June 16th, 2021

Question: Let’s say that you are a retail commercial tenant who was put out of business by the Governor’s closure order due to the COVID-19 pandemic and have since been financially unable to rehire, restock, or reopen your business. Furthermore, the landlord is also threatening to sue you for back rent. What defenses are available to you as a commercial tenant regarding a landlord’s claim for back rent?

Pete’s Answer: Cal Civ.Code § 1511 provides that “The want of performance of an obligation, in whole or in part, is excused . . . when it is prevented by a superhuman cause, or by act of the state . . . unless the parties have agreed to the contrary.” Hence when the leased premises of businesses are shut down by the Governor’s order, or due to the COVID-19 virus making times extremely difficult to operate financially, commercial tenants may be excused from rental obligations until their businesses are back on their financial feet and are able to operate, if ever.  

Presently, commercial tenants may have to pay 25% of the rent which became due from and after September 1, 2020, to avoid eviction if necessary, effective after July 1, 2021, upon receipt of a notice to pay rent. If sued, commercial tenants may nonetheless successfully assert affirmative defenses of “frustration of purpose” or “impossibility of performance” to escape or reduce liability for owing back rent.

However, many forms of commercial leases may contain certain clauses which state that a tenant’s obligation to pay rent is not excused by acts of God or state ordered moratoriums. Therefore, in such cases, affirmative defenses of “frustration of purpose” or “impossibility of performance” may not be feasible. In negotiating an exit strategy for a stressed leased business, it is important to use legal counsel familiar with these COVID-19 rules.

Disclaimer: This article is for general legal education only, and should not be applied to any real-life situation without the advice of independent, qualified legal counsel. 

About the Author: Attorney Pete Wittlin, is a 38-year southern California real estate law litigator and counselor, who may be reached at his law office in Irvine, California, at telephone (949) 430-6529.  Pete is the 36-year Editor of the “Real Estate Law Update,” which he writes monthly for the 300+ members of the OCBA’s Real Estate Law Section, summarizing important real estate appellate case decisions, and annually legislative developments.  He is also the section’s annual April guest speaker on the year’s “Top 10 Real Estate Law Decisions,” and is a former educator and frequent public speaker to area brokerage firms on topics of legal interest to their members. He may be also be reached at pwittlin@gmail.com.

June 16th, 2021

Q: Let us say that there is an underground electrical utility easement across the rear of your residence that is used by the city. While the easement may have never bothered you before, suddenly the city decides to expand its use by installing an above-ground meter that hums loudly, thereby interrupting the quiet enjoyment of your home. What steps can you take against the city to alleviate the burdensome expansion of its easement?

A: The user of a legally acquired easement is not permitted by law to expand its use beyond what is necessarily and reasonably measured from the time it acquired the easement. Under the law, doing so is known as “overburdening an easement.”

While the party using the easement is known as the “dominant tenement,” the party that owns the land on which the easement is located is known as the “servient tenement”. When a dominant tenement overburdens an easement without the consent of the servient tenement by means of either expanding its size, creating bothersome noise, frequent entering of the land to now operate its expanded use, or any way uses the easement in a way that interferes with the servient tenement’s quiet enjoyment of his or her home, an aggrieved homeowner may seek administrative recourse against the city.

It is important to note that the servient tenement must seek administrative recourse against the city before entertaining an action in court to enjoin overburdened use of the easement. Doing so is known as “exhausting one’s administrative remedies” before filing suit for injunctive relief or damages. Also, before any suit is filed for damages, the homeowner may need to file a special proof of claim form with the city and wait for a six-month period before being able to sue for damages.

In negotiating an effective remedy against the city for overburdening its easement on your property, it is important to use legal counsel familiar with these abatement rules. Impermissibly starting may result in a frustrating stopping and time-consuming redo.

Disclaimer: This article is for general legal education only, and should not be applied to any real-life situation without the advice of independent, qualified legal counsel. 

