Building Codes

AB 828 eliminates all means for a property owner to recover economic loss or the operational costs associated with running rental properties…

By now, every Californian is familiar with COVID-19. But, are they familiar with the response by the California Legislature? A few of the responses by members of the Legislature should catch your attention. In fact, you may experience a bit of indigestion immediately following reading about a few of the bills presented herein.

Let’s start with AB 828 (Ting) which proposes to amend existing law, providing that a state court, county sheriff or party to an unlawful detainer case in California shall not accept for filing, or take any further action including but not limited to executing a writ of possession, any unlawful detainer action except those relating to breach of covenant not related to payment default or relating to nuisance or waste, during the current state of emergency and up to 15 days following. The amend ments additionally provide that any unlawful detainer matter that is not in one of the excepted categories, and has already been set for trial hearing, settlement conference or in person appearance, is hereby continued until further notice.

Why oppose the bill?

1. AB 828 eliminates all means for a property owner to recover economic loss or the operational costs associated with running rental properties, by foreclosing their ability to litigate unlawful detainer and in so doing will lose substantial rental income due to nonpayment of rent. This has adverse consequences for thousands of Californians—not just owners.

AB 828 leaves no means for a rental property owner to recover operational costs or any losses related to the operation and management of the rental property. This proposal inequitably shifts the burdens of the ongoing economic crisis, created by the COVID-19 pandemic, to the property owner with no consideration of their ability, or lack thereof, to shoulder such burdens or sustain ongoing operations. By not providing for a procedure that reviews rental matters between landlords and tenants on a case-by-case basis, but instead impeding the channels of litigation by prohibiting the bulk of unlawful detainer actions, AB 828 stifles efficient business dealings.

AB 828 not only erects a wall or barrier to commerce by restricting the traditional negotiating and bargaining process between landlords and tenants, but it also hinders property owners in the ability to effectively operate while in the midst of a crisis by cutting of essential resources and limiting the path to recourse.

2. In the limited circumstances where a hearing may be convened, only in situations where the defendant stipulates to the entry of a pursuant order, the property owner is left bearing the entire burden of establishing a material economic hardship, merely to recover a sum that the tenant has legally incurred and has previously been obliged to tender.

AB 828 unjustly deflects a duty that should be borne by the tenant, that of establishing a material economic hardship that justifies breach of obligation and shifts that duty to the owner. The language of AB 828 states verbatim “the court shall bear in mind the Legislature’s intent that the common economic hardships resulting from the COVID-19 virus is not the fault of any one person or group of people and so must ordinarily be borne by both landlords and tenants.” However, by requiring that landlords have to establish a “material economic hardship” in order to recover the amounts they are legally owed and that are essential to the ongoing ability to operate, the burden of this crisis is being placed un fairly, inequitably, and one-sidedly on property owners with no attempt to establish a middle ground that would be equitable to both parties. The burden of proof required by either or both parties should be equally burdensome; it is inequitable for one party to enjoy the benefits of a “presumption,” while the other is tasked with providing proof to meet an arbitrary, unqualified standard.

3. AB 828 establishes “material economic hardship” in order to determine an owner’s/landlord’s entitlements. However, such a standard is quite arbitrary, undefined, and vague leaving no direction for one to assess what constitutes a “material economic hardship.”

As such the standard for what constitutes such a hardship is left to the discretion of the trier of law on a case-by-case basis. Leaving no objective criteria to aid in determination, or to put an owner/landlord on notice of the criteria required.

The result is a landscape of uncertainty, where an owner would never know prior to actually attending a hearing if his/her current circumstances would qualify them for a position of “material economic hardship.” Making it virtually impossible to plan and budget economic resources. To require an owner to operate in such a climate under such circumstances is unfair and creates an obstacle to efficient operations.

And if that was not enough… this should catch your attention:

1. AB 828’s provision to reduce rent by 25 percent for a 12-month period, would effectively bankrupt the rental housing industry, leaving owners without recourse.

Our members and affiliates provide service to renters in residential communities. Such service is interdependent on the work provided by a host of others including maintenance personnel, plumbers, electricians, technicians, roofers, painters, and many others that contribute to the efficient and necessary management of a residential property. Most, if not all, of the economic obligations associated with running and maintaining a rental property are met through the timely collection of rental income. Any strain on the ability to secure such resources directly results in an inability to meet such operational obligations. As such a rental reduction, such as that proposed in AB 828 calling for an arbitrary 25 percent reduction in rent, for a 12-month period would effectively cripple owners and decimate the rental housing industry.

Should it be enacted, such an order would trigger not only the foreclosure of many rental housing properties, but possible suspension of day-to-day operations throughout the industry. The reality that many owners face is an environment with rising costs and a significant diminution in revenue.

Most owners enjoy restricted and limited access to revenue as a result of recent legislation aimed at the rental housing industry. Consequently, as they strive to make economic and operational adjustments that would enable them to weather the financial turbulence, uncertainty and circumstance provide increased and greater burdens.

2. AB 828 arbitrarily establishes a 25 percent reduction in the rent amount owed citing no rational or reasonable basis for determining that a 25 percent reduction would be appropriate and required in all cases.

AB 828 cites no evidentiary support in determining that a 25 percent reduction in rent is warranted or required in every case in which a tenant claims he or she is adversely affected by COVID-19. Clearly, tenants are not all the same and will have varied circumstances that will require a variety of solutions that must be tailored to each specific need. An arbitrary amount or percentage, determined in a vacuum, and not contemplated by an assessment of the facts or circumstances germane to the appeal, would be an inefficient and erroneous approach that may potentially exacerbate the issues. Additionally, just as arbitrary as the percentage of rent reduction is the amount of time AB 828 proposes that the reduction be in force: a 12-month period. As with the amount, there is no direction for determining when and in what circumstances a 12-month period should be applicable. Because the threshold for qualification in order to be granted such a reduction is so low and in many cases will be presumptively granted for almost every tenant, the need to justify the values and time periods proposed is of great importance.

And another bill, this time authored by Senator Nancy Skinner, is SB 1079.

SB 1079 authorizes acquisition of residential properties by eminent domain if the property has been vacant for at least 90 days and is owned by a corporation. The California Constitution permits private property to be taken or damaged for public use only when just compensation is paid. SB 1079 as currently drafted would establish eminent domain and “right of first refusal” procedures that run afoul to both current state and federal law.

Our arguments are solid:

  • SB 1079 acts to unconstitutionally deprive a residential property owner of “just compensation” by a replacement of the current “just compensation” standard with a mandate ordering property owners to accept the “lowest assessment” of the property value obtained by a local agency.
  • SB 1079 provides no standard with which to evaluate the merits of the provider of the “lowest assessment.” As such, the language in SB 1079 as it relates to “the lowest assessment obtained for the property by the local agency,” is vague and ambiguous.
  • SB 1079 as written makes no provision or exception for special or unforeseen circumstances such as a property that is in the process of remodel, repair, or restoration; a property that is in the process of applying for licensing and acquiring permits; a property that is extremely damaged due to acts of God or other uncontrollable circumstances.

Now, do you think your last meal gave you indigestion or is it the content of this article?

Ron may be reached at Ron@CalStrategic.com