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Impact of Executive Order 2020-08D on Commercial Real Estate

By Erik L. Walter: On April 1, 2020, Governor Mike DeWine signed Executive Order 2020-08D. This order is an interesting legal morass for the commercial real estate industry. Specifically, the question of enforceability of this Executive Order and the impact on commercial landlords and tenants has suddenly become a topic of concern. The reason for this is that its passage involves a myriad of issues relative to the constitutionality of same and its effect on basic contract law. What makes this more complicated is the fact that the Executive Order is seen to be a “request” rather than a legally enforceable mandate.  This, coupled with the fact that Governor DeWine has used the word “shall” in prior Executive Orders and not in this one, makes it questionable as to this order’s enforceability. In fact, when introduced and subsequently addressed in other press conferences, it was referred to as a “plea” and an “ask.” Therefore, many questions surround the impact of this Executive Order.

In particular, by “requesting” that commercial landlords and commercial lenders comply with this Executive Order and stating same does not “suspend” any federal or state law, Governor DeWine effectively avoids the complex legal issues and challenges this Executive Order seems to implicate.  On the other hand, if a commercial landlord pursues its legal rights, such an act undoubtedly will cast a bad light on that landlord for pursuing arguably legal remedies which go against the “plea” of the Executive Order. In short, the enforcement and impact of this Executive Order is highly controversial.

In this regard, the Executive Order has three pertinent aspects which include:

  1. Landlords being asked to suspend–for a term of at least ninety (90) consecutive days–rent payments for small businesses and commercial tenants in the State of Ohio that are facing financial hardship due to the COVID-19 pandemic;
  2. Landlords being asked to allow a moratorium from commencing evictions of small business commercial tenants for a term of at least ninety (90) consecutive days; and
  3. Lenders being asked to provide commercial real estate borrowers with a commercial mortgage loan the opportunity for a forbearance of a term of at least ninety (90) consecutive days a result of a financial hardship due to the COVID-19 pandemic.

The Executive Order defines “Lender” as including “any banking organization, bank holding company, credit union, mortgage broker, mortgage loan servicer, master or special servicer, mortgage revenue bond issuer, mortgage revenue bond holder, mortgage loan originator, owning or holding any mortgage loan secured by property located in the State of Ohio, including commercial mortgage-back securities (CMBS) loans.”  Further, “forbearance” is defined as an “agreement to forbear from: (a) enforcing any remedies following any monetary or non-monetary default arising as a result of the COVID-19 pandemic, including the filing of suit against any borrower, maker, co-maker or guarantor, the filing of foreclosure, appointment of a receiver, impounding of reserve or other funds deposited in accord with any loan or security documents, or termination of any license to use cash, or (b) sweeping and/or seizing any cash regardless of a default or the existence of circumstances that may give rise to a cash sweep trigger event arising as a result of the COVID-19 pandemic, or (c) pushing any party to waive any legal rights or admit any default arising as a result of the COVID-19 pandemic.”  It appears these are pleas and not mandates for commercial landlords to refrain from enforcing their contractual rights for at least 90 days.  A copy of the Executive Order can be found at:

https://coronavirus.ohio.gov/wps/wcm/connect/gov/3bd3536c-cf6a-486a-8aa6-3949c55dc2b4/Executive+Order+-+Commercial+Evictions+and+Foreclosures+04.01.20.pdf?MOD=AJPERES&CONVERT_TO=url&CACHEID=ROOTWORKSPACE.Z18_M1HGGIK0N0JO00QO9DDDDM3000-3bd3536c-cf6a-486a-8aa6-3949c55dc2b4-n4TCUhI

While it is clear that the goal of this Executive Order is to stabilize local economies, Landlords and Lenders should evaluate, on a case-by-case basis, whether they should elect to suspend rent and loan payment obligations and evictions as requested in the Order. If a forbearance is chosen, the question becomes how to accomplish this through lease amendments, forbearance agreements or loan modifications.  In doing this, careful consideration should be given when drafting such agreements and close attention should be paid to language regarding the admission of defaults, dealing with guarantor covenants that are no longer being met and how deferred payment obligations are dealt with going forward.  If you have any questions about your rights, obligations and the impact of this Executive Order, please contact Dworken & Bernstein at 440-352-3391 or visit our website at www.dworkenlaw.com.

 

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