File photo

With the moratorium on commercial evictions set to expire on Sept. 30, the Santa Monica Chamber of Commerce, with the help of lawyers from Pettit Kohn, held a Zoom presentation last Thursday on landlord and commercial tenants’ rights.

While a recent state bill extended eviction protections for residential tenants, commercial tenants in Santa Monica will be expected to pay rent again starting in October. Most commercial tenants will have until June 30, 2021 to pay back rent owed from March 18 to Sept. 30, 2020, when the moratorium was in place. To facilitate this process, lawyers suggest landlords and commercial tenants create payment plans or enter mediation processes if the two parties are in dispute.

“We can’t reiterate this enough—rent payments are deferred, not canceled. As long as the rent is paid by June 30, 2021, no late fees or penalties can be levied. If the rent is paid in full by December 30 of 2020, no interest is allowed,” said Tristan Mullis, a Shareholder at Pettit Kohn law firm.

These regulations apply to Level 1 commercial tenants, which are businesses with fewer than 100 employees and less than $15 million in revenue over the past three years. In order to qualify for deferred rent payments under the moratorium they must provide documentation that they have suffered a financial hardship due to COVID-19. This eviction protection does not extend to conduct that is non-compliant with the terms of a commercial tenant’s lease.

“It’s not giving anyone protection based on non-compliant conduct. So, if you have a restaurant space leased out to conduct a certain business and you decide that selling masks is a better way for the business to run, that may run afoul of the lease and that eviction moratorium is not going to help you,” said Mullis.

Santa Monica’s commercial rent moratorium includes a provision encouraging landlords and tenants to enter into negotiation to modify rental agreements and create payment plans that are realistic and agreeable to both parties. If parties cannot reach an agreement together, the Chamber of Commerce recommends they enter a mediation process.

Pettit Kohn firm has partnered with the chamber and the Straus Institute for Dispute Resolution at the Caruso School of Law at Pepperdine to offer discounted mediation services to chamber members at a rate of $550 for two hours.

Mediation is a voluntary and confidential process where a neutral third-party reviews opposing parties’ circumstances, issues, and interests and creates recommendations to resolve their conflict. If an agreement is reached parties sign a legal contract and avoid the costly and timely expense of going to trial.

Tenants can technically refuse to pay their back rent or leave their space until June 30, 2021, but lawyers cautioned commercial tenants from taking this drastic action as it could lead to expensive legal fees and credit damage down the line.

“There should be a middle ground because a scenario where a business is just going kamikaze style ‘we’re not going to pay and we’re just going to keep operating until the last day they lock us down and close the doors’ doesn’t help anyone,” said Mullis. “Just letting the bill get bigger and bigger—it’s going to be there next summer, and you don’t want to be staring down the barrel of a $50,000 back rent bill.”