Real Estate and Coronavirus

a lawyer's hand over a lease agreement

October 1, 2020 Update: The Brevard County administrative court order that temporarily froze all evictions and foreclosures, including new filings and service of process, ended on May 29, 2020. Its follow-up order that prohibited the clerk of court from issuing writs of possession if the Court found that a COVID-related defense was applicable expired on October 1, 2020.

The Governor’s executive order that temporarily froze all residential foreclosures and residential evictions for non-payment of rent where the tenant was adversely affected by the COVID emergency expired on October 1, 2020.

The Centers for Disease Control and Prevention (“CDC”) and the Department of Health and Human Services (“HHS”) jointly issued their own nationwide eviction moratorium order dated effective September 4, 2020. It freezes most evictions due to non-payment of rent based on financial hardship To the extent the CDC and HHS, federal agencies that are part of the executive branch of the federal government, have the authority to issue a nationwide moratorium order applicable to state eviction cases, that Order only applies to “covered persons.” A covered person is a tenant, lessee or resident of residential property who provides the landlord with a Declaration under penalty of perjury with specific required information regarding income, financial hardship, and what his or her housing situation would be if forced to leave. This moratorium lasts until December 31, 2020, unless further extended. “These persons are still required to pay rent and follow all other terms of their lease and rules of the place where they live. These persons may also still be evicted for reasons other than not paying rent to making a housing payment. State and local governments can impose additional requirements.”

Property owners and landlords in Melbourne, Brevard County, Florida are naturally worried about how the coronavirus pandemic will affect rental income and the right to evict nonpaying tenants. You should also ask whether you have a duty to take steps to protect the health and safety of tenants while balancing your needs and those of your workers if your facility has on site employees or contractors providing services to you to operate the facility. Options range from information-sharing with tenants all the way through to a closure of one or more properties for an extended time.

Buyers and sellers of Florida property may feel like they are in limbo as well on whether a deal can or has to close. Generally, if you have a contract for sale and purchase of real estate in Florida, the deal is still valid. There may be contract issues such as impossibility of performance and a legal doctrine called force majeure. Those areas are covered in the Business and Coronavirus section of this website at https://volklawoffices.com/coronavirus/business/.  

Property owners and landlords should begin to develop and enact or be prepared to enact emergency management and continuity plans. The Coronavirus, also known as COVID-19, and the governmental response is a fluid situation which is routinely evolving. Owners and landlords should gather and updated information and assess risks and plans of action daily.

To that end, as we work to contain and mitigate the COVID-19 outbreak, here are key considerations for property owners and landlords:

  • Never Stop Learning

Guidance from federal and state of Florida public health officials will certainly change as more is learned about the virus. Accordingly, property owners and landlords, particularly building security and life safety managers, should be regularly monitoring websites like the Center for Disease Control’s (CDC) COVID-19 and the National Institutes of Health for guidance on the nature of the pandemic and their public health expert guidance.

  • Actively Analyze and Anticipate

Reflect on risks to your property, tenants, and staff. For instance, there a risk that a tenant will become sick and transmit the virus to others in the building? Is there a risk that you will lose staff or contractors and not be able to care for the property? What vendors do you count on and how would their unavailability affect you? Once you sort out the risks, you can start your plans to act and be prepared for future developments. Consider circulating new, existing or modified plans with key staff and tenant contacts. Talk with others. Ensure that others understand their roles and contacts with information or questions.

  • Communicate with Tenants, Employees, Contractors, and Vendors as Needed

Try to build informational systems to (1) ensure that you are notified if a tenant or staff member is diagnosed with COVID-19 and (2) provide appropriate notice to others affiliated with the property.

Your obligation to notify tenants if another tenant or staff member is diagnosed with COVID-19 will vary in accordance with negligence law which deals with duties we have to others, lease terms which could apply, public health orders, and what others in your industry are doing. Check leases for promises that could obligate you to notify tenants about security or safety risks present on the property.

Ask vendor companies about their disease management measures and current problems, rules, and possible services disruptions in the event of personnel shortages.

  • Common Areas Cleanliness

Common areas you control should be cleaned on a regular basis. Find out what governmental authorities advise regarding cleaning and disinfecting frequently touched surfaces.

  • Identify and Implement Employee Safety Measures

How can you protect your people? This differs based on the responsibilities of various employees and your business operations. Who is essential to keeping the business running? Maybe some personnel can work remotely, and some cannot. Do not think all workers are the same. Close contact with others helps spread the virus. Evaluate how remote employees can access corporate resources from outside the office. Set up secure protocols for accessing your network and cloud and maintaining communication.

