Real Estate Industry Alerts Tracker - May 8, 2020 Issue

New York State Extends Moratorium on Evictions

New York Governor Andrew Cuomo is extending the moratorium on commercial and residential evictions for another 60 days, until August 20, 2020. In addition to banning evictions during this period, New York will also ban late fees for missed rental payments.

Virginia Caps Late Fees for Residential Tenants

Effective April 22, 2020, residential landlords cannot charge late fees in excess of the lesser of 10 percent of the monthly rent or 10 percent of the remaining balance due under the lease. Any late fees charged before April 22, 2020, are not subject to the new law.

District of Columbia Passes Legislation to Aid Tenants During COVID-19

On May 5, 2020, the Council of the District of Columbia unanimously passed the Coronavirus Omnibus Emergency Amendment Act of 2020” (Bill 23-750) with amendments (the Act”). The Council’s passage of the Act comes one day after the Mayor signed the COVID-19 Supplemental Corrections Emergency Amendment Act of 2020” into law. The Act will become law if the Mayor signs it within 10 days of presentation to her, which she is expected to do, or if she neither signs nor vetoes it within that time. Since both were, or will be, passed on an emergency basis, each is effective only for 90 days from the day it became, or becomes, law.

Here are some key provisions in the Act:

Mandatory Rental Payment Plan Program: An owner, landlord, or lessor of commercial retail property or residential property with five or more residential rental units is required to develop a rental payment plan for eligible tenants” (described below) during the time for which the Mayor has declared a public health emergency and for the lesser of one year thereafter or when the tenancy ends (the Program Period”). Each tenant must be notified of the program and may submit an application to participate in it.

  • An eligible tenant” is a tenant of residential or commercial retail property that: (1) has notified the landlord of its inability to pay all or a portion of the rent due as a result of the public health emergency; (2) is not currently receiving a rent reduction pursuant to Section 202 of the D.C. COVID-19 Response Emergency Amendment Act of 2020; and (3) is not a franchise, unless the franchise is owned by a D.C. resident and operated in D.C.
  • The owner, landlord, or lessor must provide a payment program that: (1) allows eligible tenants to enter into a payment plan for rent due during the Program Period; (2) waive fees for entering into such a plan; and (3) require that the owner, landlord or lessor not report tenants under the payment program as delinquent to credit bureaus.

Commercial Rent Increases: The Act clarifies prior legislation prohibiting rent increases on commercial property during the period of the public health emergency, and for 30 days thereafter by making clear that the prohibition applies only to commercial retail property, not all commercial property.

Evictions: D.C. Code § 16-1501 pertains to court proceedings for eviction. Section 12 of the Act adds a provision to that section of the code to provide that the landlord cannot file an eviction complaint during a public health emergency declared by the Mayor and for 60 days thereafter. Evictions had been previously suspended for a 90 day period starting March 11, 2020, the day the Mayor declared a public health emergency.

Pro rata Refund for Amenity Charges: A housing provider is required to give a pro rata refund for charges a tenant has paid for amenities the provider temporarily stopped making available during a public health emergency declared by the Mayor. Refunds are not required if the amenity fee was included as part of the overall charge for rent (rather than being separately stated).

Additional information may be found here.

Significant Provisions: COVID-19 Supplemental Corrections Emergency Amendment Act of 2020

Section 2: Section 2 of the COVID-19 Supplemental Corrections Emergency Amendment Act of 2020, which the Mayor signed into law on May 4, 2020, requires mortgage lenders that make or hold servicing rights to a residential or commercial mortgage under the jurisdiction of the Commissioner of the D.C. Department of Insurance, Securities, and Banking to develop a program to grant 90-day or longer deferrals of mortgage principal and interest payments to borrowers due to the COVID-19 public health emergency.

Section 202: A borrower that receives a Section 202 deferral relating to a mortgaged property that is ocupied by a tenant must reduce a qualifying tenant’s” rent during the period of time the forbearance is in place. A qualified tenant” is a person that (1) has notified the landlord of its inability to pay all or a portion of its rent due as a result of the COVID-19 public health emergency, and (2) is a tenant on property owned or controlled by one who has received a mortgage deferral under Section 202. The rent reduction must be proportional to the deferred mortgage amount paid by the borrower to the mortgage lender as a percentage of total expenses reported in the borrower’s 2019 Income and Expense report provided to the D.C. Office of Tax and Revenue. The borrower may require the tenant to repay the difference in the amount of the rent stated in the lease and the reduced rent, without interest or fees, within 18 months or on cessation of the tenancy, whichever occurs first.

Additional information may be found here.

Commercial Landlord Sues Insurer Over COVID-19 Rent Coverage

A prominent real estate development, leasing and management firm that owns commercial properties worldwide sued its insurer asking a New York federal court to declare that it is entitled to coverage under its policy for losses incurred as a result of its tenants being shut down by government orders to close nonessential businesses during the COVID-19 pandemic. The plaintiff is claiming that it has coverage under several policy endorsements in addition to communicable disease, such as civic authority and loss of access endorsements of its policy, which together provide up to $750 million in coverage. The insurer, however, is claiming that the plaintiff is only entitled to coverage under the communicable disease response” and interruption by communicable disease,” which would provide far less than the losses the plaintiff will suffer as a result of the COVID-19 shutdowns.

