On April 1, 2020, Governor Mike DeWine signed Executive Order 2020-08D, which contains certain “requests” of commercial mortgage lenders and landlords with small business commercial tenants located in Ohio.
The Executive Order requests that:
- landlords suspend rent payment for at least 90 days for small business commercial tenants suffering financial hardship from the COVID-19 pandemic;
- landlords refrain from evicting small business commercial tenants for at least 90 days; and
- lenders offer commercial real estate borrowers a forbearance agreement by which the lender will forbear from enforcing any remedies against the borrower or any guarantor for at least 90 days, thus allowing time for lenders and their borrowers to arrive at sensible solutions.
Notably, the Executive Order expressly provides that it shall NOT be construed to:
- negate a small business commercial tenant’s obligation to pay—or restrict a landlord’s right to recover—rent a future time;
- negate a commercial real estate borrower’s obligations; or
- suspend any federal or state law.
A number of open issues remain after the issuance of the Executive Order. Principally, the Executive Order contains only requests—not mandates. It does not address any potential consequences for failure to comply with the requests, or otherwise identify any available enforcement mechanisms. The Executive Order also neglects to define the term “small business” or the concept of “financial hardship due to the COVID-19 pandemic,” leaving some question as to who it does (or does not) apply to.
There are practical considerations that could impact the ability of lenders and landlords to comply with the Executive Order’s requests. For example, landlords may be constrained by covenants in their loan documents that restrict a landlord’s ability to modify its leases. Lenders may be pre-occupied with other crisis-related activity and thus unable to promptly approve such forbearance arrangements between their borrowers and the tenants. Finally, it should be noted that the Ohio Supreme Court has directed state courts to postpone evictions and the executions of foreclosure judgments. The Ohio legislature has also introduced H.B. 562, which would formally pause foreclosure and eviction actions. So while the Governor’s order does not mandate a moratorium on exercising default remedies, in the current climate, we would expect that as a practical matter courts are not going to move evictions and foreclosures forward with much alacrity.
The Executive Order is the latest appeal by Governor DeWine to commercial landlords and lenders to work cooperatively with their tenants and borrowers in the wake of the COVID-19 pandemic. KMK’s Real Estate Group and Workouts & Restructuring Group are here to provide you with advice and guidance in connection with the Governor’s Order, or any other real estate default or forbearance issue.
KMK Law articles and blog posts are intended to bring attention to developments in the law and are not intended as legal advice for any particular client or any particular situation. The laws/regulations and interpretations thereof are evolving and subject to change. Although we will attempt to update articles/blog posts for material changes, the article/post may not reflect changes in laws/regulations or guidance issued after the date the article/post was published. Please consult with counsel of your choice regarding any specific questions you may have.
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