North Carolina Limits Commercial and Residential Evictions and Other Lease RemediesJune 2, 2020 – Alerts
North Carolina Gov. Roy Cooper issued Executive Order 142 on May 30, 2020, placing temporary restrictions on residential and commercial evictions for monetary defaults related to COVID-19 and extending the prohibition on utility shut-offs. In response to the Executive Order, North Carolina Supreme Court Chief Justice Cheri Beasley issued an order that extends the statewide stay on all eviction hearings through June 21, 2020 and establishes a voluntary mediation program for summary ejectment actions.
The Chief Justice’s order gives sheriffs the authority to postpone executing writs of possession of real property or make due return of such writs until June 30. It also prohibits the issuance of writs of possession for real property as a direct result of summary ejectment proceedings filed on or after March 27, 2020, until a finding is made that the subject property is not a covered by the federal moratorium in Section 4024(a)(1) of the CARES Act.
Gov. Cooper’s Executive Order significantly restricts remedies available to landlords for monetary defaults during an Effective Period of three weeks beginning May 30, 2020 and ending June 21, 2020, (and potentially longer, if the order is extended).
Landlords are prohibited from initiating or taking “any action to further summary ejectment or other eviction proceedings against” a tenant for reason of late payment or nonpayment of rent. Those restrictions are less stringent in commercial leases, applying only where (1) the landlord is aware that the default is caused by the pandemic or (2) the tenant provides the landlord with documentation or other evidence that the default is related to the pandemic. However, a commercial landlord must inquire whether the monetary default is caused by the pandemic and give their tenant at least 72 hours to respond.
Landlords are also prohibited from assessing “interest, late fees, or other penalties” on rents due during the Effective Period. If such charges were existing before the Executive Order, further accumulation of such fees is “paused” during the Effective Period.
Most significantly for the longer term, the Executive Order mandates that landlords give a tenant the opportunity to make “reasonable payment arrangements” for rent that becomes due during the Effective Period and that is not paid during the Effective Period. Landlords must grant tenants at least a six-month period, beginning upon the expiration of the Executive Order, within which to repay such deferred rent.
Together, the Executive Order and the Chief Justice's order, which consists of several emergency directives, impose a variety of mandates and restrictions on landlords.
To comply with the orders, landlords should be considering:
The Executive Order itself only applies to monetary defaults. However, Chief Justice Beasley’s order precludes all legal proceedings to evict tenants until at least June 21, 2020. While commercial landlords still have the option of using self-help to evict tenants for defaults other than monetary defaults related to COVID-19, that is likely to be a very small portion of any defaults.
Timing of Missed Payments
It’s unclear whether the restrictions on assessing interest, late fees or other penalties for late or nonpayment apply only to payments that are missed during the Effective Period or more broadly to include charges that accrued before the Effective Period but were not charged to the tenant’s account. The more conservative approach is to stop charging any of these fees during the Effective Period, regardless of when the right to charge the fees arose.
Duty of Commercial Landlords
During the Effective Period, prior to initiating eviction proceedings or terminating a lease or a tenant’s possession due to late payment or non-payment, commercial landlords have a duty to inquire whether the tenant’s monetary default is COVID-related or not. If the landlord recently sent a notice of monetary default that remains uncured, it should consider following up with a second notice asking whether the default is a result of the pandemic and giving the tenant at least three days to respond. Keep in mind that the notice provisions in your lease should be strictly followed. Be sure such notices go to the correct address(es) and that you account for any delays in the effective date of the notice imposed by the notice provision in the lease.
The Executive Order does not relieve tenants of the obligation to pay anything due under the terms of their leases except to the extent that it prohibits certain interest, late fees and penalties for late payments. For that reason, landlords may want to go ahead and send tenants monetary default notices while taking care not to include anything in the notice that could be construed as an attempt to evict, terminate the lease or terminate the tenant’s right to possession. Landlords should consider sending notices that (1) identify the default, (2) provide any applicable cure period, (3) request that the tenant respond within 72 hours to inform the landlord whether the default is related to the pandemic (in commercial leases only) and (4) contain a simple reservation of rights. Such notices may position the landlord well to take immediate judicial action upon expiration of the Governor’s Executive Order and Justice Beasley’s Eviction Order.
Federal Moratorium Affidavit
Residential landlords are subject to the separate Federal Moratorium on residential evictions, which is currently in place until late July. As such, Chief Justice Cheri Beasley’s order directs the Administrative Office of the Courts to create a form affidavit to assess whether the Federal Moratorium applies. This affidavit is to be completed by petitioners in all existing summary ejectment and residential eviction proceedings filed on or after March 27, 2020 and before June 1, 2020 (to be submitted before final judgment) and in all summary ejectment actions filed on or after June 1, 2020 (to be submitted with the complaint). This affidavit is required even if the summary ejectment action is for a commercial tenant.
Appeals Period Extended
For landlords who have previously been granted legal remedies, to the extent the tenant’s appeals deadline fell between March 16 and June 1, Chief Justice Beasley issued another order clarifying prior orders by extending the time for filing a notice of appeal for these matters (and any other legal matters with this appeals deadline) until June 30, 2020. Landlords affected by this Appeals Order should closely monitor the dockets prior to June 30 in anticipation of potential renewed legal action.
Voluntary Mediation Program
Chief Justice Beasley’s order also created a voluntary mediation program for summary ejectment actions, the rules of which are to be established by the Dispute Resolution Commission and adopted by the Supreme Court no later than June 7. Legal Aid of North Carolina will recruit and train mediators to assist low-income tenants on a pro bono basis. Multi-family landlords should familiarize themselves with this program if they are considering eviction for their residential tenants as these tenants are likely to avail themselves of this program.
Keeping Lenders in the Loop
Landlords who are unable to pay their mortgage on the leased property due to the pandemic and the effect of these Orders should reach out to their lenders and explain the situation. Although the Executive Order does not similarly restrict a lender’s right to foreclose, it does “strongly encourage” lenders to work with landlords. A landlord at risk of foreclosure should also explore other potential protections against foreclosure that may be available under state or federal law in response to the pandemic.
If you have any questions about this alert, contact Elizabeth Sims Hedrick at 919.755.8778 or [email protected]; Jessica Lyn Green at 919.755.8763 or [email protected]; Catherine B. Mitchell at 704.384.2675 or [email protected]; or any member of Fox Rothschild's Real Estate practice group in the Charlotte, Greensboro or Raleigh offices.