Analysis

3 Things To Watch As NY Eviction Moratoria Are Extended

By Andrew McIntyre
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Law360 (October 26, 2020, 3:38 PM EDT) -- New York Gov. Andrew Cuomo recently extended moratoria on evictions of commercial and residential tenants until 2021, and while the extension means court is not an option until the new year, landlords, tenants and lenders still have plenty to discuss before such disputes potentially go to court in 2021.

For one, some landlords are likely to find it beneficial to strike an out-of-court deal with tenants in order to start receiving some rent.

But owners also have their mortgage payments and their lenders to worry about, and experts say owners will also be in negotiations with lenders to try to work out issues there. The governor has also put a moratorium on foreclosures until 2021, so lenders are in a similar boat to tenants.

"The moratoriums are forcing both sides to come to the table to negotiate," said Simon Malinowski, an associate at Tarter Krinsky & Drogin LLP, noting that Cuomo had also stressed negotiation as a goal for the moratoria. "Right now, things are on hold. There isn't really clarity."

Here, Law360 looks at three things to watch as parties try to resolve their disputes out of court.

Landlords and Tenants Are Negotiating Lease Terms

The new extension is creating an opportunity for tenants and landlords to have discussions over how to handle the problem of tenants having difficulty making rent due to the pandemic. Lawyers say such conversations, known as workouts, will be case and property specific, but suggest that landlords are likely looking to make some sort of deal.

"Landlords and tenants are in difficult positions, and have to figure out … creative ways to try to work though the situation," said Sharon Skolnik, a partner at Stempel Bennett Claman & Hochberg PC. "I think forbearance is on order on both sides."

One common approach, said Bernadette Herward Davida, a shareholder at Polsinelli PC, is to have a tenant pay a certain percentage of the rent now with an agreement as to when the remainder will be paid.

"For retail, residential, it's pretty easy to determine that. For a software company, headhunter, employment agency, you may have to figure out a formula for that," Davida said. "I've been doing a lot of these workouts. The parties are looking into the future."

And for tenants who have leases coming due now, tenants may find they can get more favorable terms, since landlords are feeling the pressure to get their properties leased, given the liability of looming mortgage payments.

"I'm doing documentation now, and have quite a few tenants that have large leases coming up for renewal," Davida said. "That's a great spot to be in now. It's an opportunity to lock into a building for 10 years. … An opportunity to negotiate."

Lenders Are Assessing Their Options

Just as tenants and landlords are in discussions, so too are owners and lenders, and owners are facing pressure from their lenders as rent payments have lagged during the pandemic.

"Once a tenant stops paying rent, it's a trickle-down effect. In this case, a trickle-up effect, since the landlord has loan payments," Malinowski said.

Just as tenants are likely looking to strike some kind of a deal with tenants, so too lenders are likely willing to work something out with borrowers, and such workouts are the only option at present due also to the moratorium on foreclosure.

"The fact that it keeps getting extended and extended creates more and more uncertainty," said Anthony Bonan, a partner at Hunton Andrews Kurth LLP. "If it's a three-month period over the summer, anyone can put their plans on hold for an asset for three months. As it drags on for six, seven, eight, nine months, I think it really starts to affect the way lenders look at their collateral and their ability to pursue remedies."

And while lenders a decade ago aggressively foreclosed on properties during the Great Recession, experts don't expect foreclosures to happen at that same pace this time around, given in part that lenders are now required to have more reserves on hand.

"I don't think that the lenders are in the same position that they were back in the last downturn," Skolnik said. "They are in a better position to weather the storm. They won't have to rush to foreclosure. There's less pressure. It's a fluid situation."

Litigation Is Looming

While lenders, owners and tenants will use the remainder of 2020 to try to work out their disputes, many cases will go to litigation once eviction and foreclosure moratoria are lifted, and some parties may just be biding their time before that point arrives.

"I have a few clients who are in pre-litigation discussions with their lenders," Bonan said. "There are a lot of tenants who are working out deals."

One key question that could shape the trajectory of talks and litigation is whether Congress passes another stimulus package. The massive stimulus this summer helped many tenants to continue to pay rent, which in turn helped owners continue to make their debt payments.

"If they do a stimulus, that could help stabilize the multifamily market, for people who are struggling," Skolnik said.

Still, evictions are likely once permitted, experts say. But a stimulus would likely make evictions less widespread.

"If the moratorium is lifted and if people can't catch up, there will be a wave of evictions," Skolnik said.

And it may well be that the governor extends the moratoria for another 90 days, come the end of 2020.

"Everyone will be crashing the gates to the courthouse as soon as this is up in January," Davida said. "We will need another 90 days."

--Editing by Rebecca Flanagan and Orlando Lorenzo.

For a reprint of this article, please contact reprints@law360.com.

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