Two separate bills have been filed with the Massachusetts Legislature, that, if enacted into law, would dramatically limit the rights of commercial landlords to terminate leases and evict tenants due to their failure to pay rent or default on other lease obligations during the current state of emergency declared by Governor Baker in response to the COVID-19 public health crisis. The two pending bills are summarized below:
Landlords would be prohibited from terminating any leases, or sending notices to quit (or similar notices to vacate the premises) to any tenants.
I. HOUSE BILL NO. 4615
House Bill No. 4615 has been approved by the House of Representatives and is now under consideration by the Senate. This bill proposes extensive restrictions on the ability of commercial landlords to exercise typical remedies in the event of a tenant commercial lease default, and further places an effective freeze on summary process (eviction) actions. The bill also applies to residential tenancies. Except in cases of “emergency” (which the bill defines essentially as lease violations involving criminal activity or violations that are detrimental to public health and safety), the bill imposes the following notable prohibitions and restrictions while the state of emergency remains in effect:
(a) Landlords would be prohibited from terminating any leases, or sending notices to quit (or similar notices to vacate the premises) to any tenants.
This prohibition is not limited to tenants who have failed to pay rent or committed other monetary defaults; it would also apply to tenants committing non-monetary defaults. Thus, if a tenant fails to perform maintenance and repair obligations, uses the premises for purposes not permitted in the lease, violates other tenants’ exclusive uses, violates building regulations, exceeds its allotted parking rights, or engages in any other noxious conduct that annoys or causes a nuisance to other tenants (as long as it is not illegal or a threat to public health and safety), the landlord would not be permitted to terminate the lease or send the tenant a notice to quit, even if the breach continued beyond applicable notice and cure periods under the lease.
Notably, however, the bill does not expressly prohibit landlords from sending notices of default to tenants (which, in commercial leases, is typically a procedural prerequisite to the landlord’s exercise of default remedies under the lease, including the right to terminate the lease). Thus, while a landlord could not terminate a lease due to the tenant’s breach, the landlord could nonetheless take the necessary steps to place the tenant in default status and thereafter exercise other default remedies, such as self-help rights (e.g., to cure a tenant’s failure to perform maintenance and repair obligations, and charge the costs to the tenant), seeking judicial relief for specific performance of the tenant’s lease obligations, charging the tenant for costs of enforcement (e.g., legal fees and costs), and perhaps even charging default interest on such costs until paid (but, per sub. [b] below, interest cannot be charged strictly as a charge for non-payment, or late payment, of rent).
It is also significant to note that while defaulting tenants are protected against termination of their leases during the protected period prescribed under the bill, those lease defaults will continue to exist. Tenants who have failed to pay rent during the protected period will still owe the unpaid rent arrearage at the end of the protected period; rents are not being abated, and any rent arrearages will not be forgiven. The bill states expressly that it “shall not be construed to relieve a tenant from the obligation to pay rent, or restrict a landlord’s ability to recover rent.” In practical effect, the bill merely delays the landlord’s ability to collect unpaid rent until after the state of emergency ends (and for 30 days thereafter). When the protected period ends, some tenants may find themselves in the precarious position of having substantial rent arrearages that they are not able to immediately pay off. Further, even if they have the resources to immediately pay off the arrearages, they still may not be able to salvage their leases. Many commercial leases provide that once the tenant is in default status the landlord may terminate the lease at any time thereafter. Similarly, tenants who have committed non-monetary defaults, and have failed to cure such defaults, will also be in default status when the protection period ends. Thus, while the bill would protect defaulting tenants (in both cases) from having their leases terminated during the protected period, their landlords’ rights to terminate their leases would have ripened during the protected period, thereby putting them in a position to terminate the leases immediately upon the expiration of the protected period. There is no “cure” period for tenants to pay their rent arrearages and/or correct their non-monetary defaults once the protection period ends (or, really, beyond whatever cure period they may have had following their landlord’s default notice).
The prohibitions on lease terminations or notices to quit would remain in effect for the duration of the Governor’s COVID-19 declaration of emergency, and for a period of 30 days thereafter.
(b) Landlords would further be prohibited from imposing late payment fees under leases, and from reporting their tenants’ failure to pay rent to credit reporting agencies.
In order to avail of these protections, however, a tenant who has failed to pay rent must satisfy two procedural requirements: (i) the tenant must notify the Landlord that its non-payment of rent was “due to a financial impact related, directly or indirectly” to the COVID-19 outbreak or to the Governor’s COVID-19 state of emergency; and (ii) provide “documentation” that its failure to pay rent was due to such financial impacts. The bill does not define “financial impact” nor specify what “documentation” would be sufficient, and thereby leaves considerable ambiguity as to what degree of nexus would need to be shown between the COVID-19 outbreak (or the state of emergency) and the tenant’s non-payment of rent. However, the drafter’s use of expansive language to encompass impacts relating “directly or indirectly” to the COVID-19 outbreak or the state of emergency suggests that the nexus can be tenuous. Tenants with any degree of imagination would presumably be able to document that their business (and thus their ability to pay rent) has been “impacted…indirectly” by the COVID-19 public health crisis.
Given the anticipated short period of protection prescribed under this bill (the prohibition on late fees expires 30 days after termination of the state of emergency), it is highly unlikely that these ambiguities would be vetted through traditional litigation and judicial interpretation prior to the termination of the protected period under this bill. As a practical matter, the validity (or lack thereof) of tenants’ claims and documentation of “financial impacts” is more likely to be the subject of actions after the protected period ends by landlords seeking to collect such late fees, and/or holding tenants in default for failing to pay same (and thereafter terminating their leases and commencing eviction actions).
