Massachusetts remains one of the states hardest-hit by the 2019 novel coronavirus disease (COVID-19) pandemic in the U.S. Naturally, Boston—as the largest city in the state as well as the most populous city in the New England region—has likewise felt the harsh effects of the COVID-19 pandemic. With most retail businesses closed for the past two months, and other commercial businesses operating at significantly reduced capacity, an unprecedented number of commercial tenants have suffered severe reductions in business revenue and, consequently, have struggled to make rent payments since the state-wide coronavirus shutdowns began.
Naturally, Boston—as the largest city in the state as well as the most populous city in the New England region—has likewise felt the harsh effects of the COVID-19 pandemic.
Despite the Baker-Polito Administration’s efforts to get the state and city back on track and responsibly reopen businesses and activities while continuing to fight the COVID-19 pandemic, many businesses will continue to remain closed or operate at reduced capacity for the foreseeable future, creating uncertainty for commercial landlords and tenants alike.
This article briefly summarizes the plan for reopening Massachusetts and the city of Boston and outlines aspects of the temporary moratorium on non-essential evictions and foreclosures that commercial landlords and tenants should be aware of concerning rental defaults.
The Strategy for Reopening Massachusetts and Boston
On May 18, 2020, the Baker-Polito Administration released Reopening Massachusetts, a four-phased strategy issued by the Reopening Advisory Board.1 The four stages can be summarized as follows:
• Phase 1: Offices in the City of Boston can reopen on June 1st.
• Phase 2: Depending upon health data trends and based on the progression of COVID-19, three weeks after Phase 1 retail business, restaurants and hotels can reopen with restrictions.
• Phase 3: Depending upon health data trends and based on the progression of COVID-19, three weeks after Phase 2 all other business activities can resume and open, including bars, casinos, gyms, museums and others in the entertainment and arts industries, with the exception of nightclubs and those operating in large venues.
• Phase 4: The full resumption of all other activities (e.g., all travel, activities in large venues and nightclubs) will not take place until the development of vaccines and/or treatments that enable the same.
During each phase, the state and city are expected to issue sector-specific protocols and best practices. 2
Massachusetts Temporary Moratorium on Evictions and Foreclosures
In response to the COVID-19 pandemic, on April 20, 2020, Governor Charlie Baker signed into law legislation, Chapter 65 of the Acts of 2020 (the “Act”),3 placing a temporary moratorium on all stages of the non-essential eviction process for residential and small business tenants as well as a temporary foreclosure moratorium and forbearance relief for residential mortgagors. The Act took effect immediately and will remain in place until the earlier of: August 18, 2020, or 45 days after the Governor lifts the COVID-19 emergency declaration.
With respect to rent obligations, commercial landlords and tenants should be aware of following key aspects of the Act:
• Obligation to Pay Rent Remains: The Act does not relieve a tenant from the obligation to pay rent under a lease, nor does it prohibit a landlord from placing in default a tenant who does not make the required rent payments, or thereafter terminating the commercial tenant’s lease if the rent default is not cured.
• Moratorium on Evictions: The Act, as relevant here, prohibits any “non-essential eviction” of a for profit or not-for-profit “small business premises” tenant. “Non-essential evictions” include all evictions except those which involve or include allegations of criminal activity or lease violations which impact health and safety. “Small business premises” are defined under the Act as a premises occupied by a commercial tenant that together with its entity affiliates, operate in only one state, is not publicly traded and has less than 150 full-time equivalent employees. Therefore, the Act halts the evictions of small business tenants, even where the eviction is based on the non-payment of rent. However, the Act does not halt evictions of small business tenants due to the termination of a lease or lease default which occurred prior to March 10, 2020—the date the Governor declared the state of emergency concerning the COVID-19 pandemic.
