Stay-at-Home orders are starting to be lifted across the country. In Oregon, counties are beginning the re-opening process in phases. As businesses begin to re-open or take further steps to return to business as usual, commercial landlords and property management companies are left with important questions as to how to navigate ongoing and new challenges.
One of the major challenging for landlords and commercial property managers is what to do with tenants who are behind on rent.
At the time of writing this article, Governor Kate Brown’s Executive Order 20-13 (“EO 20-13”) was still in effect. EO 20-13 put a moratorium on any actions against commercial tenants for failing to pay rent. Specifically, landlords are prohibited from “termina[ting] any tenant’s lease; tak[ing] any action, judicial or otherwise, relating to non-residential eviction, …. issuing notices, …. or otherwise interfer[ing] with such tenant’s right to possession of the leased premises.”
EO 20-13 is set to expire on June 30, 2020. If this EO is lifted, should commercial landlords and management companies evict non-paying tenants? Should they file a lawsuit to collect unpaid rent, forgive the rent and move on, or none of the above?
Discussions with the tenant should have already occurred. If not, start opening the lines of communication immediately. Discussions with tenants is both allowed and encouraged by EO 20-13. While EO 20-13 prevents actions against tenants and evictions, commercial landlords and management companies are still allowed to communicate with the tenant. Additionally, EO 20-13 required the tenant to communicate with the landlord if it wanted the protections of EO 20-13. The tenant could not sit back and do nothing.
Subsection 2(c) of EO 20-13 requires a commercial tenant who wants to come under the protections of EO 20-13 to send within 30-days of rent being due written documentation that the pandemic has affected its business and it is unable to pay rent. The commercial tenant was required also to provide documentation to support its hardship.
During conversations with the tenants, it is appropriate to ask about federal and state programs and grants that the tenant may have qualified for. Hopefully every commercial tenant that is eligible has taken advantage of Small Business Administration Disaster Relief loans and/or the Paycheck Protection Program (“PPP”). PPP allows for 25% of funds to be used towards rent. At publication, the United States House and Senate have passed bill H.R. 7010. This bill modifies some key terms of PPP. Of interest to commercial landlords and management companies, this bill allows for a longer period to use PPP funds (8 weeks increased to 24 weeks) and PPP recipients can use up to 40% of PPP funds towards rent.
If the PPP funds or other programs do not cure the default, and if the EO 20-13 is lifted, should a landlord or commercial property manager take any legal steps against a defaulting tenant?
Communication between the parties is vital and can help the landlord or property manager determine if incurring the time, money, and legal fees would be fruitful. COVID-19 has impacted every business in the state of Oregon. The challenges the pandemic created are going to have lasting impacts this summer, the rest of this year, and into next year. So how quickly can this tenant recover?
If you do obtain possession of the premises through surrender or eviction, is there another tenant who can pay rent and perform? If the tenant is given more time to dig out from this pandemic, will it resume stability?
Working together can avoid a race to the courthouse for commercial evictions and/or collections lawsuits. At publication, Oregon courts are not open at full capacity. Once Oregon courts resume at full capacity, criminal actions will continue to take precedence. Civil lawsuits, such as a breach of contract claim for a non-paying tenant, could take 8 to 12 months to process. If a jury trial is requested by either party, it could be 12 to 18 months before a judge is able to make a ruling.
A proactive partnership between the landlord and tenant may be the best economically sound option available.