Updated as of July 22, 2020.
On April 14, 2020 the Los Angeles County Board of Supervisors (“Board”) amended its March 19, 2020 order that implemented an eviction moratorium with respect to both residential and commercial tenants and provided that if a tenant was unable to pay their rent current they could defer rental payments that were due during the period March 4, 2020 through May 31, 2020 for months. On May 12, 2020, the Board issued an order that, among other things, extended the moratorium period through June 30, 2020.
After previously extending the order through July 31, 2020, on July 21, 2020, the Board has once again extended the order through September 30, 2020. Additional extensions will continue to be reviewed and approved on a month-by-month basis by the Board going forward.
Coming on the heels of the Board’s prior extension on June 23, 2020, both the Board and the Los Angeles City Council approved a combined $133 million in federal CARES Act money to be spent on rental assistance to tenants during the COVID-19 crisis. The City’s program allocates $103 million (and up to $2,000 per household) to residential tenants who earn below 80% of the area’s median income. However, over 100,000 applicants signed up the day that the enrollment period opened on July 13, 2020, forcing the City to randomly select 50,000 families that will receive subsidies. The County’s program extends $30 million to residential tenants hit hard by COVID-19, but the program is not expected to launch until mid-August, 2020. The County’s program will exclude any units located within the City and will require applicants’ landlords approval. We will continue to monitor these relief programs and provide updates accordingly.
The Board’s April 14 amendment expanded coverage of the March 19 order to all cities in Los Angeles County that have not enacted their own eviction moratorium/rent deferment order and mobile home parks who rent space to mobile homeowners, in addition to the unincorporated areas of Los Angeles County that the March 19 order initially covered. Thus, cities within Los Angeles County who have enacted their own order, like the City of Los Angeles, do not fall under the Los Angeles County order.
The May 12 amendment, effective June 1, excludes commercial tenants that are multi-national, publicly traded or have more than 100 employees. Further, commercial tenants with between 10 and 100 employees will only have 6 months following the end of the moratorium period to repay any deferred rental payments, while residential tenants and commercial tenants with 9 or fewer employees will still have 12 months.
Los Angeles County’s order requires defaulting tenants to demonstrate an inability to pay rent and/or related charges due to “financial impacts” related to COVID-19 in order to not be evicted for nonpayment of rent. However, the May 12 amendments provide that both commercial tenants with 9 or fewer employees and residential tenants may “self-certify” their inability to pay as a result of “financial impacts,” and requires landlords to accept such self-certification. For these qualifying tenants, a self-certification notice issued by the County can be used to comply with this requirement and notify landlords.
For the commercial tenants covered by the County’s order but that do not qualify for self-certification, additional guidance was issued on June 3, 2020 regarding the type of documentation such tenants will be expected to provide to adequately demonstrate their inability to pay rent as a result of financial impacts due to COVID-19. This documentation includes: bank statements before and after the COVID-19 pandemic, gross sales receipts before and after the COVID-19 pandemic, evidence of increased expenses before and after the COVID-19 pandemic, and applicable federal, state, and local health officer orders which demonstrate restrictions on business activity applicable to the tenant. These are only guidelines as to what should be provided, and it will ultimately be up to a court to determine if adequate information was provided to demonstrate an inability to pay rent. Further, the fact that a business is “essential” under a federal, state, or local public health order or continues to operate during the moratorium period shall not, in and of itself, prevent a commercial tenant from establishing a financial impact related to COVID-19. Regardless of whether this demonstration must be made or if self-certification applies, both residential and commercial tenants must still provide notice to their landlords of their inability to pay within 7 days of the due date.
“Financial impacts” include “substantial loss of household income due to business closure, loss of compensable hours of work or wages, layoffs, or extraordinary out-of-pocket medical expenses” that are “related to COVID-19” (i.e. if it is a result of any of the following: (1) a suspected or confirmed case of COVID-19, or caring for a household or family member who has a suspected or confirmed case of COVID-19; (2) layoff, loss of hours, or other income reduction resulting from business closure or other economic or employer impacts of COVID-19; (3) compliance with a recommendation from the County’s Health Officer to stay home, self-quarantine, or avoid congregating with others during the state of emergency; (4) extraordinary out-of-pocket medical expenses related to diagnosis and testing for and/or treatment of COVID-19; or (5) child care needs arising from school closures related to COVID-19). Los Angeles County’s order as amended also prohibits both residential and commercial evictions based on the presence of unauthorized occupants, pets, or nuisance necessitated by or related to COVID-19.
