Coronavirus--Navigating Landlord-Tenant Relationships

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With schools closed and much of the United States under stay-at-home orders, public schools have moved to online learning. Some subjects are more amenable to distance learning than others.

School orchestra and band classes are set up primarily as performance classes. Teachers include music history and music theory in their curricula, but they spend the bulk of the class time helping students learn music for performances.

Orchestra and band classes don’t translate well to online learning. Therefore, music teachers must be creative to maintain their relationships with their students despite school closures and stay-at-home orders.

How teachers maintain their connection with their students and continue instruction will vary depending upon the circumstances. Teachers may have virtual classes where they teach students about music. Or a teacher may require students to listen to music and evaluate or critique it. Another teacher might require students to learn music and submit videos of their performance. Some have even conducted simultaneous rehearsals via video conference, such as Zoom.

Like music teachers, who must be creative to sustain their relationships with students, landlords must be creative to maintain their relationships with tenants during this time. Ideally, landlords and tenants would work together to maintain safe living and working environments.

Unfortunately, government orders and programs may put landlords and tenants at odds with each other. Sources of tension include rent payments, building amenities, and maintenance levels, and social distancing recommendations (in this article, the term “recommendation” includes both CDC or government recommendations and requirements under government orders).

Tenant Rent Payments

Many tenants are hurting. Nonessential businesses have closed in most states, and new unemployment application numbers are soaring. These economic situations may make it difficult for tenants to pay rent.

In the office, retail, and industrial sectors, businesses may be closed or have less business due to stay-at-home orders. With limited financial resources, businesses may prioritize paying employees above paying rent.

These business tenants may be eligible for relief programs, such as Economic Injury Disaster Loan Emergency Loans and the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (CARE Act). State and local governments also may have loan or grant programs.

But funds were limited for the government loans, and many small businesses were turned away. Only a fraction of funds from Paycheck Protection Program loan may be used for rent payments if the borrower wants to apply for loan forgiveness. Funds are limited, and some programs, such as the Maryland Small Business COVID-19 Emergency Relief Loan and Grant Funds, are no longer accepting applications. As a result, even businesses that expect to receive loans or grants might not be able to pay rent on time.

Except for the practical delay in evictions due to court closures, many business tenants have no protection from eviction.

Residential tenants have fewer options. Tenants receiving unemployment can expect increased unemployment benefits under the CARE Act. Most will have received the government’s cash payment under the CARE Act. Some local governments may offer temporary rent assistance. But the main relief to residential tenants is a 120-day eviction moratorium and elimination on late fees under CARE Act (which doesn’t apply to all tenants) and similar state laws.

The CARE Act moratorium doesn’t apply to every residential landlord. And mortarium doesn’t say that tenants need not pay their rent. The CARE Act just gives tenants more time to pay rent before they can be evicted.

The CARE Act and similar laws are intended to protect tenants who can’t afford to pay rent because of the economic downturn. Yet, without the threat of eviction and late fees for nonpayment, even tenants who can afford to pay rent might decide not to pay their rent.

Tenants who can pay should pay, both because it is their obligation and as a matter of fiscal discipline. Tenants who don’t pay rent (whether due to financial hardship or otherwise) nay end up with a huge rent bill they aren’t able to pay when the eviction moratorium ends.

Plus, when tenants don’t pay rent, it increases financial pressure on the landlords, who have mortgage payments, taxes, and employees to pay. And when tenants don’t pay their rent, landlords may have to lay off employees, which increases unemployment and may affect the landlord’s level of service. Sometimes, nonpayment of rent may put the landlord in jeopardy of mortgage foreclosure.

Building Amenities and Maintenance

Another area of tension between landlords and tenants is building amenities and maintenance levels. Landlords may need to reduce amenities or maintenance, while tenant demand remains the same or even increases in some sectors.

Social distancing recommendations may require multifamily landlords to close many common areas, including playgrounds, fitness centers, sport courts, swimming pools, spas, business centers, and community buildings. At the same time, tenants whose children are out of school and who themselves are on furlough or telecommuting may increase their use of common areas.

