Guidance for Landlords When the Rent is Due During the COVID-19 Pandemic
UPDATE: On August 5, 2020, Governor Cuomo issued Executive Order No. 202.55 which extended the temporary moratorium on evictions and foreclosure proceedings to September 4, 2020 for those facing financial hardship from the COVID-19 pandemic.
With so many of us unemployed or with significantly reduced income, New Yorkers shuttered in their homes must make difficult choices – do they pay rent or pay for other necessities such as food and medicine. While reports show that most tenants paid April’s rent, potential defaults in payment of May rent loom large. Typically, landlords are free to send notices, start collection proceedings, and ultimately evict non-paying tenants. Not so in the midst of this health crisis.
Recent Executive Orders have halted these options for the present and immediate future. Beginning on March 13, 2020, Governor Cuomo placed a moratorium on all evictions through at least June 20, 2020. (Executive Order 202.8; https://www.governor.ny.gov/news/no-2028-continuing-temporary-suspension-and-modification-laws-relating-disaster-emergency). Landlords with pending cases in New York City Courts who are awaiting decisions will not be granted judgments of possession (per Judge Anne Katz, Supervising Judge). Marshal’s notices previously served will have to be reserved (as service is only valid for 30 days). New York City courts are currently closed (except for certain emergency applications) and no new cases or summary proceedings (including landlord-tenant litigations) may be commenced. Although process servers and movers are deemed “essential services,” landlords have the right to (and should) prohibit tenants from moving in or out until the Governor’s PAUSE order is lifted to prevent possible spread. Last year’s HSTPA (Housing Stability and Tenant Protection Act) modified RPL § 227-e, which now requires residential landlords to mitigate their damages (i.e., by re-renting the leased premises, if the tenant vacates). Present circumstances and conditions, however, make that nearly impossible. Consequently, the reasonable conclusion that may be drawn is that, for the foreseeable future, tenants are not going anywhere, even if they do not pay their rent.
What does this mean for landlords that need to collect rent? It means that landlords should work with their current tenants and unit owners to enter into repayment plans or forbearance agreements for payment of rent. Parties should discuss whether any portion of the rent can be timely paid, with the balance being held in abeyance for a negotiated period. Landlords should consider waiving late charges and other administrative fees. Any payment plan or forbearance agreement should be memorialized in writing and executed by all parties. Landlords should apply for their own mortgage forbearance agreements with their financial institutions to help defray monthly carrying costs.
Some landlords have elected to advise their tenants that rent need not be paid (either waiving or postponing payment). Other landlords, particularly cooperative and condominium buildings, cannot afford to do so. When a tenant falls behind in payments, the landlord or its managing agent should contact the tenant and attempt to negotiate a realistic payment plan. Condominium common charge liens can and should still be recorded, though foreclosure actions cannot currently be brought. Tenants who were already in arrears prior to the onset of COVID-19 should be the first against whom summary proceedings are commenced once the courts reopen, as their failure to pay rent was likely not linked to the pandemic.
Some landlords, primarily commercial, have elected to execute “new” leases or lease modifications with their existing tenants (on the same general terms as the existing lease) except that the new lease or modification suspends the tenant’s monthly rent obligations for an agreed period of time (to account for the pandemic), but also extends the term of the lease for the same period of time. Landlords should first review the lease and related documents including any guaranty, as well as any existing loan agreements for any limitations on lease amendments or accommodations for payment of rent.
Mayor De Blasio has endorsed a proposal, sponsored by local officials, entitled “Renters Relief Plan” (though not yet approved by Governor Cuomo) which would require landlords to offer tenants the option to use their already-paid security deposit in place of their April rent payments. Tenants who utilize the relief program then have one month to start replenishing the security deposit, either by making a single lump-sum payment or in small increments through a low-cost insurance policy. The policy would protect a landlord in the event the tenant damages their apartment or breaks their lease early. These alternatives would provide renters additional time to get back on their feet.
State Senator Michael Gianaris has proposed legislation requiring an across-the-board suspension or possible waiver of rent. Certain tenant advocacy groups are calling for a 90-day extension of the eviction moratorium (currently set to expire June 20, 2020). To further assist landlords, Brooklyn Borough President Eric Adams is calling for an across-the-board mortgage, rent, and utility payments freeze. There is no current legislation requiring a landlord to waive or forgive any rent.
Unfortunately, with the courts closed, there is little action, if any, that a landlord can take to enforce its rights under the lease and address a tenant’s failure to pay rent or other defaults. We can assist clients to review leases, loan agreements, and other governing documents, and to negotiate and prepare new agreements with their tenants. We will continue to monitor all court and legislative developments for updates and assist our clients in any way possible.
UPDATE MAY 7, 2020:
Governor Cuomo announced that he is extending the moratorium on both residential and commercial evictions from June 20 to August 20, 2020.