About this webinar:
Are you a commercial property owner whose tenants are behind on rent from the impact of COVID-19? As commercial property owners ourselves, we understand the problems you face. Many businesses will fail due to the lasting effects of COVID-19 and the stay-at-home orders, leaving you with back rent due. With eviction moratoriums in place, the threats of Senate Bill 939 looming, and the sanctity of contracts threatened, being an owner can keep you up at night. Now is the time to start planning, so we’ve put together a webinar called “Landlords and COVID-19—Getting Tenants Caught Up on Rent.” You can learn about the paths to solving these issues.
All right, let’s go ahead and get started. Thank you all very much for joining; my name is Tilden Moschetti. I’m the managing partner of Moschetti Law Group. We are a real estate law firm with our office in Calabasas, and we serve all of Southern California. We focus primarily on those high net worth individuals like yourselves, private equity firms and family offices. And as a lawyer, I come to the practice not only with a background in law, but with a background as a commercial real estate broker, and an education background in finance.
What we try to offer is a full package to take care of our clients, make sure that they meet all the legal requirements, and help them through the process, whether it’s litigating or transacting. But we also look to make sure that your finances are right and we have a real focus on your ROI: does this plan make sense for you? Anything that we recommend, we want to make sure that it’s something that’s going to make good business sense. That’s how we practice.
I am also a property owner, and so I have a lot of the same concerns that you do. I definitely have a major concern about mortgage obligations—with less rent coming in, are we still going to meet the mortgage? Many of you will have had a temporary abatement or deferment of your payments, but it won’t be forever. Most of the time, it’s three months. I have heard some banks and lenders are doing up to six months, but those three months are coming due. I believe the first payment for one of my properties is July 1st, so there’s obviously a very major concern about making sure we can pay our mortgage.
There are also the requirements that some lenders have about notifying them and working with them on any lease modifications that take place. If there is a substantial lease modification, the bank may very well have in its loan terms that it needs to be a part of that discussion as well and be part of the underwriting, as it’s going to change significantly. There are also some eviction moratoriums that can create civil and criminal penalties.
And what are also very important are PR concerns. If you draw a real fine line and say, “Okay, this is the line you cannot cross,” is that going to cost you in the future? Is it going hurt not only your relationship with your existing tenants, but with tenants in the future, if you have a vacant space for a restaurant and it becomes well known that you were very strict and went forward with evicting everybody? Is another restaurant likely to come into your space, or are they going to look at the space next door that also has a vacancy, and which would work just as well, so the terms may be better than for your space? The PR concerns may outweigh other issues, and so that’s a very valid concern.
Lastly, there may be private causes of action, certainly for residential real estate or for multifamily properties. A lot of times there are penalties associated with lawsuits that can be brought under CA Business and Professions Code 17200, which is for unfair business practices. And that could cost you a lot. There you have not only mandatory damages, but also the attorney fees, which are part of the cost as well. That also is part of SB-939, which is something that we’ll talk about here too. It’s part of that bill, which, if it becomes law, automatically includes a 17200 claim.
What also makes it very hard for our landlords, and for everybody, is these more terms are very hard to track. We’ve got lots of rules from lots of different places, and it’s hard to figure out what’s what. So that’s what we’re here for.
I think that a lot of our landlords also have a concern that if the value of the property gets suppressed too much, does it even make sense to stay there? While that may be a great buying opportunity for some, it also can put a lot of strain on the property owner who’s a little financially strapped, has mortgage obligations due, and really needs to sell, and sell quickly, in order to not get in trouble. One LA City Council member has seen this as good news for the city and for disadvantaged people. Mike Bonin has said that this is a great thing. His plan is to buy up that distressed real estate and use it for other issues that the city has, such as helping the homeless or low income housing, things like that. Well, that’s good for them; it’s not good for the property owner. The property owner has obligations, and a lot of us are using that money that comes in to take care of our families and plan our legacy—it’s our money.
