The coronavirus is having an impact on the different legal subject areas that Steeg Law handles. To help keep our clients and friends informed on how COVID-19 could affect you legally, our attorneys have provided a brief summary of the major developments in commercial and residential real estate, commercial litigation and title insurance.
Please feel free to contact us by phone or email if you have further questions. We are here if you need us.
COMMERCIAL AND RESIDENTIAL REAL ESTATE
Condominium Life During COVID-19
Life at condominiums during COVID-19, especially at vertical buildings, has been stressful for the Boards, unit owners, occupants and employees.
Associations were just not prepared to handle the multitude of issues that a pandemic present, from testing, to sanitizing, to restricting access, and policing unit owners. Many HOA governing documents do not provide adequate powers for the Board to take drastic measures. In most cases, Boards have relied on the cooperation of the unit owners and occupants, since access to courts are limited to emergency matters only.
Just as HOA’s plan for Mardi Gras, especially if you are on or near any parade route, HOA’s need to obtain extraordinary powers in limited events, and develop policies, and procedures, in order to protect the unit owners, occupants, employees and third parties entering the facilities.
Mandating closure of many of the common amenities (pool, fitness area, library, meeting room, and even open common areas) is and has become an unpopular action, but without some controls you risk the entire community becoming infected. Boards need to plan now for the next such event (just as they do for hurricanes) and that includes a budget line item to cover the extra expenses relating to pandemics, such as back up personnel, daily cleaning, protective equipment and sanitizers.
It will take a cooperative effort for the condominium community to flatten its own curve, so everyone can reduce risk and stay safe.
Evictions in Orleans and Jefferson Parishes
Landlords should approach evictions with extreme caution during the COVID-19 crisis. Governor John Bel Edwards signed an Executive Order suspending evictions through April 30, 2020. In addition, under the federal CARES Act, landlords who have federally-backed mortgage loans or who participate in certain federal programs cannot send notices to vacate, file eviction proceedings or charge nonpayment penalties to residential tenants until July 25, 2020. Landlords who receive forbearance on federally-backed multifamily mortgage loans are similarly prohibited from taking the same actions during the period of forbearance.
The Louisiana Supreme Court has also limited in-person court proceedings to only certain emergency matters which do not include evictions. Further, most courts in Jefferson and Orleans Parishes are closed to the public until at least May 18, 2020, although online and fax filing is generally available. (Sheriff’s offices and constables are performing limited or no service at this time.)
And, these dates could change, if state or local officials continue the current suspension of activity.
Finally, as a practical matter, the current political and press atmosphere is generally hostile to evictions of any kind. Therefore, landlords should consult with legal counsel before pursuing any action against defaulting tenants.
Leases
Leases are a hotbed of activity right now, both from a business point of view and a legal point of view.
For the most part, landlords and tenants appear to be attempting to negotiate business arrangements without retreating into legal arguments. Residential tenants, for the most part, appear to be paying their rent without extensive requests for rent relief, depending on their personal circumstances. The same appears to be true for office tenants, although some requests for relief are being received.
The area experiencing the greatest amount of activity is, of course, the retail sector. Landlords are frequently proposing rent-deferral programs, on a blanket basis, to all tenants, often accompanied by extensions of the term of the leases. Large, national tenants frequently advance their own proposals, even ahead of the landlords’ proposals, often requesting two or three months’ rent abatement accompanied by two or three months of reduced or deferred rent to allow a period of time for the tenant’s business to ramp back up.
Government coronavirus relief programs, primarily those under the CARES Act, are an important backdrop to these negotiations. Landlords frequently insert provisions requiring the tenant to seek specific relief (such as a PPP loan) and requiring that a portion of the proceeds received by the tenant be applied to the rental amount otherwise deferred or abated. Also in the background are the potential legal positions of the parties in case the negotiations break down, most often focusing on the force majeure provisions of the leases, and also occasionally involving other legal theories that might be asserted by the tenants.
Real Estate Closings: New Strategies
The advent of COVID-19 has had a pronounced effect on how real estate closings are conducted, as social distancing guidelines have necessitated new strategies for the usual closing process, where a buyer, seller, Notary and others are huddled around a conference table signing a multitude of documents.
Louisiana Governor Jon Bel Edwards signed an Executive Order authorizing the use of remote online notarization (RON) to allow the signing parties and the notary to be in different locations for the execution of a legal document requiring notarization. Unfortunately, the RON process does not apply to those documents that are required under Louisiana law to be in the form of an “authentic act” – where the signing party signs the document in the physical presence of the Notary and two witnesses. That particular form of execution is either legally required or very highly advisable for sales and mortgages, as well as for donations and wills. Thus, the practical benefit of RON is greatly reduced when it comes to real estate closings.
