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SF Commercial Eviction Moratorium: What it means for your business

SF Commercial Eviction Moratorium: What it means for your business

It has been over a year since the emergence of the coronavirus pandemic that has taken over our lives and seemingly the entire world. As several vaccines have become available, many are finally beginning to see the light at the end of the tunnel. However, the virus still surges, and repercussions from the pandemic will likely last far longer than the virus itself. As such, lawmakers across the country are still needing to make provisions and amendments to laws such as the Tenant Relief Act and Eviction Moratorium. 

In this post, our San Francisco landlord-tenant and real estate attorneys at Steven Adair MacDonald & Partners, P.C. will explain eviction protections for commercial tenants during the COVID-19 pandemic. We’ll provide an outline for what exactly this commercial eviction moratorium does, what it means, and how it affects you.

Commercial Eviction

While we previously provided a full explanation of the Federal Eviction Moratorium, it only applies for residential tenants — not commercial tenants. However, on the first of December of last year, the San Francisco Board of Supervisors declared their unanimous approval of a commercial eviction moratorium specifically for small businesses. 

Under this ordinance, qualifying commercial tenants may postpone their payment of rent through the duration of the moratorium period and, in some cases, beyond. In this context, the term “tenant” applies to a person or entity with exclusive possession of a commercial space.

The expiration of the eviction moratorium was previously stated as being March 31, 2021, but on March 4, the Governor extended it further. As of now, via Executive Order N-03-021, the moratorium period encompasses the dates March 16, 2020 to June 30, 2021. This means that on July 1, 2021, all commercial tenants are expected to make on-time rent payments for their building or space.

The updated eviction moratorium allows small businesses protection from being evicted due to the loss of income and revenue related to the ongoing Coronavirus pandemic. It comes as a sigh of relief for so many small California businesses that are currently under significant financial pressure. 

What Businesses Qualify for the Eviction Moratorium?

In order to qualify for the commercial eviction moratorium, a business must meet certain criteria. First and foremost, the tenant must be legally registered to do business in the city of San Francisco under Article 12 of the Business and Tax Regulations Code. Further, the business must be formally considered a “small” business. According to Gov. Code § 14837, small businesses refer to any business having less than 100 employees and $15 million or less in annual gross receipts.

To qualify for the moratorium, the current pandemic must also have had some financial impact on the business that affected its ability to pay rent. Tenants must be able to provide the proper documentation that proves they were unable to pay their rent due to the COVID-19 outbreak. An example of a financial impact would be if the tenant’s net income decreased by 25% or more in a given month as compared to the same month in 2019. If the business owner can show proof of a financial impact on his or her business, any missed rent payments from March 16, 2020 to June 30, 2021 may be further deferred. 

However, there are timelines set in place for how long the tenants have to pay back these missed payments depending on the size of their employee base. We will cover these below. 

Four Tiers of Commercial Tenants

Covered commercial tenants are split into four categories, or “tiers” based on the number of people they currently employ full-time. The first three tiers all grant commercial tenants a forbearance period past the expiration of moratorium period.

TIER 1

Tier 1 is classified as tenants who have 9 or less full-time employees as of November 1, 2020. These businesses have up to two years, or 24 months, to pay their deferred rent. In addition, tenants who fall under Tier 1 can legally terminate their leases with 30-days’ written notice to their landlord while paying due rent through the date of termination. Thus, the tenant is not liable for future rent or any penalties due to the previously deferred rent. This makes Tier 1 tenants in San Francisco the only commercial tenants in the state of California eligible for these protections.

TIER 2

Tier 2 consists of tenants with 10 to 24 full time employees as of November 1, 2020. Under Tier 2 protections, these commercial tenants will have up to 18 months to pay back any missed rent. 

TIER 3 

Tier 3 tenants have between 25 and 49 full-time employees as of November 1, 2020. They have up to 12 months to repay any deferred rent.

TIER 4

Finally, Tier 4 tenants must have 50 to 99 full-time employees as of November 1, 2020. Under Tier 4, commercial tenants must repay any deferred rent once the Moratorium Period reaches its expiration. 

Below, we’ll provide you with a chart to give a better visualization of the different tiers and their forbearance periods:

Commercial TenantForbearance PeriodForbearance Expiration Date
Tier 124 months (2 years)June 30, 2023
Tier 218 months (1.5 years)December 30, 2022
Tier 312 months (1 year)June 30, 2022
Tier 4NoneJune 30, 2021

Over these forbearance periods, commercial tenants of all tiers may pay their deferred rent by way of installment payments or lump sums. So long as they complete their payments by the end of the forbearance —or moratorium for Tier 4— period, of course. 

Landlords cannot impose interest or any other extra charges on a covered commercial tenant’s late rent payments during the moratorium and forbearance periods. Once the forbearance period ends, however, the landlord may begin charging interest and penalties prospectively as the lease allows.

Exceptions to Commercial Eviction Moratorium

There are ways in which tenants may have a longer or shorter forbearance period than stated by the Ordinance. However, this is only if it is mutually agreed upon between the tenant and landlord. The agreement for a renegotiated repayment plan must appear in writing and should include the newly established expiration date. 

Landlords also have an exception to the commercial eviction moratorium. This applies to San Francisco landlords owning less than 25,000 square feet of gross floor area and whose inability to evict tenants is creating a significant financial hardship for them. Further, that their eviction would assist in mitigating the hardship. If the landlord can properly demonstrate this, they may be able to evict a covered tenant before the expiration of the given forbearance date. 

Significant financial hardship may appear as something like a default on debt. It can also be the inability to afford basic goods, services, and maintenance for their property. Documentation that may serve as evidence of financial hardship include the following:

  • Bank and credit card statements
  • Complaint for foreclosure
  • Court ordered payments, judgements, or liens
  • Current credit report
  • Current retirement and investment statements
  • Debt payment schedule
  • Investor payments or obligations
  • Mortgage and lender statements
  • Notice of default
  • Property appraisal
  • Property list with values
  • Utility fees/payments
  • Notice of default

Contact Steven Adair MacDonald & Partners Today

At Steven Adair MacDonald & Partners, P.C., we aim to provide positive solutions to complicated situations. As you know, anything related to COVID-19 definitely constitutes a complicated situation. For more information or assistance regarding the commercial eviction moratorium, call our experienced San Francisco landlord-tenant law attorneys today. You can schedule your consultation by dialing 415-956-6488.

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