Since mid-March, COVID-19 emergency laws and executive orders affecting commercial landlords in the District of Columbia, Virginia, and Maryland (DMV area) have been evolving. Developments were first reported in early April, updated in mid-April, and updated for District of Columbia commercial landlords in May. With the gradual reopening of business in these jurisdictions, courts too are responding. This article summarizes the current state of those emergency laws and orders affecting commercial landlords in the DMV area.
District of Columbia
On June 8, 2020, the Coronavirus Support Congressional Review Emergency Amendment Act of 2020 became law. This emergency legislation repeals all prior emergency legislation but continues the same programs with some changes to the program terms. As soon as it was enacted, the D.C. Council passed an amendment of the law, which is not effective until the mayor signs it.
Mandatory Rent Payment Plans for Retail Tenants and Small Businesses
Commercial landlords must give notice to all tenants of the availability of, terms of, and application process for a rent relief program during the program period. The program period is the period of the declared public health emergency plus one year. The declared public health emergency started on March 11, 2020 and expires on July 24, 2020, unless extended. Relief must be granted to an eligible tenant, defined to include a retail tenant or small business (less than 6,500 square feet) that provides evidence of a “financial hardship resulting directly or indirectly from the public health emergency” and is unable to “pay all or a portion of the rent due as a result of the public health emergency.” Non-D.C. franchisees are excluded.
- The plan must be in writing and comply with the following requirements:
- The plan must cover “gross rent” that comes due (“gross rent and any other amounts that come due” under the pending amendment) through the one-year period after the public health emergency ends, or the cessation of the tenancy if sooner;
- The repayment term must be a minimum of one year unless the tenant requests a shorter term;
- The plan must provide for the rent payments in minimum monthly installments, not in a lump sum; and
- The plan must waive fees, interest, or penalties arising from, and provide that the tenant does not lose any rights by, entering into the plan.
- A landlord that fails to offer a rent relief program or grant relief to an eligible tenant will be prohibited from evicting the tenant or collecting overdue rent from the tenant. The Department of Consumer and Regulatory Affairs will have jurisdiction over non-residential rent payment plan programs and complaints.
Rent Increase Freeze for Retail Tenants and Small Businesses
During the period of the declared public health emergency, plus 30 days after it ends, commercial landlords are prohibited from increasing rent for retail tenants and small businesses (less than 6,500 square feet). The declared public health emergency began on March 11, 2020 and expires on July 24, 2020, unless extended. There is no requirement that the tenant demonstrate financial hardship to receive the benefit of the rent increase freeze. (Under the pending amendment, any rent increase during the declared public health emergency plus 30 days thereafter is nullified.)
Under the emergency legislation, landlords are prohibited from filing a complaint for eviction of a commercial tenant during the period of the declared public health emergency plus 60 days thereafter. Since the prohibition is not limited to reasons related to COVID-19, it covers tenants who are otherwise subject to eviction because of failure to pay rent or other lease defaults, holdover tenants, and occupants who are in possession after foreclosure. The prohibition does not stop landlords from issuing rent reminders or notices of default. By court order governing operation of the D.C. Superior Court, all eviction cases are stayed until further order.
Mortgage Relief for Landlords
The law continues a mandatory mortgage relief program from earlier emergency legislation. Under the existing law, a lender that makes or holds a commercial mortgage loan in the District, including loan servicers, must provide a landlord-borrower a minimum 90-day deferral of payments of principal and interest and a waiver of any late fee, processing fee, or other fee that accrues during the declared public health emergency. To obtain mortgage relief, the landlord-borrower must demonstrate evidence of a financial hardship resulting “directly or indirectly” from the public health emergency. Deferred payments must be repaid in installments, but not in a lump sum, within a reasonable time as agreed between the lender and borrower. If there is no agreement on the term of a repayment plan, then the term will be 3 years from the end of the deferment period or the end of the mortgage loan term, if earlier.
The program does not apply to mortgage loans held by national banks or federally chartered credit unions or mortgage loans that were already accelerated or subject to a foreclosure initiated before March 11, 2020. The current legislation eliminates the requirement under previous versions that the landlord-borrower pass the relief through to tenants.
Governor Hogan’s executive order issued April 3, 2020 prohibits courts from entering judgment for possession in commercial eviction cases where the tenant can demonstrate a substantial loss of income due to COVID-19. The order states that it does not excuse the non-payment of rent or the failure to perform other lease or loan obligations. The order does not expire until the state of emergency ends. On July 1, 2020, Governor Hogan renewed the declaration of a state of emergency. The moratorium on evictions does not stop landlords from issuing rent reminders or notices of default.
For eviction cases not prohibited by the executive order, Maryland courts are resuming handling of those cases on a schedule depending on the type of case. Beginning July 20, 2020, tenant holdover cases, breach of lease actions, and wrongful detainers will resume. Beginning August 31, 2020, failure to pay rent cases will resume. In Montgomery County, Prince George’s County, and Howard County, on July 20, 2020, the court will begin scheduling tenant holdover, breach of lease, and wrongful detainer cases to be heard on August 31, 2020 or later, and on August 31, 2020, the court will begin scheduling failure to pay rent cases to be heard on October 5, 2020 or later.
Other than the general limitations under which the General District Courts are operating, there are no restrictions on the prosecution of an unlawful detainer case against a commercial tenant in Virginia.
Bankruptcy and Lease Termination
As economic conditions force more tenants, especially chains, to consider bankruptcy, landlords should consider whether to agree to terminate the lease.
- A termination agreement does not have to provide for forgiveness of rent or liability for future rent, but it can resolve whether the tenant has a right of possession and in certain circumstances could expedite a landlord’s recovery of possession of the premises.
- If a tenant wants to hand over the keys, there may be unintended consequences for the landlord, and a landlord should consult an attorney before accepting the keys from a tenant.
- If the tenant has already filed for bankruptcy, the automatic stay is in place, and a landlord should consult an attorney before taking any action.
NOTE: This alert provides only a summary of key points of the legislation and orders; the actual legislation and orders in their entirety should be considered before deciding to take or not to take an action. This alert is not intended to provide legal advice, and consultation with a lawyer is encouraged.