More States Consider Legislation to Protect Commercial Tenants

California: The California Legislature is currently considering Senate Bill 939, which would prohibit evictions of commercial tenants during the COVID-19 state of emergency. If the bill is signed into law, any commercial evictions that occurred after Governor Newsome’s declaration of a state of emergency on March 4, 2020, would be deemed void and unenforceable evictions, even if the evictions occurred before the effective date of the law. In addition to evictions being void and unenforceable, the bill also has criminal and civil consequences - a violation would be a misdemeanor, an act of unfair competition, and an unfair business practice.

A copy of the proposed bill can be found here.

Illinois: Illinois Governor J.B. Pritzker signed Executive Order 2020-30, which, among other things, extended relief that previously only afforded to residential tenants. Under Executive Order 2020-10, law enforcement was prohibited from enforcing eviction orders for residential properties during the pandemic. The new order has broadened such protections to also include non-residential evictions. Law enforcement officers are precluded from enforcing any eviction orders for non-residential premises, unless the non-residential tenant has been found to pose a direct threat to the health and safety of other tenants, an immediate and sever risk to property, or a violation of any applicable building code, health ordinance, or similar regulation.”

A copy of the executive order can be found here.

New York Downtown Alliance Launches Small Business Rental Assistance Grant

The Downtown Alliance, which manages the Downtown-Lower Manhattan Business Improvement District, launched a Small Business Rental Assistance Grant to offer immediate help to storefront businesses providing vital services to residents and essential workers in Lower Manhattan during the pandemic. The Downtown Alliance has made $800,000 in grants available to small businesses impacted by COVID-19. Applicants must meet certain requirements, including:
  • Must be open and providing an essential service” as defined by Governor Cuomo in the PAUSE order, dated March 22, 2020.
  • Must be within the business improvement district, and located on the ground floor.
  • Must employ fewer than 20 people, and have five or fewer locations in New York City.
  • Must have gross annual revenues below $1.5MM.
  • Must use the grant towards rent payments.

BOMA Issues Guidance on Re-Opening Buildings

The Building Owners and Managers Association (“BOMA”) published a new guidance document that provides a framework for preparing commercial properties for the safe return of tenants, building personnel, visitors, and vendors. Among the suggestions are to:
  • Prepare for building re-entry well in advance of the lifting of restrictions by: assembling a planning team; consulting with governmental authorities; and by reaching out to tenants, vendors, and contractors as re-opening plans evolve.
  • Advise tenants of any building requirements and recommendations, including staggered work hours or days, smaller or virtual meetings only, and limited building guests and visitors.
  • Close amenity spaces for at least 30 days following building re-entry.
  • Develop strategies to reinforce social distancing in elevator lobbies and elevator cabs, and plan for more frequent and more thorough cleaning and disinfecting of elevators, stairwells and handrails.
  • Limit access points to the building and implement social distancing protocols at security and lobby desks.

Additional information may be found here.

Heard Around the Industry

Loans on Hold/Workout Strategies: While some European banks appear more willing to enter into new loan transactions at this time, some estimate that as many as 80%-90% of U.S. banks have ceased underwriting balance sheet loans due to economic uncertainty resulting from the pandemic. Many lenders expect that a large percentage of their borrowers will soon request forbearance or other forms of relief as they deal with the consequences of the economic shutdown during the crisis. The following are some of the more common requests for relief from borrowers:
  • Deferring payment of loans, on a case-by-case basis, for up to 90 days.
  • Modifying loan covenants, or waiving loan covenants that are unlikely to be achieved as a result of COVID-19, such as debt service coverage and annualized net operating income requirements.
  • For loans about to mature, seeking loan extensions for one year or immediate refinancing.

Retail Tenants Rewrite Their Leases To Include Pandemic Escape Clauses: In response to the current pandemic, some retail tenants are seeking to rewrite their leases to include pandemic escape clauses and other additional forms of reliefs. Most current leases that contain force majeure clauses, either exclude pandemics from the definition or don’t relieve the tenant from paying rent. Some tenant lawyers are now insisting on such protection from closures due to the public health emergencies that result in a business shutdown. Other tenant lawyers want to add provisions that would cancel rent payments when stores are closed for long periods and provide for the payment of  a percentage of sales when stores reopen. Landlords are balking at such remedies since they are still on the hook for mortgage payments, tax, insurance and maintenance costs.

Huge Increase in CMBS Borrowers Seeking Relief: In early April, Fitch Ratings started surveying master servicers to gauge how many borrowers were inquiring about payment relief. At the time of its initial survey, more than 2,600 borrowers with $49.1 billion of loans had inquired about getting some temporary relief due to COVID-19. In the first two weeks of April, the number of borrower requesting relief more than doubled, for a total of 5,420 CMBS borrowers with $100.7 billion of loans inquiring about getting relief. Fitch Ratings collected its data from the four dominant master servicers: Wells Fargo Bank, KeyBank, Midland Loan Services, and Berkadia Commercial Mortgage.

New York City Landlords Fight Cancel the Rent” Movement: Jay Martin, the executive director of the Community Housing Improvement Program, a group that represents thousands of New York City landlords reacted on Wednesday to a nationwide push to cancel rent payments amid the coronavirus pandemic, saying the rent strikes will create an economic domino effect.” His opinion is that federal and local governments should intervene to help address the situation.

Real Estate Board of New York Calls for Rent Increase: While local government leaders and tenant groups are calling for rent freezes and rollbacks during the pandemic, the Real Estate Board of New York believes that rents should be raised. The real estate board is calling for a minimum 2.4% increase on rent-stabilized units due to the impact of COVID-19 has on property owners. The Real Estate Board of New York notes that New York City property owners spend 40 percent of rent on property taxes and water bills, making it difficult to meet operating expenses and maintain units without government intervention.