(c) Summary Process (Eviction) proceedings would be precluded, and any pending eviction actions would be frozen
During the state of emergency, and for 30 days after termination thereof, Massachusetts courts having jurisdiction over summary process actions would be prohibited from accepting any new cases for filing. As to any summary process actions currently pending, such courts would essentially be precluded from making any dispositive determinations or taking any judicial action on such determinations. They could not issue any judgments awarding possession of the subject premises to landlords (i.e., they could not render an eviction decision on the merits), even if they found in some cases that the tenants were holding possession illegally or against the rights of their respective landlords. As to any judgments that have already been rendered, the courts could not issue executions for possession (the execution is the actual written document that a landlord supplies to a sheriff to “execute” on the judgment—i.e., to physically enter upon the subject premises and remove the tenant and its property). As to executions that may already have been issued by courts and delivered to sheriffs prior to the enactment of the bill into law, the bill also prohibits sheriffs from carrying out and enforcing such executions.
As a matter of procedure (but dovetailing with the more substantive restrictions outlined above), the bill would prohibit a judge from denying a tenant’s request to “stay” the issuance of (i.e., temporarily abstain from issuing) an execution to the landlord, or denying any other request for any continuance of the eviction action. Any deadlines or other time periods for procedural action by the tenant, such as its deadline to formally answer the summary process complaint at the beginning of the case, or to appeal an adverse judgment at the end of the case, would be tolled during the protected period.
II. SENATE BILL NO. 2621
The second bill currently under consideration at the State House is Senate Bill No. 2621. This Senate bill contains many of the same concepts as House Bill 4615 (summarized above), but its reach is shorter. The Senate bill similarly provides exceptions allowing evictions of tenants who are engaged in criminal activity or committing lease violations that impact health and safety. However, it is notable that the Senate Bill provides for a longer protected period of ninety (90) days after the COVID-19 state of emergency ends (in comparison to the 30-day extended period under the House bill).
Like the House bill, Senate Bill 2621 prohibits landlords from imposing late payment fees and from reporting tenants’ non-payment of rent to credit reporting agencies, and similarly qualifies this prohibition by requiring tenants to give notice that their non-payment of rent was “due to a financial impact from COVID-19” (also defined expansively as any financial hardship “due, directly or indirectly, to the COVID-19 emergency”) together with “documentation” of such financial impact. The Senate bill, however, provides for the Department of Housing and Community Development (DHCD) to develop forms for such notice, as well as recommendations for the documentation contemplated by the bill. If this bill passes then presumably DHCD will undertake (in developing these forms and recommendations) to further define what constitutes “financial impact” and what “documentation” will be sufficient to evidence same.
Notably, the Senate bill does not include provisions (as are contained in the House bill) prohibiting landlords from terminating leases for non-payment of rent (or other lease defaults), or from sending tenants notices to quit/vacate the premises. Accordingly, under the Senate bill, if tenants do default, landlords can exercise default termination remedies under their applicable leases. However (as summarized below), if any tenants fail to vacate their respective premises following termination, landlords will not be able to obtain eviction judgments or executions to remove such tenants and regain possession of such premises, due to the freeze on summary process proceedings during the protected period. One question would be whether commercial landlords would nonetheless be able to charge such holdover tenants with holdover rent (use and occupancy charges) under the holdover provisions of the applicable leases. Such holdover rents are usually 150% to 200% of the rent that was in effect prior to termination, and there would be some ambiguity as to whether such enhanced holdover rent would be construed as a species of “late fee” prohibited under the bill.
The Senate bill also (similar to the House Bill) imposes restrictions on Massachusetts courts in processing summary process (eviction) cases, and effectively creates a similar freeze on eviction actions during the protected period. The Senate bill provides for a general “toll” on all deadlines and other time periods in summary process actions. The bill specifically mentions deadlines for answers to summary process complaints, appeals of judgments, and levies upon executions, but the tolling concept is not limited to these specific time periods. Presumably, the toll would also apply to time periods prescribed for service of discovery requests, responses to discovery, motions, and responses to motions.
Notably, the Senate bill (unlike the House bill) does not prohibit summary process courts from accepting new cases for filing and docketing. Accordingly, under this bill, landlords would be able to not only send notices of default to defaulting tenants, but also (if the defaults are not cured) then send them notices of termination, and thereafter (if the tenant fails to vacate) commence eviction proceedings against such tenants. However, once the summary process actions were commenced, they would not be advanced by the courts during the protected period.
It is further notable that, with respect to residential evictions only, the Senate bill prohibits summary process courts from entering default judgments, or scheduling trials or other “court events” during the protected period. Thus, if a residential tenant fails to appear in the action and take required procedural actions within applicable time periods, the court cannot issue a judgment against them for default. As these prohibitions on default judgments and scheduling of trials and other court events are limited to residential eviction actions, it creates the implication that these prohibitions do not apply in commercial eviction actions. The implication would be that (in contrast to residential tenants) commercial tenants must respond to summary process complaints and otherwise satisfy required procedural actions, or be subject to the entry of judgment by default; and that courts can schedule trials and other “court events” in commercial summary process actions. However, it is difficult to reconcile these implications with the bill’s general tolling concepts, as presumably commercial tenants’ deadlines for answering complaints and for taking any other procedural actions would be tolled as well, Therefore, the opportunity for a commercial tenant to default in its procedural actions would not arise, and by extension, there would be no basis for the court to enter a default judgment.
Hearings on these emergency bills are anticipated to occur as early as this week, so it is possible that some form of these restrictions on landlord lease remedies for tenant defaults, and freezes on summary process actions, will be passed into law soon.