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CC - (1) Discussion of the Commercial Tenant Eviction Moratoria; and (2) Provide Direction to the City Manager as Deemed Appropriate.
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Meeting Date: February 22, 2021
Contact Person/Dept: Elizabeth Garcia/CDD, Economic Development
Todd Tipton/CDD, Economic Development
Heather Baker/City Attorney’s Office
Phone Number: (310) 253-5708
(310) 253-5783
(310) 253-5660
Fiscal Impact: Yes [] No [X] General Fund: Yes [] No [X]
Public Hearing: [] Action Item: [X] Attachments: [X]
Commission Action Required: Yes [] No [X] Date:
Public Notification: (E-Mail) Meetings and Agendas - City Council (2/17/2021); Culver City Business License List (2/17/2021); Chamber of Commerce (2/17/2021); Downtown Business Association (2/17/2021); Culver City Arts District (2/17/2021);
Department Approval: Sol Blumenfeld, Community Development Director (2/15/2021)
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RECOMMENDATION
Staff recommends the City Council (1) discuss the Commercial Tenant Eviction Moratoria (CTEM) and (2) provide direction to the City Manager as deemed appropriate.
BACKGROUND
On March 14, 2020, pursuant to the authority granted by Culver City Municipal Code (“CCMC”) Section 3.09.020.B.1.a, the City Manager, as the Director of Emergency Services, issued a Proclamation of Local Emergency due to the outbreak and spread of the coronavirus respiratory disease (“COVID-19”) pandemic.
On March 20, 2020, the City Manager issued a First Supplement to Public Order, which included, among other things, protections for commercial tenants against evictions based on an inability to pay rent due to COVID-19 related circumstances (“Commercial Tenant Eviction Moratorium” or “CTEM”) (Attachment 1), which was extended by the April 7, 2020 Fifth Supplement to Public Order, May 19, 2020 Twelfth Supplement to Public Order, August 4, 2020 Twenty-Second Supplement to Public Order, September 17, 2020 Twenty-Sixth Supplement to Public Order and November 12, 2020 Thirtieth Supplement to Public Order. The CTEM currently expires on March 31, 2021.
The CTEM currently:
• Prohibits tenant evictions for nonpayment or late payment of rent if the tenant has an inability to pay rent due to circumstances related to COVID-19.
• Prohibits late charges, fees, or interest when the payment of rent is late during the CTEM.
• Requires tenants provide notice and supporting documentation demonstrating inability to pay rent is due to circumstances related to COVID-19.
• Provides a 12-month grace period for the repayment of back rent, commencing after the CTEM expires.
• Encourages landlords and tenants to reach a repayment plan during the grace period, although it is not required; and
• Does not apply (as of June 1, 2020) to a commercial tenant that is a multi-national company, publicly traded company, or a company that employed 200 or more employees on March 20, 2020.
The implementation measures for the CTEM, which contain more details regarding the restrictions, implementation, and enforcement of the CTEM are included for reference as Attachment 2.
During its meeting of November 9, 2020, the City Council directed the City Manager to extend the CTEM through March 31, 2021 and directed staff to conduct further research and work with the Economic Development Subcommittee (Subcommittee) to consider the issues of:
• A mediation program.
• Redefining rent to exclude common area maintenance (CAM) fees.
• A tiered payment structure; and
• Increased advocacy for federal and state forbearance intervention.
On February 9, 2021 the Subcommittee discussed the issues per the City Council’s direction, as well as the following additional items:
• Further extension of the CTEM.
• Revised tenant documentation for demonstrating an inability to pay rent (i.e. proof of loss of gross revenue).
• Alternate payment structures (i.e. one that is based on restricted occupancy); and
• Further modifications to the definition of a Commercial Tenant to exclude certain types of tenants from the CTEM protections.
A summary of the issues discussed with the Subcommittee are included as Attachment 3 for City Council’s reference.
DISCUSSION
After discussing the issues, the Subcommittee made the following recommendations:
• Modifying the definition of Commercial Tenant to exclude, effective March 1, 2021, companies that, together with that company’s parent, subsidiary, affiliated, and related companies, employed 200 or more employees on March 20, 2020. With such modification, the definition of Commercial Tenant would be as follows (modifications in bold text):
“Commercial Tenant” means any individual, agency, association, branch, corporation, estate, group, partnership, or other entity or organization entitled by Lease or by sufferance, to the use or occupancy of a Commercial Property, provided that such person holds a valid business license issued by the City of Culver City, unless exempt from business license requirements under the Culver City Municipal Code. Effective June 1, 2020, “Commercial Tenant” shall not include a multi-national company, publicly traded company, or a company that employed 200 or more employees on March 20, 2020. Effective March 1, 2021, “Commercial Tenant” shall not include a multi-national company, publicly traded company, or a company that, together with that company’s parent, subsidiary, affiliated, and related companies, employed 200 or more employees on March 20, 2020.”
