HomeMy WebLinkAbout4ACITY COUNCIL STAFF REPORT
DATE: MARCH 25, 2021 UNFINISHED BUSINESS
SUBJECT: DISCUSSION REGARDING TEMPORARY MORATORIUM ON
EVICTIONS FOR COMMERCIAL TENANCIES
FROM: David H. Ready, City Manager
Jeff Ballinger, City Attorney BY:
SUMMARY:
The City Council will discuss extending the City's previous temporary moratorium on
COVID-19 based evictions as it relates to commercial landlord/tenant relationships,
including possible amendments to that moratorium.
RECOMMENDATION:
• Discuss and decide whether, and if so how, to extend the City's previous
moratorium on commercial evictions, which expired on September 30, 2020.
• Provide direction to the City Manager, as Emergency Services Director, as the
Council deems appropriate.
BACKGROUND/ ANALYSIS:
At the September 10, 2020 City Council meeting, the City Council considered the
impacts of Assembly Bill ("AB") 3088 on the City's COVID--based eviction moratorium.
At the time, the City's eviction moratorium protected both residential as well as
commercial tenants.
As discussed in the September 10, 2020 agenda report, AB 3088 in large part preempts
the ability of cities to extend their local eviction moratoria as they relate to residential
tenancies. However, AB 3088 does not do so for commercial tenancies. Based on the
preemptive effect of AB 3088 on residential eviction moratoria, at the September 24,
2020 City Council meeting, the Council provided direction to not extend the City's
eviction moratorium past its previously established expiration date of September 30,
2020.
At the September 24, 2020 City Council meeting, the City Council also discussed the
potential for acting on the City's commercial eviction moratorium, which was also set to
ITEM No._4_A __ 1
City Council Staff Report
March 25, 2021 -Page 2
Temporary Moratorium on COVID-19 Evictions (Commercial)
expire September 30, 2020. At that time, the Council directed staff to not extend the
commercial moratorium, but with the understanding that the City Council may re-
consider the moratorium, depending on how the COVID-19 pandemic affected local
businesses, including both commercial landlords and tenants.
The City's prior commercial eviction moratorium placed a moratorium on commercial
evictions, in a manner that tracked Governor Newsom's Executive Order N-28-20.
Specifically, the moratorium prohibits a landlord from taking any action to evict a
commercial tenant for failure to pay rent during the specified period, if the tenant
demonstrates, with verifiable proof (if requested by the landlord), that the tenant is
unable to pay rent due to financial impacts related to COVID-19. The City's moratorium
does not relieve the tenant from eventually paying the rent to the landlord. Instead, the
moratorium provides that the tenant must pay all unpaid rent within 180 days following
the end of the City's protection period.
Based on the effective date of the City's commercial moratorium, which previously
expired on September 30, 2020, if it is not extended, this means that all unpaid
commercial rent would currently need to be paid by March 29, 2021.
In addition, under the City's commercial moratorium, the tenant is required to pay
whatever amount of rent the tenant can. The landlord may not charge any interest or
late fees on the rent. In addition, the moratorium does not prevent a landlord from
evicting a tenant who failed to pay rent when due before the City declared an
emergency.
Following that September Council meeting, the State imposed a regional stay at home
order, lasting the better part of December, 2020 through January of 2021. Under the
regional stay at home order, leisure travel, personal services, and in-person dining was
prohibited. This had a significant, negative financial effect on the tourism industry within
Palm Springs, as well as the other industries that benefit from that tourism industry, and
came during the season when those sectors usually do well economically. As a result,
the City Council requested that this item be brought forward, so that the City Council
can consider and decide whether local businesses that are tenants should receive some
temporary economic relief.
On March 4, 2021, Governor Gavin Newsom signed an executive order (Executive
Order N-03-21), which extends the authorization for local governments to halt evictions
for commercial renters who are impacted by the COVID-19 pandemic, through June 30,
2021.1 As with some prior executive orders from the State, this order is not self-
executing, meaning that cities and counties would need to adopt an ordinance or
emergency order in order to put such tenant protections in place. Attached to this staff
1 Although this latest extension from the State lasts only until June 30, 2021, it is possible that the order
could be extended beyond that date, between now and June 30, 2021. In addition, many cities have
taken the position (quite legitimately) that they do not legally need authority from the State to adopt
emergency eviction moratoria, and therefore have adopted moratoria that went beyond the time limits set
forth in State executive orders.
2
City Council Staff Report
March 25, 2021 -Page 3
Temporary Moratorium on COVID-19 Evictions (Commercial)
report as Attachment 1 is a summary of what several other California cities have done,
with regard to commercial eviction moratoria.
