COVID-19 Commercial Tenant Eviction Update

As March approaches, we are poised to hit the two-year anniversary of California’s March 4, 2020, State of Emergency Proclamation relating to the COVID-19 health crisis. In the months that followed, we watched federal, state, and local governments adopt myriad laws, rules, emergency orders, proclamations, declarations, ordinances, and mandates, creating a patchwork of rules and regulations for commercial real estate that defied generalization or statewide compliance practices. The market may never look exactly like it did before COVID-19 (note our last article: to-go alcoholic drinks are here to stay!). As concern over the virus appears to be waning, we are seeing jurisdictions generally, but not uniformly, remove their COVID-19 commercial tenant eviction protections*. We therefore thought it would be appropriate to highlight a few of the notable policies which are in effect in some of California’s markets. Of course, most of the rules listed below have exceptions, and exceptions to the exceptions, so please consult your local laws (or counsel) before proceeding.

In the City of Sacramento, the relevant ordinances are distinguished between first-floor commercial tenants and all others. The eviction moratorium ended for all commercial tenants other than first-floor tenants on June 30, 2020, but it remained in place for first-floor tenants through September 30, 2021. On January 28, 2022, the deadline passed for those first-floor commercial tenants to pay the outstanding rent due for the period of March 2020 through September 2021. At this point, it appears there are no eviction protections related to COVID-19 in place for commercial tenants in Sacramento.

In contrast, in the City and County of San Francisco (“San Francisco”), some commercial tenants still enjoy significant eviction protections, although such protections are subject to various conditions. San Francisco categorizes commercial tenants into “Tiers”. A Tier 1 Commercial Tenant employs fewer than 10 full time equivalent employees, while a Tier 5 Commercial Tenant employs 100 or more full time equivalent employees. Regardless of Tier, to be protected under the relevant ordinances, the commercial tenant must have experienced a financial impact from COVID-19, be registered to do business in San Francisco, have worldwide combined gross receipts of less than $25 million, and not be a for-profit operation occupying property zoned for office use. San Francisco also excluded from eviction protection any commercial tenants renting property from the City and County itself. Landlords of qualifying commercial tenants may not attempt to recover possession of the unit based on missed rent during the Moratorium Period (March 2020 through September 30, 2021) for periods of time determined by their Tier (a “Forbearance Period”). At time of publication, a Tier 1 Commercial Tenant will be protected under such Forbearance Period until September 30, 2023, while any protections enjoyed by a Tier 5 Commercial Tenant expired at the end of the Moratorium Period. The intermediate Tiers’ Forbearance Periods are distributed accordingly. Tier 1 Commercial Tenants may also terminate their leases on thirty days’ notice, and are not subject to early termination fees or penalties, regardless of any terms to the contrary in the lease. Caution is recommended in this area, as there are exceptions for landlords experiencing hardship, exceptions for smaller landlords, and exceptions for those with certain negotiated agreements covering the same issues.

Finally, as of February 1, 2022, in Los Angeles County, commercial tenants are no longer protected from eviction due to nonpayment of rent related to COVID-19. However, commercial tenants with 0-9 employees will have twelve months to repay the past due rent for the period of March 2020 through January 2022. Those with 10-100 employees will have six months to repay the past due rent. Also, through at least December 2022, the current anti-harassment and retaliation protections will remain in place for commercial tenants, as will the prohibition on enforcement of personal guarantees for rent incurred on or before January 31, 2022, for commercial tenants with nine or fewer employees.

Obviously, the hope for both landlords and tenants is that an eviction is never necessary, but in the event such a proceeding occurs, the geography and timing of the regulations promulgated by every layer of government may be significant factors in the outcome. As the economy stabilizes and the governments follow suit, it certainly appears as though some real estate relationships are headed towards their pre-pandemic status quo.

*This article is limited to the commercial real estate market. Protections for the residential market are generally much different in their effect and intent.