• Effective April 1, 2021 (if the CTEM is further extended), require a Commercial Tenant to pay 25% of their current rent, in addition to providing notice and documentation of their inability to pay full rent, in order to receive the protections of the CTEM.
• After the expiration of the CTEM, during the 12-month grace period for the repayment of Back Rent, require a tenant to pay the following minimum monthly payments, unless the tenant and landlord have a written agreement establishing a different payment arrangement:
§ Months 1 - 3: 5% per month
§ Months 4 - 6: 8% per month
§ Months 7 - 12: 10% per month (plus any remaining balance)
• Direction to City staff to further consider ways to facilitate a clearer understanding of the documentation required by a tenant to demonstrate an inability to pay rent due to COVID-19 related circumstances, including potentially incorporating some of the City of Santa Monica’s requirements for documentation.
Under Culver City’s CTEM, Section 6 of current Implementation Measures provides, as a condition to receiving the protections afforded under the CTEM, that a tenant provide documentation to support a claim they have an inability to pay rent due to COVID-19 related circumstances. Such documentation may include, but is not limited to:
• A financial statement certified by the Commercial Tenant, showing a decline in gross business income;
• Written records showing a reduction in operating hours, reduction in sales, temporary closures, or other identifiable impacts of COVID-19 on the Commercial Tenant’s operations;
• Written communication from the Commercial Tenant’s outside employer citing COVID-19 as a reason for reduced work hours, suspension of wages, or termination;
• Paycheck stubs and time cards from the Commercial Tenant’s outside employment;
• Notification from a school declaring a school closure related to COVID-19 or other public notice of a school closure;
• Proof of out-of-pocket medical expenses;
• Proof of out-of-pocket childcare expenses;
• Proof of COVID-19 medical care or medical quarantine.
Based on the Subcommittee’s direction, the City Council may want to consider incorporated into the existing provisions of the Implementation Measures:
Supporting documentation must be sufficient to demonstrate that the loss of income or increase in expenses 1) is related to COVID-19; and 2) has resulted in an inability to pay rent.
Supporting documentation may include, but is not limited to, a profit and loss statement, or a letter from an accountant. If the tenant has received compensation for financial impacts related to COVID-19 through business interruption insurance or federal or state government relief funds or other programs that provide such compensation, the notice and documentation must state the compensation received, which the Landlord may consider when determining whether the tenant has experienced a substantial loss of income or substantial increase in expenses that has resulted in an inability to pay rent.
• Refer landlords and tenants to mediation services at LA Represents, a coalition of law firms, bar associations and attorneys who will provide COVID-19-related legal services free of charge as part of their pro bono commitments. More information is available at https://corona-virus.la/LARepresents.
Summary
Staff’s research, discussions with the City Attorneys’ Office, City Special Counsel and financial consultants reveal there is no single solution that can be applied to the wide variety of businesses and organizational structures that exist. The Subcommittee’s recommendations appear to be a prudent course of action to further refine the CTEM in balancing the needs of both landlords and tenants. Further, this complex matter requires legislative solutions at the State and/or Federal levels to equitably address the needs of both businesses and property owners.
Next Steps
Staff recommends the City Council discuss the Commercial Tenant Eviction Moratorium, including the Subcommittee’s recommendations, and direct the City Manager as deemed appropriate. If the City Council provides direction to further extend and/or otherwise modify the CTEM, the City Manager will issue a supplemental public order consistent with such direction. Any supplemental public order issued will return to City Council for confirmation at the next City Council meeting. The CTEM Implementation Measures would also be amended consistent with any further supplemental order that may be issued.
FISCAL ANALYSIS
There is no fiscal impact associated with the discussion of this item. There may be staff costs associated with the enforcement of the CTEM; however, it is not estimated to be material at this time. As discussed in the report, if the parties are referred to LA Represents for mediation services, there would be no cost to the City or the parties. If the City Council determines to fund all or a portion of the cost of mediation services for commercial landlords and tenants, there could be a substantial cost involved with providing those services. For examples, Pettit Kohn, which is a neutral third-party to help resolve disputes between commercial landlords and tenants and facilitate reaching an agreeable repayment plan, charges $500 for two hours of mediation services. The City Council could choose to fund some or part of the mediation services or simply refer the parties to Petit Kohn or similar firm. The total costs involved are difficult to determine, as it is unknown how many landlords/tenants would utilize the mediation services.
ATTACHMENTS
1. 2021-02-22_ATT 1 - March 20 First Supplement to Public Order.
2. 2021-02-22_ATT 2 - CTEM Implementation Measures.
3. 2021-02-22_ATT 3 - Summary of discussed by the Subcommittee.
MOTION
That the City Council:
1. Discuss the Commercial Tenant Eviction Moratorium; and
2. Provide direction to the City Manager as deemed appropriate.