The COVID-19 Response And Its Impact On Commercial Lease Payment Obligations Part III; Orange County—Santa Ana and Costa Mesa

05.15.2020

In the last part of our series regarding the impact of the COVID-19 pandemic on commercial lease payment obligations (prior alerts linked here and here), this alert examines the different ordinances and orders affecting commercial leases in two jurisdictions in Orange County: the Cities of Santa Ana and Costa Mesa.

As discussed in our prior alerts, Governor Newsom’s issuance of Executive Order N-28-20 on March 16, 2020, authorized local governments to impose substantive limitations on commercial evictions through May 31, 2020, if: (a) tenants are unable to pay rent because of a substantial decrease in business income (caused by, for example, a reduction in opening hours or consumer demand) or out-of-pocket medical expenses; and (b) the decrease in business income or out-of-pocket medical expenses was caused by the COVID-19 pandemic, or by any local, state, or federal government’s response to COVID-19, and is documented. Accordingly, commercial tenants must look to the laws of their local jurisdictions to see what substantive limitations may apply to evictions, if any.

The City of Santa Ana

On March 19, 2020, the City of Santa Ana adopted a temporary moratorium on evictions for non-payment of rent by commercial tenants impacted by the COVID-19 crisis. The Santa Ana Executive Order (the “Order”) prohibits landlords from evicting commercial tenants for nonpayment of rent if those tenants’ businesses are subject to mandatory closure orders, or are otherwise limited or closed (voluntarily or by mandate) to prevent or reduce the spread of COVID-19, and who demonstrate lost income and the inability to pay rent as a result of such limitation or closure, or as a result of some other demonstrated financial impact related to COVID-19.

Pursuant to the Order, the tenant must notify the landlord in writing of the tenant’s lost income and inability to pay rent due to COVID-19 within 30 days after the date rent is due, and provide the landlord with appropriate supporting documentation (such as financial records). For purposes of the Order, “in writing” includes e-mail or text communications to a landlord or landlord’s representative with whom the tenant has previously corresponded by e-mail or text.

Notably, the Order provides that if a tenant suffers only a partial loss of income, the tenant shall pay the pro-rated share of rent that corresponds to the income generated during their period of loss. All financial records or information provided to the landlord under the Order must be kept in confidence, and may be used only for the purposes of evaluating a tenant’s claim or for enforcing the pro-rated payment of rent. Nothing in the Order relieves a tenant of liability for unpaid rent due to COVID-19, which the landlord may seek after the expiration of the local emergency. The tenant must pay the accrued rent within six months after the Santa Ana City Council proclaims the termination of the local emergency. However, no late fees may be applied to such delayed payment of rent.

The Order, and its moratorium on evictions, shall remain in effect until May 31, 2020, in accordance with the Governor of the State of California’s Executive Order N-28-20 (discussed above), or longer if extended by the Governor.

The City of Costa Mesa

On April 1, 2020, the City of Costa Mesa also ordered a temporary moratorium on evictions for commercial tenants if both of the following applied: (a) the basis for eviction is the nonpayment of rent, or a foreclosure, arising out of a substantial decrease in business income (including but not limited to a substantial decrease caused by a reduction in operating hours or consumer demand), or arising out of substantial out-of-pocket medical expenses; and (b) the cause for such income loss or increased expense is the COVID-19 pandemic or any local, state, or federal government response to COVID-19, and the income loss or increased expense is documented.

To qualify for protection under the Costa Mesa ordinance, the tenant must, within 30 days after the rent was due, notify the landlord “in writing” of its substantial COVID-19-related income loss or increased expense, and provide supporting documentation. Documentation may be provided after notification, but must be provided within the 30 days to qualify for protection. “In writing” explicitly includes e-mail or text communications to a landlord or landlord’s representative with whom the tenant has previously corresponded by e-mail or text.

The Costa Mesa moratorium does not relieve the tenant of any liability for unpaid rent, and landlords may begin seeking the unpaid rent as soon as Executive Order N-28-20 expires (which is currently set to expire on May 31, 2020). Accordingly, all unpaid rent must be paid as soon as possible, but no later than 120 days from the expiration of Executive Order N-28-20, currently May 31, 2020 (i.e. September 28, 2020). No penalties or late fees may be applied to such delayed payment of rent.

Conclusion

AALRR has a team of commercial litigation attorneys who will be able to assist you to navigate tenancy issues, ranging from rent abatement and obligations due to business interruption, force majeure, impossibility, impracticability, and frustration of purpose doctrines, and commercial evictions. The rules and protections for your commercial lease may be subject to change by the local governing body and application of the various rules is highly fact-specific and may or may not apply to your business. If you have any questions about which substantive limitations or protections pertain to your specific commercial lease agreement, contact the authors or your usual business law counsel at Atkinson, Andelson, Loya, Ruud & Romo for a thorough analysis of your lease and the impact of any rules or protections in your jurisdiction.

_{This AALRR publication is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process.} 

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