BUSINESS LAW 101 / Rents and Mortgages during COVID-19

By Albert L. Kelley, Esq.

Many people have been laid off over the last few weeks and many businesses have closed- some temporarily and some permanently.  The financial hit that these businesses and individuals are taking is extreme. It will be difficult for some to survive economically.  Although the federal government has passed a bailout bill, checks won’t arrive for weeks and once it does arrive, people will have to decide how they spend what they receive.   One of the large and looming questions is whether to pay rent/mortgage.  

Leases and mortgages are contracts.  It is an agreement between one party to pay another to use space, whether residential space or commercial space. Except for government leases, the obligations under these contracts cannot be rewritten by the legislature, the administration or the courts.  In other words, rent and mortgage payments are still due.  

The last time this situation arose was after Hurricane Irma.  The Florida Keys were shut for weeks and during that time many businesses argued that they shouldn’t have to pay rent during the shutdown since they were not allowed to open their stores.  That is not the law, however. Whether the business is open or not, rent is still due. The same applies to residential properties and mortgages.

There have been calls for a moratorium on evictions.  While there is no official moratorium, there is an unofficial one.  Supreme Court Chief Justice Charles Canady has closed the courts to nonemergency measures until April 17, 2020.  So, while rent is still due, if not paid landlords cannot evict tenants until after the Courts reopen. Some landlords have been offering rent breaks during the crisis, while others demand rent be paid immediately.  For tenants, what to remember is that if rent is not paid, even though the landlord cannot proceed with an eviction action, they can start the process. The landlord can serve a three-day notice on the tenant and once the three-day period is passed the landlord can file the eviction action as soon as the courts reopen.   

A similar situation applies to mortgages.  Generally, a bank will not start a foreclosure action until three months of payments have been missed.  So unlike eviction cases, there is no immediate risk of foreclosure, but there will be higher costs when late fees and interest are added.

So, what are the options?  For tenants, the answer is to talk to your landlord and see if they will offer rent breaks.  If they have the ability, many landlords will waive rent during the crisis. Often landlords have mortgages and depend on the rent to make mortgage payments.  This prevents them from waiving rents or they risk foreclosure. If the landlord will not waive the rent or work with the tenant, the tenant has limited options once the crisis ends.  Lack of income is not a defense to nonpayment of rent.    

For property owners, there is a mortgage option that last arose after Hurricane Irma.  It looks favorable, but in reality is a financial trap that could cost many property owners their homes or businesses. Immediately after Hurricane Irma, many national banks such as Wells Fargo issued statements that they were providing mortgage and credit card relief to their customers for three months. People accepting the relief expected that this would allow them to get back on their feet and then resume their payments after three months. It seemed like a true example of corporate and community working together. However, the phrase “there is no such thing as a free lunch” came back with a vengeance. 

At the end of the three-month window, while it would be easy for the banks to simply move the three-monthly payments to the back of the mortgage, waiving any additional interest and fees, that was not what happened. The banks required all missed payments to be made immediately. If payments were not made, they would listed as delinquent, be reported on credit reports and foreclosure proceedings could begin. Banks have already started making this offer again.   Property owners need to be careful in accepting any offer the bank makes. 

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University.  He is also the author of four law books: (“Basics of Business Law” “Basics of Florida’s Small Claims Court”, “Basics of Florida’s Landlord/Tenant Law” and “Basics of Starting a Florida Business” (Absolutely Amazing e-Books)). This article is being offered as a public service and is not intended to provide specific legal advice.  If you have any questions about legal issues, you should confer with a licensed Florida attorney.

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