It is worth reiterating that if a city within Los Angeles County has enacted its own order, then that order would apply over Los Angeles County’s. It is thus crucial for landlords and tenants alike to familiarize themselves with any local city order applicable to their location, as the vast majority of cities both inside and outside of Los Angeles County, as well as other counties themselves, do not allow for similar “self-certification,” and instead require a defaulting tenant to “demonstrate” or “show” an inability to pay rent due to COVID-19. When such demonstration or showing is required, tenants should be prepared to provide some form of supporting documentation, along the lines of the type of documentation set forth above. Certainly, if the landlord insists on documentation of inability to pay rent, it would behoove both landlords and tenants to discuss the type of supporting documentation to be provided.
In sum, municipal eviction moratorium/rent deferment orders may differ from Los Angeles County’s order by: (a) excluding commercial tenants, or certain commercial tenants, from protection; (b) providing alternative timeframes for notifying landlords of an inability to pay or for making deferred rent payments once the applicable order or the COVID-19 emergency period expires; and (c) requiring a demonstration or showing of an inability to pay because of COVID-19.
For instance, while the City of Los Angeles’ eviction moratorium/rent deferment order (currently effective through June 30) also limits the type of commercial tenants that are protected and, like the County order, does not allow landlords to apply late fees or interest to properly deferred rental payments, it: (a) does not extend protections to commercial tenants that are publicly traded companies, transnational companies, or companies with over 500 employees; (b) only grants defaulting commercial tenants a 3 month time period after the emergency period to make up deferred payments (defaulting residential tenants have a 12 month time period); and (c) does not explicitly require defaulting tenants to “show” an inability to pay rent for reasons related to COVID-19; however, while residential tenants may use a simple notice form to landlords that suggests they may self-certify their inability to pay, whether and to what degree commercial tenants will need to substantiate an inability to pay because of COVID-19 under this order remains unclear.
In light of the foregoing, all landlords and tenants should immediately:
With the COVID-19 pandemic raging, businesses are concerned about whether this event will excuse their performance of agreements they entered into prior to the pandemic, and with the beginning of a new month fast approaching whether to pay the rent on their leases, while landlords are engaged in the same thought process of wondering if the rent checks are going to timely arrive. That dilemma is especially acute in places like California, with Governor Newsom’s stay-at-home order made on March 19 and its impact on all businesses and the rapidly emptying commercial and non-essential retail space.
Notwithstanding today’s earlier enactment of the $2 trillion stimulus package and the inclusion in that legislation of federal government funding programs assisting both “eligible” and small businesses, consideration needs to be given to the contract terms in all of your business contracts to issues excusing performance. The contract term that is now on everyone’s’ lips is the boilerplate term often referred to by its French name, called “Force Majeure” literally meaning “superior strength” and oftentimes incorrectly referred to as an “Act of God”. What you need to do, first, is to carefully understand the terms of your agreements, especially your commercial/retail lease and if there is a “Force Majeure” clause contained in it, to further determine how that clause and others within the applicable agreement may allow one party’s performance of a contract to be excused, either totally or partially.
In California, that is just the beginning of the analysis: For nearly 150 years an obscure law has remained on the books. The law is simply titled “Causes excusing performance,” is found in the California Civil Code (§1511) and provides in all its splendor: “The want of performance of an obligation … in whole or in part, or any delay therein, is excused by the following causes, to the extent to which they operate: … When it is prevented or delayed by an irresistible, superhuman cause, or by the act of public enemies of this state or of the United States, unless the parties have expressly agreed to the contrary …”
With the weight of California case authority suggesting that an “irresistible, superhuman cause” means an “Act of God,” that likely compels an analysis whether COVID-19 and the pandemic is, or is not, an “Act of God”. And in this upcoming Holy Season, not surprisingly the short answer is maybe yes, maybe no. There may be other terms in the agreement that would help in this analysis. While beyond the scope of this brief article and however one may perceive the precise origins of this terrible super-virus, the human spread and contagion don’t seem too God-like, but rather are clearly rooted in human actions. But look, the statute operates to excuse contract performance qualified by the following key nine words “unless the parties have expressly agreed to the contrary …” That then begs the question as to what is an express agreement to the contrary? Must the contract drafters have anticipated a flu-like pandemic, or what about some other type of pandemic?
Added to the analytic mix are additional principles of California contract law, specifically legal doctrines that further operate to excuse performance called “impossibility/impracticability” and “frustration of purpose”. In the former, contract performance may be excused when it is either not practicable or would require excessive and unreasonable expense, not already contemplated by the parties in their contract. In the latter, performance is excused if the purpose for entering into the agreement has been frustrated by a change in circumstances, eg., a stay-at-home order issued by the Governor that results in office/retail space being vacated.
If you have questions regarding a Force Majeure clause in your lease contract, please contact our COVID-19 Task Force - .