has ordered state agencies to work with landlords to attempt to create a lawful measure to suspend evictions until the end of April for the nonpayment of rent and minor tenancy violations. We anticipate that you are apprehensive about what this means for tenants who have defaulted, or will default, on their lease obligations while these orders are in effect. First and foremost, while the language of these suspension orders themselves do not explicitly apply to commercial evictions, it appears that most, if not all, jurisdictions are taking that position. That said, even if a particular jurisdiction will enforce a commercial eviction, it is important to be aware of the optics of moving forward with such an eviction in the midst of the outbreak, particularly since all businesses currently are not operational, except for those providing essential services. We encourage you to weigh the possibility of negative optics in making the decision whether to proceed with eviction. We also anticipate many tenants may proactively open up a dialogue with you about how to proceed, including by seeking abatements or other concessions. In those situations, our workout guidance above will help you develop creative solutions during this uncertain period. Second, the above orders are executive in nature and do not affect the operation of the court systems, which in large part continue to operate with limitations necessitated by the COVID-19 outbreak (such as telephonic hearings). In other words, nothing precludes a commercial landlord from filing a complaint to begin the eviction process. While under normal circumstances, eviction actions proceed more rapidly than other civil actions, we would advise you to be prepared for things to move more slowly under current conditions. Between the reluctance of local sheriffs and, potentially, judges to push forward with evictions, the expected inability of tenants to respond to complaints, and the likelihood of “shelter-in-place” or similar shutdown orders, the filing of a complaint may not go anywhere until such orders are lifted.
As with most other aspects of business and life during this time, things are uncertain. Professionals are available to provide you with advice, guidance and expertise to help you navigate the uncertainty and make the best decision for your business. While we wait for life to return to normal, we ask that you stay safe, healthy and optimistic.
This article was co-authored by Vikrama S. Chandrashekar, David A. Laird, Thomas M. List, and Merc Pittinos.