Like the majority of the country, Alabama essentially shuttered its economy in March in an effort to curb the rapid spread of COVID-19. As of July 2020, the State of Alabama began rapidly reopening for business, and retail and commercial office space is no exception. Although Alabama initially implemented COVID-19 related protections via Governor Ivey’s Executive Order dated April 3, 2020, this Order only protected residential tenants from eviction due to nonpayment of rent until June 1, 2020. This residential protection was never renewed or extended. Alabama has not implemented protections against commercial tenants and is unlikely to do so in the future. Therefore, no COVID-19 related measures protecting either residential or commercial tenants from eviction currently exist in Alabama.
Commercial Landlord Considerations
Although it is obvious Alabama will not provide either residential or commercial tenants with COVID-19 related eviction protection or any rent relief, nonpayment of rent is likely to become rampant and should be considered a serious issue for Alabama landlords. Commercial landlords in particular must navigate several “traps for the unwary” when negotiating a lease workout. For example, many commercial leases provide “Lease Acceleration” clauses whereby a landlord may accelerate all rent payments in the event of tenant default. However, although a landlord may terminate a tenant’s right of possession without terminating the lease itself, Alabama law is somewhat unique in that if a landlord chooses to terminate the lease, the landlord must give up any rights it may have to accelerate. This can put landlords in a difficult position to choose between pursuing collection from a defaulting tenant or quickly terminating an existing lease in hopes to find a tenant who can pay its bill.
Another example somewhat unique to Alabama is that a Landlord has no duty to mitigate damages when evicting a tenant for nonpayment. Landlords in many other states are obligated to mitigate damages by seeking a new tenant during the pendency of the eviction. Although this sounds like good news for Alabama landlords, this may actually present a difficult business decision, as marketing for a new tenant may be desired if market demand is available, as the collection rate for new tenants tends to be much higher and will likely drive new foot traffic for retail shopping center areas.
Potential Tenant Mitigation Strategies
Tenants in danger of eviction for failure to pay rent should seek legal assistance in pursuing good-faith term negotiation efforts as soon as possible. Although Alabama commercial landlords are not obligated to agree to payment deferrals, forbearance, or other concessions, it may be in a landlord’s best interest to consider such proposals in lieu of pursuing evictions. Landlords approached with Tenant negotiations of this nature should seek legal counsel in reviewing how such proposals can alter various lease terms in addition to how such proposals may alter the rights and obligations the landlord may have with other tenants within a common shopping center, business center or multi-family housing.
Although the State of Alabama has not implemented such protections, some tenants may benefit from federal HUD eviction moratoriums in the event the tenant’s landlord’s property is subject to an FHA-insured mortgage. This federally backed tenant protection was initially set to sunset in June 2020, the eviction moratorium was later extended to August 31, 2020. In addition, some city and county governments may have implemented eviction moratoriums beyond the minimal protections required under state law. Commercial and residential tenants are encouraged to seek the advice of an Alabama licensed attorney to determine if any local eviction moratoriums or tenant protections are available.
Although Alabama landlords and tenants both have a difficult storm to navigate in the coming months, reopening liability protection and a growing tenancy market may signal smoother sailing by Q4.