LEGAL CONSIDERATIONS FOR TENANT DEFAULTS DURING COVID-19 PANDEMIC

The following issues are meant to address certain contractual and statutory obligations between commercial Landlords and Tenants in light of the COVID-19 pandemic in California.  During these times, it is important that the Landlord and Tenant communicate and work together to ensure that everyone’s health and safety issues are addressed. 

Tenant’s Continuity of Business:

Most commercial leases require the Tenant to maintain continuity of operations of their business at the premises at all times. However, in California, most “non-essential” businesses have been ordered to close (or at least stop using their physical office) during this time, which potentially conflicts with the lease. Moreover, some business may choose to close even though they are deemed essential, e.g. a restaurant that doesn’t want to do take out. In the event a Tenant ceases operations at the premises as a result of COVID-19, it is important for the Landlord and Tenant to communicate to understand the situation, address health and safety measures, secure the premises and try to mitigate any losses for both the Landlord and the Tenant.  If it appears that the Tenant is not going to be able to re-open its business after the COVID-19 pandemic passes, then the parties should take steps to orderly return possession of the premises to the Landlord as soon as possible. 

Tenant Abandonment:  

In the event a Tenant is not paying rent, appears to have abandoned the premises, and is not responsive to Landlord’s efforts to communicate with them, then a Landlord is still permitted to serve a statutory Notice of Belief of Abandonment in order to regain legal possession of the property under California Civil Code §1951.3. There are technical requirements under the statute that must be complied with regarding the contents of the notice, the waiting period before retaking possession and the service requirements on the Tenant.  Once the Landlord retakes possession of the premises, the Landlord may also have statutory and contractual obligations in handling or disposing of any personal property left behind by the Tenant, which is determined on a case by case basis. 

Payment of Rent and Related Expenses: 

There has been no state-wide moratorium limiting a commercial Tenant’s obligation to pay rent and related expenses in California during the COVID-19 pandemic. However, it is important to check each County regularly as the information is constantly being updated. As of today, state-wide, Tenants are still required to pay rent and related expenses pursuant to the terms and conditions of the lease agreement. However, a Landlord and Tenant are certainly permitted to enter into an agreement(s) to defer or forgive rent, adjust the rent schedule, vacate the premises, terminate the lease, etc. 

Serving Legal Notices on the Tenant:  

There are currently no state-wide changes in the law that would prohibit a Landlord from serving a Tenant that is in default with a legal notice, e.g. a Notice to Pay or Quit and/or Notice to Vacate.  But, again, it is important to check each specific County since things are changing daily. The Landlord will still need to serve the Tenant with a copy of the notice pursuant to the requirements under the lease and/or the California statutes. Enforcing the legal notice in court will be delayed indefinitely as described in the following section.  However, when the courts do open up again the Landlord would likely be able to commence the eviction proceeding immediately rather than having to serve the notice at that time and wait for the time period in the notice to expire. 

Court Eviction Proceedings:  

In California Landlords are prohibited from engaging in “self-help” to evict a Tenant. In most cases it is necessary for the Landlord to get a court order and have the Sheriff perform a lockout in order to regain possession of the property. Unfortunately, this may be impossible for the near future. 

Unlawful Detainer (eviction) proceedings are held in the state court in the County where the property is located and currently most Counties have indefinitely suspended their unlawful detainer proceedings, unless it is an emergency type situation, e.g. violence or health/safety issue. As such, a Landlord’s option to evict a Tenant is not available at this time, in most Counties. 

Other Dispute Resolution Under the Lease:

Often times a commercial lease contains an arbitration and/or mediation provision requiring the Landlord and Tenant to arbitrate or mediate their dispute, rather than go to court. These services are generally still available (although telephonically) but may be difficult to schedule for the immediate future.