On Tuesday, May 30, 2020, Governor Roy Cooper issued Executive Order 142 (the “Order”) which, among other measures, places new prohibitions on the eviction of commercial tenants unable to meet their contractual obligations as result of the COVID-19 pandemic. Prior to this most recent Order, eviction proceedings through the courts had been halted by Chief Justice Beasley through June 1, 2020.
Citing the disruption and termination of individual jobs usually associated with commercial evictions and a belief that, absent intervention, a wave of commercial evictions in North Carolina would occur, the Order places a twenty-one (21) day moratorium, through and including June 20, 2020, on commercial evictions for reason of late payment or nonpayment caused by the COVID-19 pandemic. The Order’s definition of “caused by the COVID-19 pandemic” is broadly worded to include any matter caused “in whole or in part, directly or indirectly, by the COVID-19 pandemic” which includes “without limitation, not only the medical effects of the COVID-19 pandemic, but also the disruptions to the economy that have arisen since the beginning of the COVID-19 pandemic and the economic effects of business closures and other public health restrictions instituted because of the COVID-19 pandemic.”
Specifically, the Order temporarily prohibits commercial landlords from taking the following actions against commercial tenants, for reason of late payment or non-payment caused by the COVID-19 pandemic:
- Performing a self-help eviction (peacefully dispossessing a tenant of possession of its premises without the use of the court system);
- Requiring commercial tenants to vacate their facilities;
- Terminating any commercial lease; or
- Taking any action, judicial or otherwise, to terminate a commercial tenant’s possession.
This restriction on commercial evictions only applies, however, if one or both of the following conditions are met:
- The landlord is aware that the commercial tenant’s late payment or nonpayment is caused by the COVID-19 pandemic; or
- The commercial tenant provides the landlord with documentation or other evidence that the late payment or nonpayment is caused by the COVID-19 pandemic.
During the period of time covered by this Order, before performing a self-help eviction of a commercial tenant, terminating any commercial tenant’s lease, or taking any action to terminate a commercial tenant’s possession for reason of late payment or nonpayment, it is a commercial landlord’s affirmative obligation to inquire whether the late payment or nonpayment is caused by the COVID-19 pandemic and give the Commercial Tenant seventy-two (72) hours to respond. Although the Order states that landlord’s failure to comply with such notice requirement permits the tenant to void the action of landlord thereafter, it does not affirmatively state what happens if the tenant fails to respond to such notice if timely given. Also, important to note, a self-help eviction can only be performed if such right is expressly provided to the landlord under the terms of the commercial lease.
Commercial evictions for any reason other than late payment or nonpayment of rent may proceed as usual.
During the 21-day moratorium, commercial landlords are also prohibited from assessing upon their commercial tenants any interest, late fees, or other penalties for late payment or nonpayment of rent, and if a commercial tenant had existing interest, fees, or other penalties when this Order came into effect on May 30, 2020, all accumulation of additional interest, fees, or other penalties is likewise paused.
Under the Order, commercial landlords must provide their tenants with the opportunity to make reasonable payment arrangements in arrears, over at least a six-month period, concerning any covered rent accruing from May 30, 2020 through June 20, 2020, and no interest, late fees, or other penalties may be charged on these arrearages.
It is important to note, the Order does not in any way waive the tenant’s obligation to pay rent or fulfill any other obligations under the lease. As a result, commercial tenants should continue to make rental payments to the extent they are able. However, it is worth noting that the threshold for proving that nonpayment of rent was caused by the COVID-19 pandemic is low. Similarly, given that COVID-19 has negatively affected nearly every commercial sector and given that the restrictions on commercial restriction are met if the landlord is aware that the commercial tenant’s late payment or nonpayment is caused by the COVID-19 pandemic, the legislation is likely to provide a hurdle to landlord evictions during the effective period.
Excluded from the definition of “commercial lease” in the Order and, therefore, exempt from its provisions are the following: operations of hotels, motels, or similar lodging subject to regulation by the Commission for Public Health and vacation rentals under N.C.G.S. §42A.
If you have questions about how this Order impacts you or your business, please contact Joseph Bass, Jessica Elliott or your Manning Fulton relationship attorney.