DC Council Commercial Real Estate Update—May 8, 2020
To help our clients navigate the coronavirus (COVID-19) crisis, Arnold & Porter has established a Coronavirus Task Force covering a wide range of issues and challenges. Subscribe to our "Coronavirus (COVID-19)" mailing list to receive our latest client Advisories and register for upcoming webinars.
* * * * *
As part of its continuing efforts to address the economic fall-out from COVID-19, on May 5, 2020, the DC Council passed another round of legislation with new ramifications for real estate owners. This Advisory describes the highlights of the Coronavirus Omnibus Emergency Amendment Act of 2020 (the Omnibus Bill), which Mayor Muriel Bowser will likely sign over the coming days.
Rental Tenant Payment Plans
The Omnibus Bill would require commercial and residential landlords (collectively, Landlords) to develop a rent payment program for eligible tenants for rents due during the period of the public health emergency (the Emergency) and one year thereafter (Covered Period). The language is not clear, but it appears to entitle eligible tenants to a rent deferment during the period of the Emergency if they work out a plan with their Landlords to pay the deferred rent along with regular rent payments over the course of the Covered Period. An "eligible tenant" is one who: (i) has notified its Landlord of an inability to pay all or a portion of the rent as a result of the Emergency (regardless of prior rent delinquencies), and (ii) is not receiving a rent reduction pursuant the District's COVID-19 mortgage relief program.1
As part of the program, a Landlord must, among other things: (i) waive penalties and fees that would otherwise arise from nonpayment of rent, (ii) not report delinquent rent that is subject to a payment plan to a credit bureau, (iii) notify all tenants of the program's availability, (iv) identify the information tenants must provide to document that their stated financial hardship stems from the Emergency. A Landlord may apply any security deposit against rents owed only if the tenant agrees in writing.
Commercial tenants whose applications are denied may file a written complaint with the Department of Consumer and Regulatory Affairs (DCRA). Residential tenants whose applications are denied may file a written complaint with the District's Rent Administrator. Both DCRA and the Rent Administrator must submit those complaints to the Office of Administrative Hearings for adjudication.2
Commercial Rent Increase Clarification
The Omnibus Bill amends language in the COVID-19 Supplemental Corrections Emergency Act (passed on April 21, 2020) to clarify that the freeze on rent increases during the Emergency is limited to retail properties and, therefore, does not cover other commercial leases. That freeze will remain in effect from the commencement of the Emergency on March 11, 2020, until thirty (30) days after it ends.
Restrictions on Evictions
For the period of the Emergency and sixty (60) days thereafter, a landlord may not file for eviction of a tenant. This eviction freeze appears to apply to both residential and commercial tenants.
Some of the provisions of the Omnibus Bill are very unclear and will likely necessitate further clarification from the DC Council and the responsible DC agencies. Importantly, however, the DC Council has signaled its intent to consolidate all of its recent COVID-19 legislation soon to clarify the language and rectify inconsistencies.
The Omnibus Bill is retroactive to March 11, 2020. As emergency legislation, the Omnibus Bill will go into effect upon the Mayor's signature or, if she does not sign it sooner, May 19, 2020.
As emergency legislation is only effective for 90 days, if the DC Council does not pass permanent legislation before the expiration of the applicable 90 day period,3 there is a serious question regarding the applicability of the long term payment plans and other similar provisions in this and the various other COVID-19 related acts recently passed by the DC Council.
© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.
As described in our previous Commercial Real Estate Update dated April 23, 2020, the COVID-19 Supplemental Corrections Emergency Act which the DC Council passed on April 21, 2020, requires both mortgage lenders and servicers or mortgage loans in the District to implement deferment programs for their borrowers. Landlords who benefit under that program must pass their savings on to qualified tenants in the form of rent deferrals.
The District's Office of Administrative Hearing has authority to adjudicate these matters pursuant to DC Code § 2-1831.03(b)(2).
Pursuant to DC Code § 1-204.12(a), a bill passed under emergency circumstances shall be effective for a period of time not to exceed 90 days.