Briefings Multifamily

California’s Approach to Eviction Moratoriums

The Golden State offers a case study in what to know about renters’ and lenders’ rights as the economy reopens.

The COVID-19 pandemic has resulted in a variety of eviction moratoriums enacted by local, state, and federal governments in the United States. The California state moratorium was recently extended and modified, giving residential landlords the ability to opt out of a newly created rental assistance program. In addition, commercial eviction moratoriums enacted by many cities and counties remain in effect or have recently expired, including in San Francisco, Oakland, Alameda County, Contra Costa County, and Santa Clara County.

Residential eviction moratoriums have garnered significant attention since first appearing in March 2020. Federal eviction moratoriums, such as the Centers for Disease Control's order, have also raised questions about the constitutionality of such protections and whether statutory authority exists to issue such sweeping protections. Neither federal eviction moratoriums nor California's statewide moratoriums have extended protection from evictions beyond residential tenants.

While the state and federal moratoriums apply to residential tenancies, California Governor Gavin Newsom signed Executive Order N-28-20 in March 2020, authorizing individual cities and counties to halt evictions of commercial renters impacted by COVID-19 as well. Newsom has extended this order numerous times. The latest extension permits cities and counties throughout California to halt evictions of commercial tenants through September 30.

Bay Area municipalities have responded to Newsom's executive order by enacting eviction moratoriums that apply to commercial tenancies, many of which are still in effect. However, local eviction moratoriums vary greatly in scope and time of expiration. Therefore, it's essential for commercial landlords and tenants to familiarize themselves with any commercial eviction moratorium enacted in your city and county.

Briefings_SanFran

In San Francisco, the commercial eviction moratorium suspended the right of an owner to evict a covered commercial tenant who misses a rent payment during the moratorium period. The ordinance defined covered commercial tenants as any person or entity (including a subtenant) with the right to exclusive possession of commercial space provided that person or entity is registered to do business in San Francisco and has combined worldwide gross receipts for 2019 equal to or below $25 million. However, it did not cover tenants (other than 501(c)(3) nonprofit entities) that occupy space in property that is zoned or approved for office use. Finally, the ordinance only applied to evictions of covered tenants for nonpayment where the missed rent payment is both:

  1. Due between March 16, 2020, and September 30, 2021.
  2. Because of financial impacts resulting from COVID-19.

When a tenant qualified under the San Francisco moratorium, the landlord must give the tenant written notice and an opportunity to repay any missed rent during a forbearance period after the moratorium expires before attempting to recover possession of the premises. The forbearance period varied depending on the number of full-time equivalent employees (FTE) the tenant has. In other words, the earliest possible eviction for nonpayment of rent was the end of the moratorium period (September 30) plus the applicable forbearance period.

Moreover, so-called “Tier 1” tenants — that is, tenants with 10 or fewer FTEs — had the option to terminate their leases early if they are unable to pay rent due to COVID-19-related financial impacts. Commercial landlords may have been able to recover possession early (i.e., before the end of the forbearance period) if the landlord owns less than 25,000 sf of gross floor area and can demonstrate that a significant financial hardship is created by the inability to evict.

Alameda County's commercial eviction moratorium, which expired June 30, had the greatest scope of those explored in this article. The county's moratorium applied to any affected business, defined as any tenant that has experienced a qualifying loss. Therefore, Alameda County's was not limited to small business and nonprofits.

If you are a commercial landlord in California, you should familiarize yourself with any commercial eviction moratorium enacted in your city and county.

Alameda County's commercial eviction moratorium demonstrates the importance that landlords and tenants understand all applicable local eviction moratorium. The moratorium covered “all commercial tenants/properties in the unincorporated area (Ashland, Castro Valley, Cherryland, San Lorenzo, Fairview, Sunol, and parts of East County).” Accordingly, the county's moratorium did not apply to tenants and properties in a city, in which case the county directs tenants and landlords to look to the appropriate city's moratorium. In contrast, some counties enacted a commercial eviction moratorium that includes all cities within the county — unincorporated or not — such as Marin County.

