STATE AND FEDERAL ACTIONS IMPACTING LANDLORD AND TENANT RELATIONSHIPS DURING THE COVID-19 PANDEMIC

The state and federal governments have enacted laws in response to the COVID-19 pandemic, significantly impacting landlord and tenant relationships. This article briefly summarizes some of the more significant of such enactments.  The applicability of the measures referenced herein to a particular landlord and tenant relationship must be assessed within the context of the facts of the landlord and tenant relationship as well as the existing agreement between the parties.  As such, landlords and tenants are strongly advised to seek legal counsel prior to proceeding.

Limitation on Actions to End Tenancy

Residential Property[1] (without limitation).  New Jersey landlords are prohibited from removing a tenant from a Residential Property as a result of an eviction or foreclosure proceeding.  Such prohibition shall remain in place until no earlier than 2 months following the end of the Public Health Emergency or State of Emergency established pursuant to Executive Order No. 103[2] or revocation thereof. Further, sheriffs, court officers and their agents are prohibited from removing residential tenants through eviction or foreclosure.  The landlord may continue to initiate eviction and foreclosure proceedings for non-Federal Program[3]residential tenancies, pursuant to Executive Order No. 106.[4]  If you are considering eviction, click here for our practical guide to eviction and collections actions during the COVID-19 pandemic.

Federal Program Residential Properties (“FPRP”).  Landlords of FPRPs are prohibited from taking various actions to end tenancy prior to August 27, 2020.  Specifically, landlords are prohibited from (i) issuing a notice to vacate tenancy; (ii) initiating eviction proceedings for the nonpayment of rent; and (iii) imposing fees or penalties for the nonpayment of rent.[5] Note, however, that tenants are not absolved of their obligation to pay rent, protected from eviction for the non-payment of rent after August 27, 2020 (subject to the 30-day notice period) or relieved from any other provision of their lease agreement.

Mitigation Measures

Utilization of Security. Landlords of Residential Property may utilize the tenant’s security deposit for rent upon tenant’s written request. The landlord is authorized to recoup from the tenant such sums expended that would have otherwise been reimbursable as security. The tenant is otherwise relieved of any obligation to replenish security during the term of the existing lease agreement.[6]

Landlord Mortgage Payments. Landlords who possess single family or condominium mortgages owned by Fannie Mae or Freddie Mac are eligible to reduce or suspend their mortgage payments for up to 12 months through forbearance plans executed with the mortgage servicer. Forbearance amounts must be repaid during the term of the mortgage. Although the two programs own approximately 70% of all mortgages, the lack of transparency in the purchase and sale of mortgages makes it difficult to identify the owner of mortgages. Online tools have been developed to assist in determining whether a mortgage is owned by either of these entities using the following links: Fannie Mae and Freddie Mac. Landlords having a mortgage owned by either entity should contact their mortgage servicer to discuss reduction or suspension of their mortgage payments as set forth herein.

Grants and Loans to Landlords. Theoretically, in limited circumstances, landlords may be eligible to secure a Paycheck Protection Program (PPP) loan, which offers principal forgiveness for payroll and relief of interest on mortgage and other debt expenses for a period of 8 weeks subsequent to the receipt of the loan. The portion of loan proceeds that is not forgiven is subject to an interest rate of 1% annually for a term of 2 years. Landlord eligibility is subject to both passive business exclusions and the availability of funds. Landlords who are experiencing the loss of rent from the COVID-19 pandemic are more likely to meet the eligibility requirements of the Economic Injury Disaster Loan (EIDL) program. EIDL loans are available at an interest rate of 3.75% per annum (for for-profit businesses) for terms of up to 30 years. Although such funding has been quickly exhausted, it has also been previously replenished and further funding may become available.

Recommendations: Although it is understandable that during this time of extreme uncertainty residential landlords and tenants may instinctively move to their respective corners, it is recommended that they do the opposite and rather engage in dialogue as to their respective abilities and plans. A residential tenant may, and is strongly urged to, voluntarily present evidence of the negative economic impact he or she is experiencing, and landlords are not precluded from inquiring as to same in an attempt to reach a mutually agreeable solution.

Strategizing how to combat lease challenges generated by the COVID-19 pandemic requires a delicate balance of legal rights and obligations, practicalities and business sense. Winne Banta has assisted its clients in achieving such a balance for almost a century. If you have any questions about managing the landlord and tenant relationship or the impact of COVID-19 on you individually or your business, please contact Winne Banta’s COVID-19 Recovery Team at 201.562.1002.

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[1]

“Residential Property” means any property rented or owned for residential purposes, including but not limited to any house, building, mobile home or land in a mobile home park, or tenement leased for residential purposes, but shall not include any hotel, motel, or other guest house, or part thereof, rented to a transient guest or seasonal tenant, or a residential health care facility.

[2]

New Jersey, March 13, 2020.

[3]

“Federal Program” means federal aid has been received through a
a. Federal assistance program: Housing Choice Vouchers, Section 8 Project-Based Rental Assistance, rural housing programs and/or the Low-Income Housing Tax Credit (LIHTC) program;
b. Federally backed mortgage loan: Single-family (1-4 units) residential mortgage owned or securitized by Fannie Mae or Freddie Mac or insured, guaranteed or otherwise assisted by the federal government. Mortgages insured by: The Federal Housing Administration, The Department of Veterans Affairs and The Department of Agriculture’s direct and guaranteed loans; or
c. Federally backed multifamily mortgage loan: Footnote 3(b) above consisting of 5 or more residential units

[4]

New Jersey, March 19, 2020.

[5]

Coronavirus Aid, Relief, and Economic Security Act (H.R. 748) (“CARES Act”), Section 4024(c), 4024(b) and 4024(b) respectively.

[6]

New Jersey Executive Order No. 128, April 24, 2020.