Cheesecake Factory is getting a COVID-19 pass on rent. Should Pa. help all renters?
Many businesses in Pa. aren't paying April rent thanks to a provision common in commercial leases. Should the same protection apply to everyone?
Siobhan Spencer didn’t pay rent on April 1, and they have no plans to write a check.
After losing their job as a lifeguard and trainer when the Greater Philadelphia YMCA laid off 4,000 workers last week, paying for housing along with a raft of other unexpected expenses became a burden.
The pain for Spencer is especially acute because before the pandemic, they fell ill at work and a huge ambulance bill is hanging over their head. They applied to unemployment insurance but haven’t seen the results yet.
“I’m having a hard time being able to afford rent and a ton of other bills,” said Spencer, who goes by they/them pronouns. “A lot of people were hit hard by the crisis. Luckily, I have roommates, and people in my general area, in West Philadelphia, who were sympathetic with the idea of a rent strike.”
Spencer lives in West Philadelphia and runs in radical political circles, and they have been helping other tenants organize a rent strike. They live in a group home and have the support of all of their roommates. The idea, not surprisingly, is less popular with their landlord, who, via its property management company, asked all tenants to pay rent despite the “global financial impact caused by the current public health crises,” according to a letter sent to Spencer and shared with PlanPhilly.
Spencer says a few hundred people in Philadelphia are proactively participating in rent strikes as part of a national movement. But the number of people who simply won’t be able to pay their rent in the midst of the pandemic will be orders of magnitude larger.
“What else are people going to do,” asked Spencer. “And you don’t want to do something by yourself? You want to act with people who are in a similar situation.”
Landlord groups are preparing for a potentially enormous shortfall, and warning against non-payment while encouraging leniency towards renters. Although eviction is currently illegal, because the courts are shut down, they warn that does not mean the rent isn’t due, or that tenants won’t be evicted after the courts reopen.
“Our members rely on rental payments to pay their teams, cover their expenses…utilities, maintenance and more,” a spokesperson for the Pennsylvania Apartment Association said in a statement. “If rental payments stop flowing, community stability and safety will be disrupted, just when peace of mind is most needed.”
The Apartment Association recommends their members extend grace periods for non-payment, waive late fees, and establish payment plans for those struggling to find the money.
The ripple effects of non-payment could cause even more pain, industry groups warn, especially because most landlords are small property owners who owe payments of their own — mortgages, salaries, and taxes — and don’t necessarily have substantial cash reserves. The financial crunch could push some landlords to increase rents or sell off, or lose, units of housing, aggravating an existing affordability crisis, researchers say.
Still, as the American economy stagnates in deep freeze, and record breaking numbers of Americans join the unemployment rolls every week, the debate over rent payment has produced no clear answers. But in many cases, payment delays are allowed.
The federal government’s $2 trillion stimulus bans eviction of tenants in buildings with federally backed loans or with federal assistance programs for 120 days, while multi-family landlords are allowed to delay mortgage payments. The Pennsylvania courts just extend their closure through the end of April, making evictions functionally illegal, and utility companies have promised to end shut-offs.
‘They’re pretty [eff’ed] with the rest of us’
But across the nation, progressive groups and tenant rights organizations want to go further and are calling for rent strikes or for a rent moratorium.
In Pennsylvania, Democratic state representatives including Philadelphia’s Elizabeth Fiedler (a former WHYY reporter) are working on legislation that would freeze rent and mortgage payments across the state.
Locally, City Council members Helen Gym, Kendra Brooks, Jamie Gauthier, and Kenyatta Johnson support those measures and have asked for additional help from the federal government as well.
“Half of my constituents were cost-burdened by rent before this virus was even on our radar; the impact this will have on them is unthinkable,” said Gauthier, who represents Spencer’s West Philadelphia district. “Freezing evictions was a good start, but we urgently need the state and federal governments to enact rent and mortgage moratoriums to ensure that this health crisis doesn’t lead to financial ruin in our communities.”
The Philadelphia Tenants Union and Tenant Union Representative Network (TURN) are both promoting that policy intervention instead of rent strikes, which they fear could leave tenants legally exposed when eviction courts reopen after the pandemic.
“We are calling for a rent moratorium, which is different from a rent strike,” said TURN’s Stephanie Dorenbosch. “This is too widespread of a problem to rely on individual negotiations with your landlords. The only way to stop a massive wave of evictions is going to be to put a halt on rent payments in one form or another.”
There are constitutional questions over whether such a moratorium is legal, depending on its language, or whether it would violate the Fifth Amendment’s clause making government takings illegal. A forthright ban on rent would likely be illegal. But a concept could work if, say, mortgage relief for landlords was linked to their passing savings on to tenants.
At the local level, there is little that city authorities can do beyond encouraging landlords to be as lenient as possible and periodically remind everyone that it is illegal to evict tenants into the teeth of the pandemic.
“Have patience, this is an unprecedented crisis and people aren’t working and don’t have income coming in,” said Mayor Jim Kenney at a press conference on Wednesday. “If a landlord tries to take your stuff and puts it on the sidewalk, call 9-1-1. The police understand there are no evictions during this crisis period.”
When it comes to commercial properties, similar dynamics are expected to play out, especially in the hardest hit sectors of the economy like restaurants, gyms, hotels, and other forms of hospitality and entertainment.
Nationally, major brands including the Cheesecake Factory, Mattress Firm, and Subway have stated that they will not be paying rent for the month of April, as most (if not all) of their locations are closed.
Euripides Pelekanos, the CEO of Bareburger, a midsized chain with a Center City location, told Slate that he was negotiating with all of his landlords after laying off more than 500 employees.
“I hate to say this, but they’re pretty [effed] with the rest of us. I don’t see what they’re going to do at the end of the day,” Pelekanos said about the landlords he was asking for deferments and reductions.
Many commercial tenants have a unique defense in regards to their refusal to pay rent that their residential counterparts do not.
“Most commercial leases contain a so-called ‘Force Majeure’ provision that enables tenants to refuse to pay landlords as a result of an unforeseen outside event which they have no control over and that severely impairs their ability to pay rent,” writes Brent Campbell, an economist with Moody’s Analytics. “The COVID-19 pandemic likely qualifies as this kind of event in many commercial leases.”
But that doesn’t mean there won’t be fallout. After the crisis passes, many commercial landlords could try to fight back and win their back rents in court.
“You will definitely see an uptick in litigation, particularly around leases where businesses are failing and going into bankruptcy,” said Christopher Rosenbleeth chair of Stradley Ronon Stevens & Young’s Real Estate Practice. “But my sense would be that more parties will find a way to work some accommodation, rather than be the first to move on any type of litigation strategy.”
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