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June 3, 2020

DC Council's Comprehensive Response to COVID-19: Key Provisions for the Real Estate Community

Coronavirus: Real Estate Advisory

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Recently, the DC Council passed the Coronavirus Support Emergency Amendment Act of 2020 (Consolidated Bill), a comprehensive emergency bill that consolidates and replaces the hodgepodge of legislation the Council has previously passed in response to the ongoing public health emergency related to COVID-19. The Consolidated Bill includes some important revisions and clarifications but does not address all confusions resulting from the earlier legislative efforts and, therefore, as discussed below, some questions regarding implementation of the Council’s directives remain.Mayor Bowser signed the Consolidated Bill on May 27, 2020.  Passed as emergency legislation, the Consolidated Bill will remain law in the District until August 26, 2020  The DC Council will need to pass permanent legislation in order to continue the effectiveness of the Consolidated Bill’s provisions thereafter.  It is not clear what will happen to the various provisions below if the DC Council does not pass permanent legislation.

The following are some of the most important provisions for the real estate industry:

1) Mortgage Deferment. Effective as of March 11th (the day on which the Mayor declared the outbreak of COVID-19 to be an Emergency) until 60 days after the end of the Emergency, all lenders (except as stated below) who make or hold residential or commercial mortgages in the District must develop a mortgage deferment program for their borrowers.

  • Lenders do not include national banks, federally chartered credit unions or federally backed mortgages.
  • To qualify for the program, borrowers must demonstrate financial hardship resulting directly or indirectly from the Emergency.
  • The program must provide borrowers at least a 90-day deferral of monthly principal and interest payments, with a waiver of any late charges or processing fees accrued during the Emergency.
  • The payback period must be reasonable and agreed to by the parties or, if there is no agreement, a period which is the lesser of 3 years after the deferral or the end of the loan term.
  • A lender cannot request or require a lump sum repayment.
  • Lenders who approve applications for deferrals have certain reporting obligations to the Department of Insurance, Securities and Banking.

This Consolidated Bill no longer requires borrowers to pass any loan deferral benefits on to the borrower's tenants. But borrowers are subject to the new "Rent Payment Program" described below.

2) Rent Payment Program. Effective as of May 19th, for the remaining period of the Emergency and one year thereafter (program period), all landlords (no matter the number of units leased) are required to (i) notify their residential and commercial retail tenants of the availability, terms and application process for a rent payment program and (ii) make the program available to eligible tenants.

  • Eligible tenants include residential and commercial retail tenants (excluding franchisees of non-District residents).
  • To qualify, eligible tenants must demonstrate that they are suffering a financial hardship resulting directly or indirectly from the Emergency and that such hardship would make the tenant unable to qualify to rent the space based on the same criteria that were applied at the time the tenant was approved to rent the space.
  • The program must grant a deferral of "gross rent" due until the earlier of the end of the program period or the end of the lease term. In other words, this seems to grant tenants the right to defer rent for at least 13 months.
  • The payback period must be for at least one year unless the tenant requests a shorter period, with payments in equal monthly installments unless a different schedule is requested by the tenant. The legislation leaves unclear what happens if a tenant's lease term expires between May 19, 2020 and the end of the payback period.
  • During the program period, unless the landlord has offered and approved a rent payment plan pursuant to the Consolidated Bill (and the tenant defaults on such plan), the landlord is prohibited from filing any collection lawsuit or eviction for non-payment of rent against a tenant in default.

3) Rent Increase Prohibition. Effective as of March 11th until 30 days after the end of the Emergency, rent increases are prohibited for (i) all residential premises and commercial retail premises and (ii) other commercial premises that are less than 6,500 square feet.

4) Evictions. Effective as of March 11th until 60 days after the end of the Emergency, no landlord may file complaints for evictions of residential or commercial tenants.

5) Foreclosures. Effective as of March 11th until 60 days after the end of the Emergency, no lender may commence or pursue foreclosure proceedings against borrowers whose loans are secured by their residences.

© 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.