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04.21.2020 | Legal Advisory

April 30, 2020: Please see our advisory Update on Massachusetts Eviction Moratorium Due to COVID-19.

On April 20, 2020, Massachusetts Governor Charlie Baker signed into law emergency legislation (the “Act”) adopting a temporary moratorium on non-essential evictions of residential and small business tenants as well as a temporary foreclosure moratorium and forbearance relief for residential mortgagors amid the COVID-19 state of emergency. The temporary moratoriums begin April 20, 2020 and continue until (a) August 18, 2020, or (b) the date that is 45 days after the COVID-19 emergency declaration has been lifted, whichever is sooner (the “Moratorium Period”). The Governor may extend the Moratorium Period for additional 90-day periods as long as the Moratorium Period expires not later than 45 days after the COVID-19 emergency declaration has been lifted. For eviction actions commenced prior to the effective date of the Act, all time periods in any such action will be tolled for the duration of the Moratorium Period.

Eviction Moratorium for Residential and Small Business Tenants – What You Need to Know

For the duration of the Moratorium Period, residential and commercial landlords will be precluded from commencing a non-essential eviction action in state court against a tenant of a residential dwelling unit or a small business premises unit. The Act also specifically precludes residential landlords from terminating a tenancy or sending a notice to quit.

There are two key definitions in the Act that determine whether an eviction is subject to the moratorium:

• First, a “non-essential eviction” is defined as an eviction: (i) for non-payment of rent; (ii) resulting from a foreclosure; (iii) for no fault or no cause; or (iv) for cause that does not involve or include allegations of: (a) criminal activity that may impact the health or safety of other residents, health care workers, emergency personnel, persons lawfully on the subject property, or the general public; or (b) lease violations that may impact the health or safety of other residents, health care workers, emergency personnel, persons lawfully on the subject property, or the general public.
• Second, a “small business premises unit” is defined as a premises occupied by a tenant for commercial purposes, whether for-profit or not-for-profit; provided, however, that a small business premises unit shall not include premises occupied by a tenant if the tenant or a party that controls, is controlled by, or is in common control with the tenant: (i) operates multistate; (ii) operates multinationally; (iii) is publicly traded; or (iv) has 150 or more full-time equivalent employees.

During the Moratorium Period, landlords of residential dwelling units and small business premises units may not impose late fees for non-payment of rent or notify a credit reporting agency of the non-payment of rent if the tenant provides a notice and documentation to the landlord within 30 days of the missed payment that the non-payment of rent was due to a financial impact from COVID-19. The Commonwealth’s Executive Office of Housing and Economic Development (“EOHED”) will develop notice forms and recommendations regarding the documentation that tenants should provide to landlords, as well as other necessary regulations.

To the extent that a tenant has paid last month’s rent in advance, the Act permits a landlord to utilize such funds for mortgage payments, utilities, repairs, and other expenses so long as the landlord does not deduct any amount owed by a tenant for its non-payment of rent. If a landlord chooses to use such funds, a landlord must provide notice to the tenant stating that (i) such funds were used in accordance with the Act, (ii) the landlord remains obligated to credit the tenant for paying the last month’s rent, and (iii) the tenant is entitled to be credited for the same amount of interest that would have accrued on the last month’s rent had the landlord not used such funds prior to the last month of the tenancy. This procedure does not apply to any security deposit that a landlord may be holding.

Notably, nothing in the Act relieves tenants from their obligation to pay rent or prevents landlords from recovering unpaid rent. Instead, the Act is intended to provide temporary relief to residential and small business tenants without unduly penalizing landlords from being able to collect unpaid rent. The Act does not provide any guidance as to when and how any unpaid rent must be paid back to a landlord. This issue may be addressed as part of the EOHED’s emergency regulations to be promulgated pursuant to the Act.

Special Considerations Relating to Commercial Leases

With respect to any commercial space, before commencing any non-essential eviction action against a tenant of commercial space, a landlord will need to determine whether any such tenant’s space constitutes a “small business premises unit,” which will require the landlord to identify whether the tenant or any of its affiliates operate outside of the Commonwealth or the country and whether the tenant or its affiliates employ 150 or more full-time equivalent employees. Given the rapid pace of furloughs, layoffs, other employment reductions, and even closures of various locations occurring as a result of COVID-19, landlords will need to closely monitor each tenant’s business in order to determine if an eviction can be commenced.

There are two other important practice notes for commercial landlords. First, unlike a residential landlord, nothing in the Act prohibits a commercial landlord from terminating a tenancy or sending a notice demanding that a tenant vacate the premises—regardless of whether or not the tenant occupies a “small business premises unit.” Second, a commercial landlord may seek eviction of a tenant occupying a small business premises unit if the eviction is based on the expiration of the term of the lease or a tenant default that occurred prior to the declaration of the COVID-19 emergency. But given the ongoing temporary closure of Massachusetts state courts for non-emergency matters, any eviction not otherwise precluded by the Act may not be able to go forward until state courts reopen for regular business. Nutter previously provided coverage of court closures in Massachusetts in Update on Impact of COVID-19 on Courts in Massachusetts.

Foreclosure Moratorium and Forbearance Relief for Residential Mortgagors – What You Need to Know

The Act also includes mortgage relief for borrowers who own and occupy a residential property with four or fewer units which is not vacant or abandoned. For these borrowers, the Act precludes a lender from commencing a foreclosure during the Moratorium Period, including publishing a notice of foreclosure sale, exercising a power of sale or right of entry, commencing a judicial or non-judicial foreclosure process, or filing a complaint to determine the military status of a borrower under the federal Servicemembers Civil Relief Act. In addition, any such lender must also grant its borrower a forbearance of the borrower’s mortgage loan payments for a period of up to 180 days as long as the borrower submits a request to the borrower’s mortgage loan servicer during the Moratorium Period affirming that the borrower has experienced a financial impact from COVID-19. No additional fees, penalties, or interest beyond what the borrower was obligated to pay under the mortgage loan may accrue during the forbearance period. Payments subject to the forbearance will be added to the end of the term of the mortgage loan unless otherwise agreed to by the parties. Borrowers and lenders may enter into alternative payment agreements for the payments subject to forbearance. No negative credit information may be provided by a lender to a credit reporting agency relating to the payments subject to the forbearance required under the Act.

Similar to tenant rent obligations, nothing in the Act relieves a borrower from its obligation to make mortgage loan payments or from a lender being able to recover missed payments. The Act does not address when and how a lender may recover missed mortgage loan payments, nor whether a lender may pursue any other remedies it may have under the mortgage loan aside from foreclosure.

This legislation provides further protection for residential borrowers than what was afforded by the CARES Act, which only provided foreclosure forbearance relief to residential borrowers of one-to-four family properties with “federally backed mortgage loans.” Nutter previously covered those protections in Coronavirus Aid, Relief, and Economic Security Act – Key Takeaways for Commercial Real Estate.

This advisory was prepared by Marianne Ajemian, Matt Gaughan, David Libardoni, and Beth Mitchell in Nutter’s Real Estate Department. For more information, please contact Marianne, Matt, David, Beth, or your Nutter attorney at 617.439.2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.