• Limit on Court Actions and Tolling of Time Periods: The Act prohibits courts from taking any action on small business evictions. In connection therewith, in a non-essential eviction of a small business premises tenant, courts cannot: (i) accept complaints or other filings; (ii) enter a judgment or default judgment for possession; (iii) issue an execution for possession; (iv) deny a tenant’s request for a stay of execution, or a landlord’s or tenant’s request for a continuance of a summary process case; or (v) schedule a court event, including a summary process trial. Additionally, deadlines and time periods for action by a landlord and tenant are tolled and sheriffs are prohibited from enforcing any non-essential small business evictions.
• Limit on Late Fees and Credit Reporting: The Act also prohibits landlords of small business premises units from imposing late fees for non-payment of rent and furnishing rental payment data to a consumer reporting agency if, not later than 30 days after the missed rent payment, the tenant provides notice together with documentation4 to the landlord that the non-payment of rent was due to a financial impact from COVID-19.
As set forth in the Commonwealth’s Executive Office of Housing and Economic Development (EOHED) regulations,5 such notice must be sent to the landlord within 30 days of the date of the missed rent payment. Tenants who have missed multiple rent payments due to a financial impact from COVID-19 must send a separate notice for each missed rent payment in accordance with the notice provisions of the lease or the parties’ prior customs and practices. If no notice provisions exist in the lease, if there is no written lease between the parties, or if the landlord has communicated with the tenant over email, then the notice may be sent to the rent payment address or the most current email address used by the landlord in their communicate with the tenant. If the landlord uses a management or other third-party agent, the tenant may send the notice to that party instead of sending the notice to the landlord.
• Landlords' Use of Last Month’s Rent: The Act allows Landlords who received rent in advance for the last month of the tenancy to use the advance rent funds to pay for expenses such as mortgage payments, utilities, repairs and required upkeep. However, landlords cannot use a last month’s rent deposit to pay for a tenant’s missed rent payment and any use of the last month’s rent can only occur if the landlord provides the tenant with proper notification6.
As set forth in the EOHED regulations,7 such notice must be sent in accordance with the notice provisions of the lease within five business days after the date on which the landlord used the advance rent payment. If the lease does not contain any notice provisions, or if a tenancy is not subject to a written lease, the notice may be sent to the address of the leased premises, or to the current email address used by the tenant to communicate with the landlord.
Additionally, a landlord’s use of a last month’s rent deposit does not otherwise alter the landlord’s obligations under existing law, including the calculation and payment of interest on last month’s rents. Under the EOHED regulations, if the landlord is unable to determine the interest rate with certainty, then the rate of interest shall be the greater of (i) the rate of interest received from the bank where the deposit has been held for the month immediately preceding the landlord’s utilization of such funds, or (ii) the rate of interest received by the landlord during the last month of the tenancy from the bank where the landlord maintains the tenant’s security deposit.
At the end of the day, as the City of Boston has and continues to acknowledge, “[t]his is a rapidly evolving situation and things are changing daily.” To navigate these unchartered waters, landlords and tenants of commercial properties should consult with counsel to evaluate possible risks and liabilities, both under their lease agreements and applicable state law.
1 The full report is available here: https://www.mass.gov/doc/reopening-massachusetts-may-18-2020/download.
2 For sector-specific protocols and best practices issued by the state of Massachusetts, see https://www.mass.gov/info-details/reopening-massachusetts#sector-specific-protocols-and-best-practices-; for guidance issued by the city of Boston, see https://www.boston.gov/departments/public-health-commission/coronavirus-guidance.
3 https://malegislature.gov/Laws/SessionLaws/Acts/2020/Chapter65. Additional information published by the state on the moratorium can be found here: https://www.mass.gov/lists/moratorium-on-evictions-and-foreclosures-forms-and-other-resources.
4 The EOHED has developed a form for the notice, available here: https://www.mass.gov/doc/form-of-notice-covid-19-hardship-small-business-tenant/download, and documentation, available here: https://www.mass.gov/doc/documentation-of-financial-hardship-small-business-tenant/download, that tenants will need to provide in showing that the non-payment of rent was due to a financial impact from COVID-19.