What protective measures can help those who cannot work remotely? Remind employees about government guidance to clean their hands regularly and avoid close contact with anyone who is sick. If employees are required to come into physical contact with others as part of their duties, are personal protective equipment like latex gloves advisable? Give guidance on interacting with tenants and members of the public. Cool it with shaking hands and if needed give your people a simple script to explain it is safety related and not rudeness. People are generally understanding if they understand why something is happening. They will probably appreciate your consideration. Sick personnel should stay home from work. Consider staffing and services plans to cover key building functions while employees recuperate.

  • Observe Privacy Rights

Balancing interests will be an ongoing problem. Saying a tenant has tested positive for the COVID-19 virus will implicate privacy laws and regulations. You feel you are doing a service to other tenants to let them know and you may even be honoring a duty to avoid negligence, but you must be careful. Calling out the infected individual’s name or other identifying characteristics could create a different problem than the one you just solved by sharing the news.

  • Review Insurance and Leases Regarding Expenses and Responsibilities

Insurance policies and leases should be reviewed to determine who has what responsibilities. You may have promised certain property maintenance obligations. Same for your tenants. Particular attention should be paid to distribution of costs for additional cleaning costs that could be incurred to reduce the possibility of virus transmission in both common areas and tenant spaces. Additionally, remember that response and remediation costs are not always covered by insurance policies, and so policy language should be carefully examined to determine what costs, if any, are reimbursable. The Insurance and Coronavirus section of this website goes into detail about types of insurance coverage. 

  • Avoiding Negligence 

Negligence law revolves around the question of duties we owe to others and whether we breached a particular duty by violating a standard of care. Car crashes are the most common example. For instance, you have a duty to not apply makeup while driving, because that violates a standard of care, we all agree with.

 

Think about whether you are acting reasonably under the circumstances including by reasonable precautions in light of the information available to you, to protect tenants, guests, and staff. This will especially be the case with respect to hotels and other places with a lot of people coming and going.

  • Do Your Leases Have Force Majeure Clauses or Will You Have Frustration Of Performance Issues

The impact of the coronavirus will inevitably cause nonperformance under some leases and other agreements. Will the nonperformance be excused because of force majeure or frustration of purpose? The Business and Coronavirus sections of the website address these contract breach defenses. A lease is a contract. That discussion applies to leases. 

  • Rent and Mortgages Q & A

THE FOLLOWING QUESTIONS AND ANSWERS APPLY ONLY TO PROPERTIES IN FLORIDA. GOVERNMENTAL ACTIONS IN RESPONSE TO THE CORONAVIRUS ARE CHANGING DAILY. WHERE REFERENCE IS MADE TO A FEDERAL AGENCY SUCH AS HUD OR QUASI-AGENCY SUCH AS FANNIE MAE, YOU SHOULD CONFER YOU’RE YOUR LAWYER OR THE AGENCY TO VERIFY THE INFORMATION AT THE TIME YOU NEED TO USE IT. SOME OF THE ANSWERS ADDRESS WHETHER PAYMENTS MUST BE MADE. DO NOT TAKE ANY ACTIONS INCLUDING NOT MAKING PAYMENTS WITHOUT CHECKING WITH THE AFFECTED PARTY AND LEGAL COUNSEL.

Q:  Do tenants have to pay me rent during the coronavirus emergency?

A:  Yes. Your lease and the Florida Landlord-Tenant Act still control your landlord-relationship, and neither is likely to suspend rent payments during a pandemic. There may be restrictions on evictions, but those are expected to be very temporary. The eviction moratoria that have been issued all still require tenants to continue to pay rent.

Q: Are evictions allowed during the coronavirus emergency?

A: Yes. But there have been temporary restrictions on filing and serving eviction lawsuits. For instance, in Brevard County, Florida, service of process (the official delivery of legal papers by a sheriff’s deputy or an official process server) was temporarily suspended, and now is allowed again. Later, the clerk of court was ordered to not issue writs of possession (the 24-hour notice to vacate that the deputy serves after a final judgment has been obtained), but those are now allowed again. New restrictions can be issued daily. See the update at the top of this page for information on eviction moratoria.

Q: Are there any special eviction rules or policies for properties owned, administered or subsidized by the Department of Housing and Urban Development (HUD)? 

A: Yes. HUD announced that rent payments and evictions are temporarily suspended. 

Q: Do homeowners have to pay their mortgages during the coronavirus emergency?

