Earlier this month, Hall Render published an article detailing possible rent relief options for commercial landlords and tenants to consider while the COVID-19 outbreak continues and tenants cannot resume normal operations within their premises. Even so, in some cases, landlords and tenants have not and will not come to an agreement—potentially given landlords’ existing debt obligations and their lenders’ rigidness as to those obligations during this pandemic—forcing the parties to review their leases and applicable law to determine their rights and remedies in the event of tenant default for nonpayment. In most states, this review may be limited to the four corners of the lease and applicable law since, as of the date of this article, a majority of states have yet to adopt any law that prohibits commercial landlords (including health care entities) from seeking a judicial order terminating a tenant’s right to possession of the premises.
Even so, several states currently limit the availability of eviction orders against commercial tenants for nonpayment of rent, recognizing the significant financial effect of the COVID-19 crisis on these tenants’ revenues, especially health care entities limited by governmental restrictions on elective surgeries. States generally effectuate these directives in two ways: (1) directly by executive order; or (2) indirectly by statewide judicial orders. In either case, health care entity landlords and tenants should carefully review the express language of any such order to determine whether the order applies to them.
Executive Order
In states like New Hampshire (Order No. 2020-04) and Oregon (Order No. 20-13), state governors issued executive orders that prohibit landlords, for a set time period, from seeking to evict a commercial tenant from its leased premises. It is too soon to know whether these directives are enforceable under federal or state law, but it is unlikely that most enforceability challenges would be disposed of before the expiration of the order. In the meantime, health care provider landlords and tenants should consider the following when reviewing these orders:
Is the order aimed only at residential evictions?
The public policy rationale for prohibiting residential evictions during the COVID-19 crisis (i.e., preventing people from being kicked out of apartments, homes, etc.) is more entrancing than similar public policy justifications underlying restrictions on commercial evictions. Consequently, many governors limited their executive orders to residential evictions. Some orders, however, use ambiguous language, referring generally to “evictions” rather than “residential evictions.” Health care landlords and tenants should, therefore, consider whether other language in the order—such as references to a “home” or a “resident”—signals the order only applies to residential evictions. For example, in Kentucky, Order No. 2020-257 states that “evictions within the Commonwealth are suspended” but directs law enforcement officers to “cease enforcements of orders of eviction for residential premises.”
What is the scope of the order?
Despite the similar language in state executive orders limiting commercial evictions, the scope of such orders can vary. For example, Arizona limited the applicability of Order No. 2020-21 to small businesses with fewer than 500 employees. A health care tenant with more than 500 employees, therefore, is not protected by the order—presumably because policymakers in Arizona found that larger businesses are better able to weather the financial hardships caused by the COVID-19 crisis.
What conditions must a tenant meet to use the order as a shield?
Most, if not all, executive orders require a nexus between the tenant’s inability to pay rent and the implications and effects of the COVID-19 crisis. In California—where the statewide executive order (Order No. N-28-20) allows municipalities to enact orders prohibiting commercial evictions—a tenant’s nonpayment of rent must arise out of a “substantial decrease” in “business income” caused by the COVID-19 pandemic. The statewide order in Maryland (Order No. 20-04-03-01) uses similar language, prohibiting commercial evictions only where the tenant suffers a “substantial loss of income” as a result of COVID-19. Tying the loss of income to COVID-19 will be a fact-sensitive determination, but a tenant will likely need to provide some evidence that its nonpayment of rent results from the COVID-19 crisis. Otherwise, these orders may not provide protection to health care provider tenants even where the presiding authority is tenant-friendly.
Judicial Order
In some states where governors have yet to issue an executive order limiting commercial evictions, judicial officials intervened and issued judicial orders with the same effect. These orders indirectly delay commercial eviction proceedings using several court mechanisms, including:
- Limiting the types of cases which state courts may preside in the coming weeks, as the Chief Justice of the Supreme Court of Alaska (Order No. 8131) did by staying all court proceedings (aside from “priority” hearings largely related to criminal and family law matters) through part of April;
- Extending the deadline for responsive pleadings, which would include tenants responding to a landlord’s initial filing that requests possession of the premises (see, e.g., Order Dated March 26, 2020 from the Supreme Court of Idaho); and
- Giving local courts the flexibility to continue trials, hearings, and other proceedings (see, e.g., Indiana Supreme Court Case No. 20S-CB-123).
These state judicial orders are less uniform than the executive orders referenced earlier, which share commonalities (e.g., requiring the loss of income linked to COVID-19), so health care landlords and tenants should carefully review their applicable state judicial orders to determine the likelihood an eviction proceeding would be processed in the near future. Landlords and tenants should also be mindful of the timeline set out in these orders, as they tend to expire sooner than executive orders.
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It is important to note that the executive and judicial orders described herein do not necessarily prohibit a landlord from exercising any self-help rights under the lease that permit a landlord to retake a premises without a court order. In addition to reviewing what orders are in place as to the premises at issue, health care provider landlords and tenants should review their leases and applicable common law to determine the landlord’s repossession rights (if any). This is especially important for landlords facing pressures from lenders as to existing loan obligations encumbering the leased premises.
If you have any questions about the information contained above, please contact:
- Addison Bradford at (317) 977-1403 or abradford@hallrender.com;
- Rene Larkin at (720) 282-2024 or rlarkin@hallrender.com;
- Kiel Zillmer at (414) 721-0918 or kzillmer@hallrender.com; or
- Your regular Hall Render attorney.
Special thanks to Makda Gebremichael and Krystal Villarruel for their assistance with preparing this article.
Hall Render’s attorneys and professionals continue to maintain the most up-to-date information and resources, which are available at our COVID-19 Resource page, through our 24/7 COVID‑19 Hotline at (317) 429-3900 or by contacting your regular Hall Render attorney.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
