As a result of the COVID-19 pandemic, many commercial tenants are asking what to do if they are unable to pay rent. Given the challenging times, open communication with the landlord is key. Tenants should be familiar with Oregon’s Executive Order 20-13, which bars landlords from taking action for nonpayment of rent.
Executive Order 20-13
Governor Brown issued Executive Order 20-13 (“EO 20-13”) on April 1, 2020, restricting actions to evict or terminate commercial leases because of nonpayment of rent. This means a landlord cannot take any action, judicial or otherwise, or interfere with a tenant’s right to possession of the leased premises due to nonpayment of rent, late charges, utility charges, or other service charges or fees.
EO 20-13 does not get rid of the tenant’s obligation to make these payments at a later time, with the exception of late charges. A tenant must also make a partial rent payment if the tenant is financially able. In addition, EO 20-13 does not prevent a landlord from terminating a lease for a reason other than nonpayment.
To benefit from EO 20-13, tenants must provide to landlords, 30 calendar days before rent is due, some proof that COVID-19 has caused, in whole or in part, directly or indirectly, the tenant’s inability to pay.
As a practical matter, EO 20-13 operates in addition to the fact that there is limited access to court proceedings, and eviction proceedings in particular are indefinitely postponed.
Covenant of Good Faith & Fair Dealing
If a state has no similar executive order, the lease likely has an implied covenant of good faith and fair dealing. Implied in every contract is an obligation that the parties act in good faith in performing the contract and deal fairly with each other. Given the unanticipated circumstances many tenants find themselves in now, landlords have a contractual obligation to work in good faith with tenants to find reasonable ways to comply with the contract, such as rent deferrals or extensions.
Although disputes are unlikely to be resolved by the courts anytime soon, parties acting unreasonably now may need to justify their actions once court proceedings become available again. What is reasonable will likely be interpreted within the context of the state’s executive orders and common safety practices, such as promoting social distancing.
At a more fundamental level than legal covenants and executive orders, tenants and landlords are best served in the long run by communicating openly. Landlords themselves are facing the strain of paying lenders and bills. Honest discussions about the tenant’s circumstances and needs can guide the parties to mutually beneficial resolutions.
With no foreseeable end date to these challenges right now, issues of nonpayment will extend from one month to the next. Parties must be willing to work on short-term solutions to get through the next several months and renegotiate as circumstances change. Both landlords and tenants have an interest in getting to the other side of the pandemic with their relationship intact. Open communication puts both parties in a better position to remain in business when the world opens up again.
Moreover, communication is not only helpful, but may be required under the terms of the lease to avoid default. As mentioned above, EO 20-13 requires 30 days’ notice before nonpayment.
For productive negotiations, tenants should understand relevant lease terms and their duties and remedies in relation to these terms. Tenants need to support their requests with evidence of the pandemic’s impact, as required by EO 20-13. Available state and federal relief programs also seem to change daily and will likely be part of the conversation to determine what options may be available to get everyone through to the other side. While EO 20-13 bars evictions because of non-payment, negotiating with the landlord may lead to other resolutions that better fit both parties’ needs, such as applying the security deposit toward rent or extending the lease term in exchange for a rent reduction.
Finally, tenants must keep records of these communications, not only to provide clarity and certainty now, but also to reserve their rights and remedies in the event of future default. When possible, Tenants should also involve a lawyer, even if just to look over the agreement to make sure the terms are clear and appropriate.
Unprecedented times require tenants and landlords to negotiate more than rely on legal proceedings. Open communication about the tenant’s ability to pay rent drives mutually beneficial solutions and puts both parties in a stronger position to recover after the pandemic.
For tenants in Oregon, EO 20-13 bars landlords from taking any eviction action because of nonpayment of rent. For tenants in states without a similar order, there is still likely an obligation that the landlord act in good faith and deal fairly with tenants trying to reasonably comply with their contractual obligations.