Landlords, How to Prepare for The Second Covid-19 Wave

Landlords, How to Prepare for The Second Covid-19 Wave

We have been living through unprecedented times due to the COVID 19 Pandemic. The housing market has been severely affected, as we are all aware. Still, many Landlords have been very heavily hit with thousands of tenants in all states going on ‘rent strike’ as millions are unemployed. Many states have suspended evictions but not rent payments. Without legal forgiveness of rental payments, tenants faced the threat of lawsuits or eviction as soon as housing courts reopened. Twenty-four states are processing evictions again, and that number is likely to climb to at least 30 states by the end of June.

Some Renters Can now be Evicted, Many Cannot!

Not all renters in those jurisdictions are vulnerable. Nearly 30% remain protected by a federal moratorium under the Coronavirus Aid, Relief and Economic Security Act that will stay in place until July 25. The soonest a landlord can ask a tenant to leave is July 25, and the soonest you can file an eviction notice to force your tenant to go is August 24, so late fees cannot be charges until July 25. The House of Representatives is pushing to extend these protections by another eight months, though the Senate and White House indicate that isn’t likely.

Landlords, Take Positive Actions Now

What do Landlords do in this situation to plan for another extended lockdown if Coronavirus brings a second expected spike due to recent protests and many States phased re-openings? Some tenants may be able to continue to work during the day and pay their bills. It is also possible that landlords can grant some sort of forbearance now, but not necessarily full deferment. For example, if someone can’t pay their full rent for a month, their landlord could come up with an alternative agreement with their tenant, such as having them pay half their rent at the first of the month, and the second half could be paid at the end of the lease. Once the outbreak subsides, they could chop those additional payments into three installments over a certain period (or whatever serves both parties best).

However, conversations also need to be had for tenants who do not currently have the cash flow to pay their landlords their monthly rent. Some states are protecting renters from evictions so that they can stay in place. That said, landlords can also work with tenants on negotiating deferrals of rent.

The Rental Housing Ecosystem is at Jeopardy

The situation becomes complex because, without standard monthly rent collection, landlords are struggling to pay creditors, trash collectors, maintenance crews, landscapers, and more services. There are utility bills and vendors that must be paid for the property, so if there is no cash flow, there is a problem.

As a result, there is a significant amount of conversation going on about who will provide forbearance, for how long and at what point will that burden end? And what are the terms of the forbearance? No one knows how long the pandemic will remain, so all parties need to have these conversations and settle on terms of forbearance. Put that forbearance into a written agreement so that everyone knows precisely how the new payment terms are going to work once the outbreak ends.

If tenants and landlords have stopped paying, all creditors need to keep records showing exactly when payments have stopped so that once a forbearance agreement has been drafted, those records can be reviewed, and the proper terms can be stated.

Landlords are in a Tough Spot, Work with your Good Tenants Though!

What is a landlord to do if renters suddenly cannot pay the rent? Most landlords would probably prefer to find a way to keep a good tenant rather than evict them because they cannot pay the rent due to the consequences of a worldwide pandemic.

Landlords might forgo collection of next month’s rent. Some Landlords can take advantage of many counties waving late fees on property tax bills to help with cash flow. Or perhaps you cannot afford to lose the future rent payment but would like to defer collecting it until the tenant’s employment resumes or unemployment benefits kick in. In that case, ask the tenant to sign a lease amendment that agrees to defer collection of the next month’s rent and obligates the tenant to pay it in equal parts in July, August, and September. (For example, if the monthly rent is $1500, the tenant would pay zero in June, but would agree to pay $2000 in each of July, August, and September). Lastly, if you collected a security deposit, you might consider refunding it in its entirety to the tenant with the understanding that they would use them to pay the rent.

Similarly, if the lease required a prepayment of the last month’s rent, consider offering the tenant a lease amendment that applies that prepayment of rent to the June rent. Landlords have many options to support tenants during this unexpected period of economic duress. But be sure to consult an attorney and document any rent relief effort with a lease amendment signed by both landlord and tenant.

Landlord Insurance Might be an Option?

Landlords who forgo rent could also try to collect from their commercial general liability carriers instead, as policies typically include some business interruption coverage. Perhaps a cluster of tenants in your building transmitted the virus to one another through the building’s gym, shared cooking facility, or other common space, and then lost their income due to extended sick leave. Or perhaps a few tenants are concurrently unable to pay the rent because of job losses caused by the epidemic. The insurance policy’s epidemic coverage might be too limited to respond to the current crisis. Still, it is probably worth an email to your broker or carrier to discuss the costs and benefits of filing a claim.

It is best for Landlords to be prepared and to check all relevant state and county websites to check the daily changing criteria for eviction status. It would also be fair to say that you should provide your tenant with as much support as possible during these very stressful times and give them links to websites that will provide information on how they, too, can claim unemployment, PPP, or/and EIDL. If your tenant has information to claim as much monetary benefit as possible, it will help you get your rent paid on time or with some deferment. It could be a win-win situation.

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Gina Stern

Gina Stern

Gina Stern is a property investor who has been flipping homes for the past twenty-five years and has had many years of experience in the Real Estate Arena. She is passionate about passing her knowledge and experience onto other investors whether they be newbies or seasoned. Her other great passion is writing, that is why she is very honored to be part of the Property Onion Educational Team. Her specialty has been in commercial investing, mainly investing in shopping centers and strip malls, but she is now excited to be fixing and flipping in retirement communities.

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