About the Author: Attorney Pete Wittlin, is a 38-year southern California real estate law litigator and counselor, who may be reached at his law office in Irvine, California, at telephone (949) 430-6529.  Pete is the 36-year Editor of the “Real Estate Law Update,” which he writes monthly for the 300+ members of the OCBA’s Real Estate Law Section, summarizing important real estate appellate case decisions, and annually legislative developments.  He is also the section’s annual April guest speaker on the year’s “Top 10 Real Estate Law Decisions,” and is a former educator and frequent public speaker to area brokerage firms on topics of legal interest to their members. He may be also be reached at pwittlin@gmail.com.

Due to the downturn in today’s retail economy, many commercial tenants are financially unable to afford to pay their ongoing rental obligations at their lease’s rate. Businesses which generated enough monthly receipts to pay, for example, $10,000 per month rent, now are lucky to bring in $4,000 per month with no real improvement in sight.

What protections do tenants have to landlord’s threatened eviction actions? On April 6, 2020, the California Judicial Council issued an order barring all California courts from issuing an unlawful detainer summons for at least 90 days after Governor Newsome may declare the existing state of emergency related to the COVID-19 pandemic amended or repealed, i.e., landlords may not now, or for at least 90 days herefrom, file an unlawful detainer action in court to evict a residential or commercial tenant. So tenants have been given a reprieve, i.e., a delay, but not forgiveness, against being evicted for not paying rent.

Cal Civil Code § 1167 has been amended effective 1-1-2020 to require that any tenant who cannot afford timely to pay its rent must deliver to its landlord within 7 days after the rent become due a written notice to landlord specifying that due to COVID-19 caused income reduction tenant was not able to afford to pay that month’s rent. No proof of reduction in income need be attached to the notice, yet tenant is required to maintain access to relevant documents to support its income reduction claim, e.g., income & expense record and their backup bank records. Once the emergency stay has been lifted and the lawful detainer action may proceed to trial, the court may rule in favor of landlord but allow the tenant time to cure its rental arrears before enforcing an eviction order.

So a tenant faced with an assertive landlord who threatens to evict once allowed by the court has some timing to leverage to negotiate with landlord to adjust the rent down to what tenant may be able to afford – this under tenant’s threat simply to remain in possession indefinitely without paying any rent. Cash flow-weary landlords have great incentive to negotiate down rental obligations with tenant’s legal counsel.

A further reason landlords should negotiate down the rent is that if the case ultimately gets to trial, the tenant may prevail in limiting the amount of, or eliminating its obligation to pay rent under one of three available legal defenses:

  1. force majeure,
  2. frustration of venture, or
  3. impossiblity of performance.

For either of these defenses to work, tenant’s financial situation must have been (and continues to be) dire, e.g., foot traffic at the site’s shopping mall is substantially reduced, e.g., by 50%, such that it is impossible to generate enough income to pay the rent. No landlord wants to “roll the dice” for 12 months’ time until trial with a non-paying tenant during such time. Also, although attorney’s fees may be recoverable by the prevailing party, many leases limit recovery to $1,500, or less, for example. So a landlord’s refusal to negotiate down the rent may be a major cash-flow mistake for landlord.

Defense counsel’s arguments to landlord’s property manager may be, “Look, you can’t get blood out of a rock! I’ll send to you tenant’s ‘financials’, i.e., applicable income & expense records, balance sheet, and income tax returns, for review, so that we may begin to talk about what my client may afford to pay over what period of time. Otherwise, it’s going to be a long, and expensive, haul to get to trial, and if you win, dealing with tenant’s proceeding in bankruptcy court for relief”.

About the Author: Attorney, Pete Wittlin, 30+ year real estate and bankruptcy law attorney represents distressed commercial tenants seeking to reduce their ongoing rental obligations and stay in business. Tel. (949) 430-6529. Pete is also the 30-year Editor of the OCBA’s Real Estate Law Section’s monthly “Real Estate Law Update” and the section’s current annual April guest speaker on top appellate case decisions & legislative developments.

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