What New Restrictions Mean for ​​​​Landlords Right Now

North Carolina has limited commercial and residential ​evictions. Find out what that means for you.
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On May 30, 2020, North Carolina Gov. Roy Cooper issued Executive Order 142 to assist residents who have been financially impacted by COVID-19. In response, North Carolina Supreme Court Chief Justice Cheri Beasley issued an order that extends the statewide stay on all eviction hearings through June 21, 2020. 

Here are the key points each order covers, as well as steps residential and commercial property owners can take during this time.

What is NC Executive Order 142?

Over the last few months, Gov. Cooper has announced a series of orders designed to assist North Carolinians impacted by COVID-19. Unemployment rates have been rising quickly. And health officials are advising people to social distance in their homes as much as possible. But many residents and business owners are still concerned about covering their rent during this time.

Executive Order 142 places temporary restrictions on residential and commercial evictions for monetary defaults related to COVID-19. For an Effective Period of 21 days, landlords are also prohibited from assessing interest, late fees, or other penalties for late payment or nonpayment of rent. Both residential and commercial tenants are given six months from the expiration of the order to pay off any rent remaining due. In addition, the order extends the prohibition on utility shut offs. 

How did the Chief Justice of the NC Supreme Court Respond?

In response to EO142, North Carolina Supreme Court Chief Justice Cheri Beasley issued an order that extends the statewide stay on all eviction hearings through June 21, 2020. Chief Justice Beasley acknowledged, “There are now more than 9,000 pending evictions in our state court system. Hearing these matters would require landlords to act in furtherance of an eviction in violation of Governor Cooper’s order.”

Chief Justice Beasley’s order gives sheriffs the authority to postpone executing writs of possession of real property or make due return of such writs until June 30. It also prohibits the issuance of such writs as a direct result of summary ejectment proceedings filed on or after March 27, 2020. This order is in place until the subject property is not covered by the federal moratorium in Section 4024(a)(1) of the CARES Act. Her order also establishes a voluntary mediation program for summary ejectment actions.

So, What are the Key Restrictions for Landlords?

EO142 significantly restricts remedies available to landlords for monetary defaults during a three-week Effective Period between May 30–June 21, 2020. This period could potentially last much longer, depending on whether the order is extended.

During this time, landlords are prohibited from initiating or taking “any action to further summary ejectment or other eviction proceedings against” a tenant for reason of late payment or nonpayment of rent. Those restrictions are less stringent for commercial leases. The order applies to commercial landlords in two significant cases:

  1. The landlord is aware that the default is caused by the pandemic.
  2. The tenant provides the landlord with documentation or other evidence that the default is related to the pandemic.

If a tenant does not initiate their conversation about rent deferral with evidence, the commercial landlord must inquire whether the monetary default is caused by the pandemic and give their tenant at least 72 hours to respond.

Landlords are also prohibited from assessing “interest, late fees, or other penalties” on rents due during the Effective Period. If such charges were existing before the Executive Order, further accumulation of such fees is “paused” during the Effective Period.

Most significantly for the longer term, EO142 mandates that landlords give tenants the opportunity to make “reasonable payment arrangements” for rent that becomes due and is not paid during the Effective Period. Landlords must grant tenants at least a six-month period, beginning upon the expiration of the Executive Order, to repay their deferred rent.

What Steps can Landlords Take to Work with Tenants at this Time?

Together, the emergency directives within the NC Executive Order and the Chief Justice’s order impose a variety of mandates and restrictions on landlords. There are several practical considerations landlords should consider to comply with these orders. 

Do Your Duty

Right now, it is the duty of commercial landlords to inquire whether your tenant’s monetary default is COVID-related or not. If you recently sent a notice of monetary default that remains uncured, consider following up with a second notice asking whether the default is a result of the pandemic. Then, give the tenant at least three days to respond. Follow the notice provisions in your lease to the letter. Be sure such notices go to the correct address(es) and that you account for any delays in the effective date of the notice imposed by the notice provision in the lease. Only after this and the following steps should you consider initiating eviction proceedings or terminating a lease or a tenant’s possession due to late payment or nonpayment.