So, I’m very glad that you’ve decided to come and spend time with me today. My time is valuable, and I’m sure yours is too. Today is my son, Alexander’s, fifth birthday. So I did definitely want to carve out some time to be able to talk to you all, but my time is very valuable and yours is as well, and I hope to give you a lot of information that you find very useful, because I really do value your time.
My goal for this presentation is to help two kinds of people. The first is landlords; I value our commercial landlords. I think that commercial real estate is one of the most important things that is a driver of the US economy. I think that is that landlords are oftentimes looked down upon or seen as greedy when they’re just part of the system making money, and actually acting as a place that houses these places that create money. I mean, where would Google be without its campus? The people wouldn’t be able to collaborate. Or where would a store be—where would Starbucks be without any locations? And at the same time, for the residential people, where would those people be without homes, right? Our landlords who do multifamily and residential are providing homes for people. So, I believe strongly in Commercial Real Estate. I think it’s a wonderful thing for the property owner, and I think it’s a great investment. But I also think it’s important for our economy.
The goal of this presentation is to make sure that those landlords understand some of the rules and how they work, can figure out how to resolve issues, and know when you need an attorney versus when you don’t need an attorney. That’s my goal for you. We also have a lot of attorneys on this call, and that’s great. I love talking with my fellow attorneys, and my goal for you is to make sure that you have a basis of what the general laws are, so that when you have a client that you’re talking to, you understand the general ideas about how to help them, advise them, or at least point them in the right direction.
So here’s what we are going to cover today. First, I want to give you a brief overview of how we got here. I’m sure most of you already know, and you’ve been fretting over this as time goes on, but I think it sets the stage for what happens and what the rules are. Then we’re going to go into a brief discussion on your lease vulnerabilities, and I’ll go into more why we’re doing that when we get there. Then we’re going to talk about the rules, and we’re going to start with California. Then we’re going to funnel down to Los Angeles County, and then some of the cities. Now this can apply to any county and any city, but I think most of you have your properties in Los Angeles County, and it gives a good framework for the way to think about things. Then we’re going to talk about the Judicial Council and what it did on the eviction moratoriums, and then we’re going to talk about future legislation and what may be coming down with Senate Bill 939. Then I want to discuss the strategies and tactics landlords can take.
What can you do, given this landscape of laws and where we’re at right now? What sort of strategies are out there? What sort of goals should you be setting? What tactics can you start taking to achieve those goals? We’re going to follow it up with some questions and answers. If this all sounds good, then we’re ready to get started.
So, how did we get here? The shelter-in-place orders started in mid-March. Many businesses closed and experienced severe financial impact since then. Businesses, restaurants especially, have shuttered their doors or they’ve been trying to make do with curbside delivery. Other businesses, like boutiques, have been told to close completely; you drove by a shopping mall, it was completely empty. The malls were closed completely. A lot of offices stayed kind of open because there are a lot of essential businesses in the area. Law firms oftentimes are essential businesses, so we were open. But still, I wasn’t in the office most of the time. Why? Because I had kids I needed to take care of, and with the day cares, and schools closed, a lot of people, even though they could be in their offices, couldn’t be in their offices. They had to take care of their families. Also, some financial companies were open, and those sort of essential businesses stayed open.
What happened next was that Governor Newsom enacted an executive order, and many cities also followed suit by filing their own moratoriums on commercial leases. Many of these have been done by local governments in various cities and counties. Now fast forward, businesses are starting to reopen; reopening is staggered in California. Some cities have been much faster; cities in Ventura seem to have been faster at reopening than here in Los Angeles.
But there has still been a heavy impact. It’s difficult to set back everything by two and a half months and suddenly expect everything to bounce back completely at full capacity. So, for example, restaurants can reopen now, but they can’t. They have density requirements. Many restaurants are restricted to 25% capacity, some are restricted to 50% capacity. Haircuts are allowed to happen but nail salons are closed. Offices can be open, but each office needs to come up with its own strategies in order to have a plan for reopening.