On April 20th, Governor Baker signed into law an eviction moratorium bill (H 4647) that benefits certain commercial tenants. While the new law grants extensive relief to homeowners from mortgage debt and foreclosures, and to residential tenants from evictions, it provides no relief from mortgage debt to commercial property owners, and limited relief to certain commercial tenants. This article addresses the limited relief provided by the legislation to commercial tenants.
Below are the five key points of the new law with regard to commercial tenants.
- What commercial tenants does it apply to? The law only applies to a “small business premises unit,” which is defined to exclude commercial tenancies where the tenant or a party that controls, is controlled by or is in common control with the tenant: operates multi-state or multi-nationally, is publicly traded, or has not less than 150 full time equivalent employees.
- What relief does the law provide? The law does not relieve a small business tenant from the legal obligation to pay rent, or restrict a landlord’s right to recover rent. The law does delay the landlord of a small business in its ability to pursue a summary process (eviction) case, as explained below, except in situations impacting health and safety. The law does not apply to an eviction of a small business on account of the expiration of the lease term or tenancy, or a default, that occurred prior to Governor’s declaration of the COVID-19 emergency on March 10, 2020.
- What is the impact upon a landlord’s ability to evict? The new law precludes Massachusetts courts from accepting new summary process complaints, entering judgments or default judgments for possession to the landlord, issuing executions for possession, denying requests for a stay of execution, and scheduling all court events, with exceptions for emergency situations. The law tolls all deadlines and time periods in pending summary process cases, and precludes the enforcement of an execution for possession. It remains to be seen how and when the courts, or for that matter, a landlord will determine whether a tenant constitutes a small business under as defined in this legislation.
- Can late fees be charged if rent is late due to COVID-19? The new law precludes the imposition of late fees for the failure to pay rent, and reporting a tenant to a credit agency, if the tenant provides notice and documentation that the failure to pay rent was due to COVID-19 or the State of Emergency. Again, none of this applies to emergency situations involving health and safety.
- When does the moratorium expire? The relief afforded by the legislation as described above expires on the earlier of 120 days after enactment of the legislation (August 18, 2020) or 45 days after the COVID-19 emergency declaration has been lifted, but the governor may postpone expiration to a limited extent.
While the legislation offers more extensive relief to residential tenants and borrowers, it offers limited relief to small business tenants. Taking the eviction remedy away from landlords of small business premises for a limited period of time merely delays, but does not eliminate, the commercial tenant’s obligation to pay the rent that is due. During this period of delay, the commercial tenant should be exploring ways to raise capital to pay the landlord, including through CARES Act funding, and communicating with its landlord regarding forbearance and lease modification. The legislation will have a negative impact on landlords of small businesses because it suspends their ability to pursue a remedy for the breach of the tenant’s obligation to pay rent, while those landlords still have to pay their mortgage debt, taxes and other expenses.
View the full article on COVID Considerations here.