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The Bankruptcy StrategistFeaturesBankruptcyLandlord Tenant LawLitigation

Do COVID-19 Rent and Eviction Protections Just Delay Inevitable Bankruptcy?

By Dana Delman and John Vukmanovic
September 01, 2020

In attempts to alleviate the impact of job losses and business disruption due to COVID-19, state and local governments have passed emergency orders and regulations temporarily prohibiting evictions and extending deadlines to pay rent, among other restrictions. When those restrictions are lifted, there is no guarantee that they will have done more than delay the inevitable: eviction and bankruptcy. Modifications should be used to cut risk and losses. If at all possible, landlords and tenants should cooperate now to avoid that outcome.

It is important to note that eviction moratoria and related restrictions differ across states, counties, cities and regions. While city and local jurisdictions seek to employ their state's guidelines, they often take it a step or two further, or not far enough, based on local conditions, which can be impacted by politics and lobbying. New law, rules and ordinances are not relieving any tenants of rent liability, but rather merely extending the tenant's time to pay. Thus, unless a lease provides for rent abatement under these particular conditions, the burden of the pandemic is still left squarely on tenants' shoulders. Few, if any, leases shift the financial burden of the pandemic shut down to the landlord. Few, if any, insurance policies insure against pandemic shutdowns. However, although contractually it appears that landlords will not bear the burden of the shutdown, in fact many will lose a lot due to necessary evictions, vacancies, and the probability of a more competitive rental market and tenant insolvencies.

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