A: Yes. Your promissory note and mortgage control your lender-borrower relationship, and neither is likely to suspend mortgage payments during this pandemic. There may be restrictions on foreclosures, but those are expected to be very temporary.

 Q: Are foreclosures allowed during the coronavirus emergency?

 A: Yes. Foreclosures can still be filed, and existing cases can still work their way through the legal system. However, in Brevard County, service of process (the official delivery of legal papers by a sheriff’s deputy or an official process server) was temporarily suspended, and now is allowed again. Later, the clerk of court was ordered to not issue writs of possession (the 24-hour notice to vacate that the deputy serves after a final judgment has been obtained), but those are now allowed again. New restrictions can be issued daily. See the update at the top of this page for information on eviction moratoria.

 Q: Are there special foreclosure rules or policies for property owners with mortgages held or guaranteed by the Department of Housing and Urban Development (HUD)?

 A: Yes. For those types of mortgages, HUD announced that mortgage payments and foreclosures are temporarily suspended.

 Q: Are there any special foreclosure rules or policies for property owners with FHA (Federal Housing Administration), Fannie Mae and Freddie Mac mortgages?

 A: Yes. For those types of mortgages, the FHFA (Federal Housing Finance Agency) announced that mortgage payments and foreclosures are temporarily suspended.

 

  • Sheppard Mullin is a very large law firm, known as an AmLaw 100 law firm. They established a Coronavirus Task Force of lawyers to give practical advice on this coronavirus pandemic. On March 16, 2020, at https://www.realestatelanduseandenvironmentallaw.com/commercial-real-estate-tips-covid-19.html they published their answers to common questions. This information is so thorough that it is reprinted below. The firm has global reach with over 900 lawyers and with international offices including New York, Los Angeles, London, Seoul, and Shanghai. As stated before, do not take actions based simply upon these questions and answers. This is general information and you should discuss your particular problem with your lawyer.

 

Q:  A tenant has just advised us that their employee has tested positive for the virus.  What are our notice and disclosure obligations as real estate owners and managers?

 A:  This was by far our most popular question of the week.  Although there is no “right” or “one size fits all” answer, we have developed a range of answers that respond to the variables that need to be evaluated and balances the risks.  Building owners and managers must take into consideration their duty to safeguard tenants and occupants of the project, health-related confidentiality obligations (such as the ADA, OSHA and HIPAA), and their obligation to keep the building up and running so that tenants can continue business operations. Here is a compilation of best practices:

 

  • Be sure that all tenants know to notify building management immediately of a suspected or known COVID-19 diagnosis.
  • Establish, fine tune and implement a clear and consistent policy for responding to and addressing reports of a positive COVID-19 test.
  • Work closely with and stay in constant communication with the designated tenant representative (could be HR director, CEO, CFO or office manager) regarding their response to a positive employee test.
  • Ask the tenant representative to share their policy and steps they will take in response to the positive test and, unless there is a flaw in the plan (as discussed below), allow the tenant to proceed with their plan and keep you fully informed.
  • We do not believe that landlords/owners have an obligation to disclose suspected illnesses, only known positive tests for highly contagious conditions such as COVID-19.  However, on a case by case basis the answer may be different if the potentially affected person has been in close contact with a number of people – in such event, common sense may dictate that potentially exposed persons be notified in advance.
  • Landlords do have an obligation to notify all other tenants and occupants of a building that a person who has entered the building has tested positive for the virus, and to let building occupants know what steps are being taken as a result of this finding.  Ideally, this communication will be made with the involvement and consent of the affected person’s company, but if not, the duty remains.  We can advise owners and managers on the form of notices to be sent in this situation.
  • In compliance with applicable laws and regulations, the name of the affected person should never be disclosed.  However, it is permissible to notify other tenants and occupants of the building of the floor on which the affected tenant works.  Such notification must be carefully crafted so as not to provide the affected person’s identity.  Some landlords are also taking the step of notifying others of the locations of the project visited by an affected individual prior to testing positive (such as the coffee bar, dry cleaners, convenience store, etc.).  This enables potentially exposed persons to seek testing if they so choose.
  • Deep clean and disinfect all common areas affected – common area restrooms, elevator lobbies, etc., and inform tenants and occupants of the steps taken and procedures going forward.
  • Work with the affected tenant/employer to ensure that CDC protocols for quarantine and business shutdown are followed.  Although this guidance is evolving, the best practice appears to be for the entire office in which the affected employee worked to close for 14 days and for all potentially exposed employees to self-quarantine during that period.  There is also some support for a notification of all visitors to the office of the affected employee, but we again believe that this is a case by case analysis based on who the affected person may have come into contact with.
  • Whether another tenant with a separate office on the same floor as the affected tenant must close and follow self-quarantine is a case-by-case determination, which will depend on a number of factors (shared restrooms, elevators lobbies, etc.).  In this case, the building manager or owner must work closely with the adjacent tenant and provide full disclosure (subject to confidentiality) so that the tenant can make the best decision for them and their employees, clients and visitors.