Review the Timing of Missed Payments

The restrictions on assessing interest, late fees, or other penalties for late or nonpayment apply to payments that are missed during the Effective Period. However, it is unclear whether they also apply more broadly to include charges that accrued before the Effective Period but were not charged to the tenant’s account. To respond conservatively, refrain from charging any of these fees during the Effective Period, regardless of when the right to charge the fees arose.

Notify Tenants of Defaults

EO142 does not relieve tenants of the obligation to pay anything due under the terms of their leases, except to the extent that it prohibits certain interest, late fees, and penalties for late payments. If your tenants are falling behind on their payments, you can still send monetary default notices, as long as they do not include anything that could be construed as an attempt to evict, terminate the lease, or terminate the tenant’s right to possession. A history of these notices may position you to more easily take immediate judicial action once the Effective Periods have expired.

Consider sending notices that:

  1. Identify the default.
  2. Provide any applicable cure period.
  3. Request that the tenant respond within 72 hours to inform the landlord whether the default is related to the pandemic (in commercial leases only).
  4. Contain a simple reservation of rights. 

Don’t Forget about the Federal Moratorium Affidavit

In addition to orders from the state, residential landlords are subject to the separate Federal Moratorium on residential evictions. Chief Justice Cheri Beasley’s order directs the Administrative Office of the Courts to create a form affidavit to assess whether the Federal Moratorium applies to each case. Petitioners would complete this affidavit for all existing summary ejectment and residential eviction proceedings filed between March 27–June 1, 2020 (to be submitted before final judgment) and in all summary ejectment actions filed on or after June 1, 2020 (to be submitted with the complaint). This affidavit is required even if the summary ejectment action is for a commercial tenant.

The Federal Moratorium on residential evictions is currently in place until late July. 

Monitor the Dockets for Appeals

If you were previously granted legal remedies and your tenant’s appeals deadline fell between March 16–June 1, there’s one more thing to consider. Chief Justice Beasley issued another order clarifying prior orders by extending the time for filing a notice of appeal for these matters (and any other legal matters with this appeals deadline) until June 30, 2020. Landlords affected by this Appeals Order should closely monitor the dockets prior to June 30 in anticipation of potential renewed legal action.

Familiarize Yourself with the Voluntary Mediation Program

Chief Justice Beasley’s order also created a voluntary mediation program for summary ejectment actions. Legal Aid of North Carolina will recruit and train mediators to assist low-income tenants on a pro bono basis. Multi-family landlords should familiarize themselves with this program if they are considering eviction of their residential tenants.

Keep Lenders in the Loop

If you are unable to pay your mortgage on a leased property due to the pandemic and the effect of these orders, you should reach out to your lenders and explain the situation. Although the Executive Order does not similarly restrict a lender’s right to foreclose, it does “strongly encourage” lenders to work with landlords. If you are at risk of foreclosure, explore other potential protections that may be available under state or federal law in response to the pandemic.

How to Deal with Other Defaults

EO142 only applies to monetary defaults. However, Chief Justice Beasley’s order precludes all legal proceedings to evict tenants until at least June 21, 2020. Commercial landlords still have the option of using self-help to evict tenants for defaults other than monetary defaults related to COVID-19. However, that is likely to be a very small portion of any defaults.

Do You have Additional Questions about Your Responsibilities as a Landlord?

NAI Beverly-Hanks agents are available to address questions or concerns about tenant and landlord relations. It is our fervent intent to continue providing excellent service in the face of evolving circumstances. We remain available to help business and property owners find opportunity and understand options as the effects of COVID-19 continue to unfold. 

Reach out to an NAI Beverly-Hanks commercial real estate agent today.

This post was adapted from this article from Fox Rothschild Attorneys at Law.

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