Oakland is one of several cities within Alameda County to enact a commercial eviction moratorium (along with Alameda, Albany, Berkeley, Hayward, Newark, and Union City). Oakland's commercial eviction moratorium covers small business tenants, defined as a business having fewer than 100 employees, average annual gross receipts of $15 million or less, and a principal office located in California. Under Oakland's moratorium, a commercial tenant cannot be evicted if documented nonpayment of rent was caused by “a substantial decrease in income (including, but not limited to, a decrease due to a reduction in hours or consumer demand)” caused by COVID-19 or governmental response to COVID-19. The moratorium extends through the end of the local emergency as declared by the City of Oakland last March, which presently does not have a defined end date. Notably, Oakland's commercial eviction moratorium covers all 501(c)(3) nonprofit entities, regardless of size. Accordingly, Oakland's moratorium ensures that no nonprofit will be evicted for nonpayment of rent due to a substantial decrease in income caused by COVID-19.

Contra Costa County's commercial eviction moratorium was similar to Oakland's as it pertains to small business qualification factors and the protections afforded thereunder. Contra Costa County's moratorium expired on September 30, 2021.

Santa Clara County's commercial eviction moratorium, which also expired June 30, demonstrated the extent to which local moratoriums vary. Unlike San Francisco and Oakland, Santa Clara County's Ordinance relied on the U.S. Small Business Administration's (SBA) definitions of small businesses based on industry. The SBA's size standards vary by industry based on the number of employees or annual receipts. Furthermore, in contrast to the increased protection offered to nonprofit entities under San Francisco and Oakland's eviction moratoriums, Santa Clara County's moratorium did not exempt nonprofits from its small business qualification limitations. In Santa Clara County, a commercial tenant could not be evicted if nonpayment of rent was caused by “substantial income loss and/or substantial out-of-pocket medical expenses that are directly related to your failure to pay rent as a result of the COVID-19 pandemic.” Small business tenants under the ordinance have up to six months after the moratorium expires or terminates to repay at least 50 percent of the past-due rent. Tenants have up to 12 months after the moratorium expires or terminates to repay in full the past-due rent. Santa Clara County extended the moratorium through August 18, 2021, from the the previous expiration date of April 30, 2021.

If you are a commercial landlord in California, you should familiarize yourself with any commercial eviction moratorium enacted in your city and county. Additionally, you should be aware of whether or not you have tenants that qualify for the moratorium and be prepared for the possibility that they may seek to take advantage of it. Finally, compare the applicable county versus city moratorium that applies in your situation. There may be instances in which a city's moratorium affords more (or less) protection than does the applicable county's moratorium. Similarly, commercial tenants experiencing financial hardship due to the pandemic should familiarize themselves with their local commercial eviction moratorium as it may provide important protections.

Tony Schoenberg

Litigation partner at Farella Braun + Martel.

Richard Young

Litigation associate in Farella Braun + Martel's Real Estate Industry Group.

Advertise with Us

Reach more than 45,000 top-performing commercial real estate professionals with CIRE magazine’s print, podcast, and online offerings.

Download the Media Kit

Summer 2021 Cover

Recommended

Increasing Interest

Summer 2022

The multifamily sector continues to strengthen, with demand returning to gateway cities as newly popular destinations continue to attract renters. 

Read More

Investors Need to Face Distressed Assets Now

Summer 2022

Commercial real estate investors need to address distressed assets with urgency, as interest rates rise and inflation continues to be a factor. 

Read More

Creative Revitalization

Summer 2022

An office-to-multifamily project shows how adaptive reuse can offer new life to properties once thought past their prime. 

Read More

Improving Loan Packages

Spring 2022

A lot of detail goes into an ideal loan package, but securing favorable terms can pay off for decades.

Read More