Under Executive Order N-03-21, a city may enact a commercial eviction moratorium,
with the following provisions:
• The basis for the eviction is nonpayment of rent, or a foreclosure, arising out of a
substantial decrease in business income (including, but not limited to, a
substantial decrease in business income caused by a reduction in opening hours
or consumer demand); and
• The decrease in business income described in the paragraph above was caused
by COVID-19 pandemic, or by any local, state, or federal government response
to COVID-19, and is documented.
These requirements were included in the City's prior commercial moratorium, and
should the City Council decide to extend that moratorium, the above-referenced
conditions would need to be included in that extended moratorium as well. In addition,
other conditions could be included, at the City Council's discretion, as discussed below.
Options Available
There are several options available to the City Council. These include:
• Allow the expired moratorium to remain expired. This means that all unpaid
commercial rent would need to be paid by March 29, 2021. For those tenants
that have not been paying their full rent for this past year, this would result in
those tenants facing eviction from their landlords. With the court system
currently back-logged and evictions taking a lower priority over criminal and other
statutorily preferred matters, this could put landlords in a very difficult situation
with their tenants.
• Extend the expired moratorium to a date certain, while keeping the substantive
terms of the moratorium as discussed above. Without any provision for the
payment of ongoing rent and repayment of past due rent, this would merely delay
an inevitable situation where tenants owe a very sizable amount of back-rent.
Unless the current court backlog is remedied by that time, the same situation
discussed above would occur, resulting in landlords being owed significant
amounts and not being able to effectively recoup those amounts.
• Extend and modify the City's expired moratorium. For example, one option could
provide that in order for a commercial tenant to be eligible for protection against
eviction:
• The tenant must have made an effort to pay some reasonable amount during
the period from March 2020 to March 2021, perhaps 25% of outstanding rent.
• The tenant must remain current on rent starting April 2021 and going forward,
or enter into a written agreement with the landlord. This would provide the
tenant and landlord with predictability for their cash flow in 2021 and 22.
3
City Council Staff Report
March 25, 2021 -Page 4
Temporary Moratorium on COVID-19 Evictions (Commercial)
• The tenant must provide a reasonable payment plan to repay outstanding
rent, perhaps spreading the unpaid rent obligation over twelve (12) months.
The City Council could provide that the repayment obligation starts on the
date that the moratorium ends. So, if the moratorium ends on June 30, 2021,
the tenant would have twelve months from that date to repay the outstanding
rent. Another option would be to require the tenant to start paying some
portion of the outstanding rent immediately. This would enable the tenant to
keep up with current rent and, at the same time, incrementally re-pay back
rent.
An additional consideration might be to include in the City's COVID-19 Small Business
Financial Aid Program a requirement that the tenant either is current on back rent or has
entered into a written agreement with the landlord for the payment/re-payment of rent.
This would help incentivize tenants to either pay their rent or come to an agreement that
is mutually agreeable to both the tenant and the landlord. While this would be feasible
from a legal perspective, and could be implemented, since the City has already issued
and received applications for nearly the entire allocated funding, it would upset the
settled expectations of the applicants for that Program.
Should the City Council determine that either of the second two options is appropriate,
City staff would request that the Council provide direction as to whether, and what sort
of moratorium is chosen. The City Manager, serving as the City's Emergency Services
Director, could then adopt that moratorium as an emergency order, under his authority
provided in State law and the City's Municipal Code.
ENVIRONMENTAL ASSESSMENT:
Any action by the City Council would not result in any impact to the environment.
FISCAL IMPACT:
Any action by the City Council is unlikely to have a significant financial impact to the
City. Should the Council provide direction to extend, terminate or modify the City's
COVID-19 eviction moratorium as it relates to non-residential tenancies, there would be
an economic impact on those landlords and tenants.
SUBMITTED BY:
--=(}._..._d~~~/~-------==-'=-----==--_ < ~ , ~
Jeff,€y s A'alimgei--David H. Ready,~
City Attorney City Manager
Attachment:
1. Summary of Other Cities Commercial Eviction Moratoria
4
ATTACHMENT 1
5
Commercial Eviction Moratoria in Selected California Cities
City Status Commercial Moratorium Provisions
Avalon Expired; LA L.A. County's Eviction Moratorium is in effect through 6/30
County's and covers the following commercial tenants:
eviction Tenants with less than 10 employees: given 12 months moratorium from the date the moratorium ends to repay back-rent. governs Landlords must accept tenants' self-certification of inability
to pay due to COVID-19 financial impacts.
