North Carolina remains under Phase 2 of reopening as we enter the fifth month of health and economic impact driven by COVID 19. While many businesses are now open, some may still be under restrictions or closed until Phase 3 can begin.
Business owners have had access to resources and assistance including the CARES Act, SBA emergency loans, the Paycheck Protection Program, and more to navigate the impact of the pandemic on business operations, but some may also want to consider deferring some payments including rent.
What are the legal implications of commercial leases during COVID 19? How much leeway does a business owner have to stretch their payments? Some recent NC Executive Orders have provided guidance:
Is rent still owed on commercial leases during COVID-19?
Yes. Governor Roy Cooper issued Executive Order No. 142 on May 30, 2020 to address evictions and utility payments (“EO 142”). During the effective period of EO 142, which expired June 20, 2020, there was a restriction on commercial evictions, but not rent. All rent is still due at a later date, and landlords were still allowed to evict tenants for reasons other than COVID-19-related late or nonpayment of rent. EO 142 takes an expansive view of the phrase “caused by the COVID-19 pandemic” — a cause is included whether it is directly or indirectly related to COVID-19, which includes the medical effects of the pandemic as well as disruptions to the economy that are the result of it.
What other protections did Executive Order 142 provide?
In addition to rent payment deferral, EO 142 protected tenants from late fees or penalties for late payment or nonpayment of rent during the effective period. Additionally, any existing interest, fees, or penalties assessed prior to EO 142 did not accrue interest during the effective period but must still be paid by the tenant. EO 142 requires the landlord and tenant to work together to arrange a reasonable repayment schedule, over a minimum period of six (6) months after the effective period ended, for the tenant to pay any unpaid rent or previously assessed fines and penalties.
How should landlords and tenants work together during the pandemic?
As we are all aware, the crisis created by the pandemic is ongoing. Local, state and federal governments could take additional action to address, among other things, the commercial landlord/tenant relationship. Landlords should be mindful that the spirit, if not the letter, of EO 142 encouraged landlords to work with tenants to the best of their abilities to avoid evictions in light of the COVID-19 crisis. Tenants are encouraged to get in touch with their landlords to identify needs, and plan for future payments.
How are utilities and utility payments affected by Executive Orders 124 and 142?
On March 31, 2020, Governor signed Executive Order 124 (“EO 124”), providing temporary relief to utility customers. EO 142 extended these protections until July 29, 2020. These provisions primarily apply to residential customers, with the exception that business expenses related to working from home are covered. The North Carolina Utilities Commission has recommended that all utility providers suspend late fees during the declared State of Emergency in North Carolina. Customers with questions about their payments should contact their service provider.
About the Authors: Adam Duke and Elizabeth Napps
Adam Duke is a partner at the law firm of Bell, Davis & Pitt. Adam focuses his practice on banking and financial services, creditors’ rights, commercial real estate and construction law. Active in the legal community, Adam volunteers for the Disaster Legal Services and 4All programs of the North Carolina Bar Association.
Elizabeth Napps is a rising second-year student at Wake Forest University School of Law. She earned her Bachelor of Arts in history from the University of Virginia. Prior to law school, she worked in corporate governance in the healthcare sector in Richmond.