The COVID-19 pandemic and resulting health and economic measures have significantly affected businesses, property owners and tenants around the country. According to the U.S. Bureau of Labor Statistics, the unemployment rate remained in double digits throughout June.
This is particularly concerning for tenants and landlords. Residential renters make up a disproportionate share of service sector jobs, one of the industries hardest hit by the unemployment crisis. Many commercial tenants, with businesses shuttered as a result of COVID-19, have been unable or unwilling to pay. Hundreds of thousands of tenants, both residential and commercial, are behind on rent. As a result, landlords and lenders are hurting as well.
Are resources available?
State and federal assistance is accessible — but the assistance is temporary. Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law in March, which authorized over $2 trillion in economic relief to both businesses and individuals. The Paycheck Protection Program helps businesses cover payroll and applicable overhead, but funds are finite. The law also provides $600 per week in enhanced federal unemployment benefits. These are set to expire at the end of July. Many government entities have suspended evictions and foreclosures, but the moratorium will eventually end.
What happens when these resources run out?
In many instances, the end of the eviction and foreclosure moratorium coincides with the end of enhanced employment benefits. Experts fear this could lead to yet another crisis at a time when a flood of COVID-19 cases is already causing some states to reconsider their reopening timelines.
Beyond any relief that state and federal governments may ultimately make available, landlords, lenders and tenants should consider proactive solutions and alternatives to eviction and foreclosure.
How can landlords and tenants work together to avoid evictions?
In the current economic climate, filling a vacancy will not be easy. It may make sense to rework existing agreements to maintain the relationship before resorting to litigation. Lease agreements may be modified in the short term to keep tenants in place. Conditions can be placed on any agreement to ensure long-term sustainability.
How can lenders and borrowers avoid foreclosure?
Loan adjustments may provide a lifeline to borrowers facing foreclosure or bankruptcy. Delayed payments may be added to the existing balance. The time allotted to pay the balance may also be extended. Voluntary mediation may be an option to discuss mutually beneficial alternatives to litigation.
Phelps Dunbar’s business law experts offer guidance on how to best position businesses for survival in trying times. Please contact Derek Larsen-Chaney or any other member of Phelps’ Business team if you have questions or need advice and guidance.
Special thanks to our contributing author, Quentin Cumings, a 2020 summer associate from UCLA School of Law.