Tenants with 10-99 employees: given 6 months to repay
back-rent. Tenants must provide documentation of
inability to pay due to COVI D-19 financial impacts.
Tenants are encouraged but are not required to pay partial
rent during the moratorium. The moratorium does not
apply to tenants that are multi-national or publicly-traded
companies, or that have 100 or more employees.
Baldwin Park Effective until Landlords cannot evict tenants unable to pay rent due to
end of local COVID-19 financial impacts. Tenants must notify landlord
emergency in writing of inability to pay rent and maintain
(TBD) documentation of hardship claims.
Berkeley Effective until Bans all nonpayment evictions if inability to pay rent is due
3/31 to material loss in income, closure, or government
restrictions caused by COVID-19. Tenants must notify
landlords in writing and should maintain documentation of
hardship claims. Landlords may request documentation
after local emergency ends.
At end of lease, landlords of impacted businesses or
nonprofits cannot increase rent more than 10% over rent
in effect at start of local emergency.
Beverly Hills Effective until Landlords cannot evict tenants for:
end of local ( 1) Nonpayment of rent due to substantial financial
emergency impacts related to COVID-19 if tenant gives written notice
(TBD) and documentation; or
(2) A no-fault eviction, unless necessary for the health and
safety of tenants, neighbors or the landlord. Health and
safety reason cannot be based on illness of the tenant, the
tenant's family or any of the tenant's employees.
Big Bear Lake None NIA
Buena Park Effective until Landlords cannot evict tenants unable to pay rent due to
end of local COVID-19 financial impacts. Tenants must notify landlord
emergency in writing of inability to pay rent and maintain
(TBD) documentation of hardship claims.
Coachella Expired NIA
Desert Hot Expired N/A
Springs
6
City Status Commercial Moratorium Provisions
Goleta Extended Landlords cannot evict tenants that give written notice to
through 6/30 landlord of inability to pay rent due to lost income or
government-mandated business limitation/closure. Tenant
must provide supporting documentation or written
explanation.
If tenants suffers partial loss of net income, tenant must
pay rent proportionate to the net income received during
the period of loss as compared to same period in 2019.
Landlord may seek unpaid rent after local emergency
ends, which tenant must pay within 6 months.
During this repayment period, landlord cannot evict tenant
if tenant is paying rent on time and repaying back-rent.
Hermosa Effective until Landlords cannot evict tenants that give monthly written
Beach 3/31 (likely to notice to landlord of inability to pay rent due to lost income
extend through or government-mandated business limitation/closure.
6/30) Tenant must provide supporting documentation.
If tenants suffers partial loss of net income, tenant must
pay rent proportionate to the net income received during
the period of loss as compared to same period in 2019.
Landlord may seek unpaid rent after moratorium ends,
which tenant must pay within 6 months.
During this repayment period, landlord cannot evict tenant
if tenant is paying rent on time and repaying back-rent.
Indian Wells Expired N/A
Oakland Effective until Landlords cannot evict tenants with fewer than 100
end of local employees, with average annual gross receipts of $15
emergency million or less, and whose principal office is located in
(TBD) California. Inability to pay rent must be caused by a
documented substantial decrease in income caused by
COVID-19.
San Extended Landlords cannot evict tenants with worldwide gross
Francisco, through 6/30 receipts in 2019 at or below $25 million and who missed a
City & County rent payment due to COVID-19 related financial impacts.
of Tenants must document the impact. For-profit companies
in office spaces are not covered by the moratorium.
Tenants' repayment periods vary based on the number of
employees, with smaller businesses (under 10 employees)
given more time to repay unpaid rent (24 months).
Landlords with less than 25,000 sq. ft. of rentable space in
a building can seek an exemption by demonstrating the
inability to evict a tenant for nonpayment of rent creates a
significant financial hardship.
West Extended Landlords cannot evict tenants that give monthly written
Hollywood through 6/30 notice to landlord of inability to pay rent due to lost income
or government-mandated business limitation/closure.
7
City Status Commercial Moratorium Provisions
Tenant must provide supporting documentation.
If a tenant is not restricted by government orders, tenant
must pay 25% of rent. If a tenant suffers partial loss of net
income, tenant must pay rent proportionate to the net
income received during the period of loss as compared to
same period in 2019.
Landlord may seek deferred rent after moratorium ends,
which tenant must pay within 6 months.
During this repayment period, landlord cannot evict tenant
if tenant is paying rent on time and repaying back-rent.
8