COVID-19: Seattle Creates Protections for Small Business and Nonprofit Tenants

Published on April 20, 2020; Updated on 8/17/2020

Update – August 14, 2020

On August 14, 2020 Mayor Durkan issued another Executive Order extending the moratorium on small business and nonprofit evictions through December 31, 2020, or the termination of the Civil Emergency (whichever occurs earlier).

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In the wake of the COVID-19 pandemic, state and local governments throughout the country have enacted emergency measures to help small businesses and nonprofit corporations impacted by reduced operations and forced closures due to the declared public health emergency. In response to COVID-19, on March 3, 2020, Seattle Mayor Jenny Durkan issued a proclamation of civil emergency (the “Civil Emergency”).

This article discusses two actions the City of Seattle has taken to mitigate the effects of COVID-19 on the Seattle business community.

Commercial Eviction Moratorium for Small Businesses and Nonprofit Tenants

On March 17, 2020, the Seattle Mayor Jenny Durkan issued an emergency order imposing an immediate moratorium on evictions and lease terminations of tenancies of any small business or nonprofit tenant.

• A “small business” is any business entity, including a sole proprietorship, corporation, partnership, or other legal entity that is owned and operated independently from all other businesses, and that has 50 or fewer employees per establishment or premises.
• A “nonprofit” is one that holds tax-exempt status under §501(c)(3) of the Internal Revenue Code, or is a “not for profit corporation” or “nonprofit corporation” under RCW 24.03.005(16) or is designated a “public benefit not for profit corporation” or “public benefit nonprofit corporation” under RCW 24.03.490.

During this moratorium, owners cannot evict or terminate the lease of any small business or nonprofit tenant; or charge the small business or nonprofit tenant late fees, interest or other charges due to late payment of rent. The tenant may use the moratorium as a defense to any eviction action occurring during the moratorium if the eviction was for nonpayment of rent.

The moratorium is effective until the earlier of the termination of the Civil Emergency declared on March 3, 2020, or 60 days from entry of the Eviction Moratorium Order (i.e., May 16, 2020). However, the Mayor has the authority to extend the moratorium due to public health necessity.

Additional information on Seattle’s moratorium on commercial evictions can be found here.

Seattle Limits Rent Increases During Civil Emergency and Authorizes Payment Plans for Small Businesses and Nonprofit Tenants

On April 14, 2020, the Seattle City Council extended additional protections to small business and nonprofit tenants by passing Ordinance 126066. Seattle recognized the economic impacts that the forced closure of businesses due to the statewide “Stay Home, Stay Healthy Order” will be felt by many small businesses and nonprofits, and for the businesses that are open, there may be fewer customers patronizing them. The City Council hopes this measure will allow businesses to weather the pandemic and avoid closing permanently, and protect commercial landlords from having vacancies in their properties.

Who is protected?

Ordinance 126066 protects small businesses and nonprofit corporations from rent increases under certain circumstances.

Small businesses must meet the following criteria:

• The small businesses must be owned and operated independently from all other businesses (however franchisees with 5 or fewer franchise units are treated separately from their franchisor and are eligible);
• The small business has 50 or fewer employees per establishment or premises;
• The small business has either: (a) been forced to close due to an emergency order issued by the Governor or Mayor; or (b) there has been a decrease in gross receipts of 30% or more from the previous calendar month of 2020 compared with the same calendar month in 2019.
• The small business is neither a general sales and service business with 10 or more establishments in operation located anywhere in the world, nor an entertainment use business with 5 or more establishments in operation located anywhere in the world.

What Protections are Available?

Ordinance 126066 freezes rents at their current levels for small business and nonprofit tenants.

• For month-to-month tenants, property owners cannot increase rent for the duration of the Civil Emergency, and for 6 months after the Civil Emergency ends.
• For tenants with unexpired leases, landlords are prohibited from increasing rent, unless the increase was already negotiated as part of the written lease and the lease was in effect before March 3, 2020.
• Landlords cannot renew or enter into a new lease with a small business or nonprofit tenant if the new lease requires a rental payment that exceeds the rent amount under the current or expired lease.
• Landlords cannot charge late fees, interest, and other penalties for late or delinquent rent during the Civil Emergency, and for the 1 year period after the Civil Emergency is terminated.

In addition, the legislation requires tenants and landlords to negotiate an installment plan to repay any unpaid rent that was or becomes due during the civil emergency or within 6 months after the civil emergency ends. Small businesses and nonprofits will have up to one year after the civil emergency terminates to catch up on rent arrears. The main requirements are that the repayment schedule must be in writing, and any monthly arrears installment or catch-up payment cannot exceed 1/3 of the total unpaid rent amount on top of the ordinary rent amount.

Ordinance 126066 should provide commercial landlords and tenants a fair amount of flexibility in negotiating payment plans. Landlords and tenants should start communicating with each other as soon as possible to explore solutions.

If you are a commercial landlord or tenant who needs help understanding the various eviction moratoriums and commercial lease protections in place for COVID-19, understanding your legal rights and obligations under a lease agreement, or negotiating rental payment solutions, please contact any member of our Real Estate, Development & Finance group at Ryan Swanson.

Danielle Flatt is an attorney in Ryan Swanson’s Real Estate, Development & Finance Group and can be reached at [email protected]