Since RON is not useful in the general real estate closing context, law firms and title companies are resorting to two other approaches in order to keep commerce moving. The first is executing the documents in various locations, and then transmitting these signed documents to the closing agent for collation and filing. That way, each side can get the documents executed and notarized at its convenience, without convening all together in the Notary’s office. That is the standard method of handling multi-state commercial closings today, anyway.
The second is getting physical signatures from the buyer and seller by staggered appointments under circumstances that allow for social distancing. For instance, the buyer comes to the Notary’s office at 10am, the conference room is set up to allow for social distancing, and other appropriate protective measures are followed. Then the buyer leaves and the process repeats itself as the seller comes in at 11am. The same procedure applies to a mortgage lender and its borrower. The disbursement of proceeds can then be authorized by email or telephone confirmation and sent out by a mailed physical check or wire.
To further support this “remote” process, powers of attorney can be utilized to allow borrowers (and sellers and buyers for that matter) to execute one single document and have an employee of the title company, as agent, execute all other relevant documents needed for the closing process, thereby limiting a party’s overall physical exposure to others. Still, even the power of attorney will need to be executed before a Notary and two witnesses. However, the time involved in the execution of one single document (the power of attorney) as opposed to 15 or more in a typical closing package is most often preferable and a step in the right direction.
Much is being learned about creating efficiencies in the real estate closing process as we traverse the pitfalls of the present COVID-19 crisis. Undoubtedly, some of the strategies that are being implemented now will cause a closer consideration of the various laws and processes applicable to closings that will result in changes that survive the current pandemic. These are interesting times indeed!
COMMERCIAL LITIGATION
Business Interruption Coverage
Most Commercial General Liability insurance policies, often referred to as property policies, provide some level of coverage for lost business income. In most circumstances, the key question is whether the lost income is the result of what the standard policy forms call “direct physical loss of or damage to” covered property like a building. When a building like a store or factory is damaged by a fire, for example, the building owner’s policy typically will cover both the cost of repairing the fire damage and the business income lost during the period of repair.
What about coverage for business income lost not to a fire, but to the Covid-19 pandemic and the government-ordered business closures associated with it? There is some legal authority from courts in Louisiana and other states suggesting that virus-caused business losses might be covered as the consequence of “direct physical loss.” (Insurers, not surprisingly, take the opposite view, and there is litigation already pending on this issue.)
Most property policies also provide some coverage for losses due to government action under so-called “Civil Authority” provisions, the language of which varies widely. To complicate matters further, these policies increasingly exclude coverage for damage caused by certain types of microbes, though these exclusions generally don’t mention viruses.
A business interested in determining if it has insurance coverage for its virus-caused losses should consult an attorney with expertise in insurance coverage for a review of its policies.
TITLE INSURANCE
Abstracts, Title Examinations and Recording Documents Using Remote Access to Clerks’ Offices
The ability to conduct title searches and examinations is crucial to doing real estate closings, because title insurance commitments and policies cannot be issued without first doing a proper title examination, and for most closings, the parties require title insurance policies. The clerks of court in each parish in Louisiana maintain real estate records. The usual practice is for abstractors to be in a clerk’s office, using a combination of computerized records and paper records to do the searches, which are then examined by a licensed attorney in order to produce a report known as a title insurance commitment. After the closing, the search is updated so that the title insurance policy can be issued.
The coronavirus has had a material affect on this, because the clerks’ offices are physically closed to the public. Abstractors use the computerized records to do the searches remotely, and then the attorneys do the title examinations based on those digital searches. In many parishes, the computerized records start fairly recently in real estate terms, some going back only thirty years or so. Most parishes have online access, but the time periods vary a lot. Some parishes have started going back in time to index their older land records and put those images available online, whereas some have online records only from when they started using digital records, meaning it’s very limited access.
Louisiana law requires at least a 30-year search for most sales transactions, so we have to make sure we can comply with the law using only the available computer records. Law firms and title insurance agents are working closely with title insurance companies to make sure that title searches and examinations can be done so that closings can continue. Interest rates are low, so a lot of people and companies are refinancing their loans or buying property, which means that closings need to happen.
Another twist because of the coronavirus closures of offices is how sales (deeds), mortgages, leases, and similar documents are recorded once a real estate closing is finished. Before now, most documents were recorded by delivering paper copies of the original documents to the clerk’s office, usually by going into the clerk’s office in person. A few parish clerks’ offices are set up for documents to be delivered electronically, but the majority are not. When paper documents have to be recorded, most of the clerks’ offices are accepting documents by mail or overnight courier service, but do not allow parties to go in person to deliver the documents. There is often a delay of two or three days, because many of the clerks are sanitizing the packages they receive before handling the paper documents. Thus, it is important to allow extra time for documents to be recorded.
We are working closely with our clients and title insurance companies to ensure that real estate transactions continue during this period, and are available to answer your questions about the procedures we are following.