The sun is out, the flowers are blooming, and pollen is everywhere. It’s spring, and with the growing optimism about the United States’ recovery from the COVID-19 health crisis, there’s a lot to be happy about. But before you finalize your summer vacation and purchase a new bottle of sunscreen, this is also an important time to engage in a bit of spring cleaning. No, I’m not referring to dusting off the shelves or flipping the mattress; I’m referring to landlords and property owners, who just weathered a 100-year pandemic and need to revisit and potentially clean up those lease amendments and other agreements hastily entered into last spring in reaction to the unprecedented new market dynamics presented by COVID-19. In many instances, deferred or delayed obligations are now coming due, presenting landlords and owners with the opportunity to reevaluate whether these relationships still make sense. |
Last spring, businesses around the world were suddenly dealing with extreme government restrictions and mandated business closures. Landlords, faced with the prospect of shuddered centers and vacant spaces as well as prohibitions on eviction, elected to grant lease concessions that abated or deferred rent and other leasehold obligations for their tenants. These modifications typically required repayment of any deferred charges to a period later in the lease. A year later, many of those deadlines are now coming due, meaning tenants who enjoyed forgiveness from their landlords need to reinstate full payment of rent according to their leases and/or pay back deferred rent. |
Hopefully these tenants, buoyed by stimulus payments, expiring operating restrictions, and positive consumer sentiment, will be able to pay these deferred obligations. The reality is, however, that some will not. |
In most jurisdictions, eviction moratoria adopted over the past year provided a strong counterpunch for tenants who could not pay their rent, creating leverage for these desperate businesses. Almost all of these protections have now expired for commercial tenants. Despite a common perception that unlawful detainer actions and lawsuits to enforce leases are prohibited, California courts are allowing eviction actions to proceed. For landlords who determine that their tenants just won’t make it, enforcement may be the only option. |
Recently, our firm handled an unlawful detainer action involving a first-floor retail property in Sacramento County, successfully obtaining a judgment for possession and damages for our landlord client. Despite ongoing protections for first-floor retail tenants, the tenant in question did not provide the required notices and supporting documentation required by the tenant protection program. The tenant presented defenses based on the moratorium, and the belief among some practitioners was that courts might be lenient to tenants who qualify for protection even if they didn’t meet all of the procedural requirements. Contrary to such belief, the court enforced the tenant protection program as drafted and refused to allow the tenant to avoid its leasehold obligations.
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Landlords with these agreements in place should review their terms and calendar the required intervals for payment. If a tenant has not demonstrated any propensity for success and has not complied with its amended obligations, landlords may need to pursue enforcement, knowing that courts will support these efforts where appropriate. Evictions are an unfortunate part of commercial leasing, but as the economy recovers and new businesses look to open, landlords would be wise to preserve their spaces for these opportunities. |
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I am an attorney that assists clients with commercial real estate matters, including buying, selling, leasing, and management of real property. I also help clients structure investments in real estate, handling projects relating to financing, investment, and joint ventures. In addition, I regularly advise clients on general corporate matters, from formation and management to operating issues to third party contracts for licensing, research and development. I have a diverse background, with experience in private practice and in-house counsel, on both litigation and transactional cases, and in non-legal roles. I like working with sophisticated clients who demand top notch legal advice to help them manage their legal issues in an efficient and effective manner. I look forward to working and/or connecting with you soon.
Mark Ellinghouse 916-558-6091
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