Q:  If someone in my building tests positive for the virus, do I need to close the Building entirely?

A:  No, in most cases.  Unless your building contains a significant amount of shared or meeting space, there is no need to close the entire building. We do recommend that open and shared spaces and amenities be closed until the virus threat has been resolved.  This would include gyms, coffee bars, yoga rooms, meeting and conference centers and the like, unless you can prevent gatherings or allow tenants to use such areas for one-on-one instruction only, at the sole risk of the tenant (such as individual training or yoga, or use of conference facilities by individual tenant teams).  We also suggest that the use of shared spaces and amenities be conditioned upon the tenants (or individual employee users) signing waivers accepting the risk (likely consistent with common practices for building gyms and conference rooms already).

All group classes, such as boot camps, yoga or cycling, should be cancelled unless there is strong support for continuing such classes, and even then, landlords and managers may wish to condition participation upon signed waivers.  Any previously scheduled events involving more than 10 people, such as farmer’s markets, expos, tenant breakfasts and the like, should be rescheduled.  Note that if you have private tenants that provide services, such as workout classes, massage, private training or the like, those individual tenants should be permitted to conduct business as they determine, unless their practices may pose risks to others.  Restaurant tenants pose specific challenges which will be addressed in an upcoming article.

Q:  I know that I should do extra and consistent cleaning of all common areas in my Project, but do I need to do extra cleaning for my tenants?

A:  It depends, but probably not.  The exact terms of each individual tenant’s lease will govern here.  Note that all costs of deep cleaning should be a pass-through expense under most lease forms, including deep cleaning if handled for all tenants across the board, if that is a feasible approach for your building.  If any cleaning is done only for some tenants, most leases require that tenant to pay for the “over-standard” services it receives.

Q:  Do I have an obligation to screen visitors in the lobby by asking questions or scanning temperatures?

A:  No, at least not yet.  Although we are aware that some public facilities and even private companies are instituting this practice, we do not believe this is a required step.  Building ownership and management has a general duty of care and a duty to safeguard its tenants and occupants, but we believe that at this point, that duty is fulfilled by following the best practices referenced in this article, including cleaning, disclosing positive tests and working with tenants and occupants to follow CDC, state, county and city guidelines for addressing the threat this virus imposes.

Q:  Do tenants have a right to stop paying their rent due to the virus?

A:  No, in most cases, subject to lease provisions which are non-standard.  Whether a tenant has a right to stop paying rent due to “force majeure”, “frustration of purpose”, “nuisance” or any one of a number of other theories tenants have floated this week, is largely governed by the terms of each specific lease agreement. None of the leases we were asked to review this week would allow a tenant to abate their rent due to the virus.  The more difficult analysis may arise if a floor or the building is shut down by building management or ownership over the objection of the tenant. As a result, landlords and managers need to carefully review all the possible impacts when deciding to mandate a floor or project closure.  In several instances this past week, we advised the ownership to fully disclose the facts and allow the tenant at issue to make its own decision after a notice that they are proceeding at their own risk in all respects.  As we will address in future articles, a tenant may have insurance coverage which will provide some relief for business interruption resulting from this pandemic.

Q:  Can I post or otherwise communicate a notice advising people not to enter the Project if they meet certain criteria?

A:  Yes.  Some landlords have already posted notices and sent broadcast emails advising tenants and occupants that they must follow the well-established guidelines – some notices have specifically stated that no one should enter the project if they feel ill, have been exposed to the virus, were on a cruise or traveled to another country over the past 2 weeks.  Any notice must follow the CDC guidelines, and landlords and managers will need to assess the potential fear impact that such a notice might have, depending upon the nature of the project and its tenants.  We can advise on the content of these types of notifications should you wish to make such a postin

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And now the careful (paranoid?) lawyer's disclaimer:  
The matters discussed here are general in nature and are not to be relied upon as legal advice. Every specific legal matter requires specific legal attention. The law is constantly changing, and matters discussed today may not be the same tomorrow. Legal matters are also subject to different interpretations by attorneys, judges, jurors and scholars.


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