Office landlords may close exercise rooms and vending or food service areas that are tightly contained. But with restaurant options limited, tenants in essential business areas may have a greater need for on-site vending and foodservice.

Retail landlords may cancel events that bring customers to a shopping center or close indoor malls entirely. These cancellations and closures might severely limit potential customers or, sometimes, make it impossible for a business to continue even the limited operations permitted under government orders.

Landlords also need to consider employee safety and promote employee social distancing. On-site management staff may begin telecommuting and not be as readily available to respond to tenant concerns. Landlords may limit repairs and maintenance to emergency matters to minimize contact between maintenance workers and tenants.

Landlords may be facing financial pressures due to nonpayment of rent and be forced to lay off employees, which further reduces services to tenants. Tenants who are receiving fewer amenities, less responsive staff, and a lower maintenance level may feel entitled to reduce or eliminate rent payments.

Social Distancing and Masks

Social distancing and mask recommendations can be another source of tension between landlords and tenants. Tenants may object to landlord closures of amenities to comply with social distancing recommendations.

Some tenants may expect landlords to be the social distancing police for other tenants and visitors at the property. Landlords must enforce common area closures, such as forbidding playground use. Landlords also must enforce recommendations if tenants don’t socially distance or wear required masks if it compromises the safety of landlord employees. But landlords aren’t likely to be in a position to enforce recommendations where violations don’t involve violation of landlord common area closures or employee safety.

Risk Mitigation

Some tenants may view social distancing, stay-at-home orders, and mask recommendations politically. Landlords should set aside any political beliefs in favor of making good business decisions.

That requires that landlords view COVID-10 recommendations through risk mitigation lens. Landlords should implement the most up-to-date recommendations from the CDC, government, and industry organizations. When recommendations vary, landlords should favor more restrictive recommendations.

Failure to follow recommendations designed to prevent the spread of COVID-19 is likely to result in a lawsuit brought by a tenant or visitor who becomes ill. Therefore, regardless of a landlord’s individual beliefs, following recommendations is a matter of good business.

Building Community

Landlords should strive to help tenants get through these challenging times by creating a supportive community. Tenants’ circumstances will vary, but a sense of community will help landlords demonstrate that while paying rent is important, other things matter to the landlords also.

Landlords should adopt a three-prong approach: Education, Social Connection, and Compassion.

Education

  • Remind tenants of the obligation to pay rent. Even if they can’t be evicted right away, they still will owe rent. Explain that the landlord still has a mortgage, utilities, and taxes to pay.

  • Provide information about local rent support programs and other programs that might benefit them.

  • Inform tenants of amenity closures and why the closures are happening, referencing specific recommendations.

  • Inform tenants of any changes in office hours, maintenance, or other services and why those changes are occurring.

  • Educate tenants about CDC recommendations and any state or local requirements.

Social Connection

  • Sponsor “Happy hours” or “coffee breaks” via Zoom or another free video conference program to give tenants a chance to socialize with and feel connected to staff and other tenants.

  • Frequently update to the community’s social media pages.

  • Sponsor online fitness, meditation, or other wellness programs.

  • Sponsor a community mask-sewing program where some tenants donate supplies, and tenants who can sew can make colorful cloth masks to donate to seniors and others in need.

  • Assist multifamily tenants without Internet access in obtaining temporary free service offered by local cable companies.

Compassion

  • Sponsor a food drive where socially distanced tenants can contribute food for donation to a local food pantry.

  • Provide sick leave to staff and encourage telework where possible and make tenants aware of these policies.

  • Provide masks to staff and tenants who need them.

  • Assist multifamily tenants whose cars won’t start due to a lengthy period of disuse with battery charging.

  • Multifamily landlords can assist seniors and others in need with signing up for assistance, such as Meals on Wheels.

The pandemic and economic fallout are likely to continue for many more months. Landlords can use this time to build a supportive community that will make the property a better place to live long after life has begun to return to normal.

This series draws from Elizabeth Whitman’s background in and passion for classical music to illustrate creative solutions for legal challenges experienced by businesses and real estate investors.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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