Cal. Litig. 2021, Volume 34, Number 1

COVID-19 and Commercial Tenancies: Can the Twain Ever Meet? Negotiation Tips to Do So

By William M. (Mike) Hensley

Mike Hensley is co-counsel at AlvaradoSmith, APC in Santa Ana, California, specializing in litigation/transactional real estate and attorney’s fees issues.

Superior Court Judge Laura Priver, in the October 2020 edition of Los Angeles Lawyer, summarized the current climate we live in well: "COVID-19 has wrought many changes, some good and some bad." That certainly has been the case for the residential and commercial real estate markets, where residential tenants face continued occupancy pressure due to layoffs/furloughs and where commercial tenants encounter a dry up of cash flow due to forced closures which cuts off/decreases business revenue income. So, the question naturally arises as to what happens with tenancies impacted by the pandemic, can the twain ever meet? The courts will have to sort through force majeure, impossibility, and frustration of business purposes defenses, with no certainty of how this will turn out in any given situation. The best avenue is to explore negotiation of a compromise which will allow both commercial landlord and tenants — with this article focusing on commercial tenancies — an ability to contractually allocate risks between each side in uncertain times.

Summary of Where We Are in California on Commercial Tenancies. After the initial chaos spawned by the late March 2020 shutdowns, many counties and cities instituted rent moratoria for residential/commercial tenancies, and the Judicial Council ordered that summons could not be issued on most unlawful detainer complaints except for domestic violence issues. However, Governor Newsom did allow local jurisdictions to extend rent moratoriums through March 31, 2021 under Executive Order N-80-20. Subject to review of local jurisdiction ordinances or orders, most restrictions relating to commercial unlawful detainer actions lapsed by no later than September 31, 2020 (although Los Angeles County went through October 31, 2020). Assembly Bill Number 3088 was passed into law, but it only deals with COVID-19 issues relating to residential tenancies. (For excellent matrix summaries of federal, county, and city pandemic rent restrictions, see the Kimball Tirey & St. John LLP website, which should be supplemented by corroborative Internet research on the status of restrictions.)

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