Status

“Status” A position or rank in relation to others … the condition of a thing in the eyes of the law … state or condition with respect to circumstances (as in the status of 2021 state legislation)

 

As we continue to advocate for legislation in the state capitol that will protect the interests of rental property owners and managers, we have faced an incredibly challenging year.

 

Below are some of the successes we have had stopping legislation that was proposed this year:

 

AB 854 (Lee) A bill that would:

  • Prohibit property owners to withdraw their rental units unless they have owned the property for five and, under certain conditions, ten continuous years.

 

We opposed the bill because:

  • Within the past 13 months many property owners have not collected rent due to COVID-19, yet they were forced to remain in business with no income derived from many tenants. Those owners found that the non-payment of rent was not financially sustainable. Owners faced and are continuing to face mortgage default and inability to pay to maintain the property. Many owners and tenants are not benefiting from federal stimulus money, particularly all renters that are earning more than 80 percent of the area median income and all owners that are renting to those households.
  • The bill disincentivizes multiple property owners from improving and maintaining their property even though those property owners are liable under the implied warranty of habitability. Taking into consideration these past 13 months of rent forbearance, maintenance and repairs have arisen, and many owners have not been able to comply with the law. Furthermore, improvements to a building usually improve living conditions for tenants so it has a domino effect. Landlords are legally still forced to abide by the implied warranty of habitability. Repairing an air conditioning unit may be the only practical way versus upgrading the overall central energy efficient AC system for the whole building.
  • The bill’s prohibition of limiting one rental unit to be occupied by one owner can make it more burdensome, if not impossible, for property owners to stay afloat, purchase, finance, re-finance, occupy, and sell especially in current times of COVID-19. Moreover, with the requirement of having the owner being forced to keep the property for a period of five years, it will prohibit owners from lawfully occupying their own property for an unreasonable period. Additionally, AB 854 would prohibit owners from allowing their children, parents, and grandparents from occupying the property for half a decade. We argued that we did not understand why an owner is barred from allowing their convalescing parent from living in the owner’s property during this time period. Parents may not be able to live or wait five years.
  • There have been several other measures the Legislature has considered that are similar to AB 854. Former Senator Mark Leno carried a similar bill (SB 364) just a few years ago. He proposed to limit the application of his bill to San Francisco. He argued that property owners removed just 300 rental units in the City while at the same time, thousands of new rental units were being constructed. Research shows that the units that were removed were owned by small owners. Those owners found that San Francisco’s laws were simply too burdensome and costly to remain in the rental housing business.
  • AB 854 will affect all cities and counties. Unfortunately, we are not aware of a need to adopt a law of this nature throughout our state.
  • The bill will result in corporate America owning rental housing. Small property owners will soon become an extinct class in our state. Small property owners will not be able to wait five consecutive years. Children who are heirs to their parents’ rental units will even have to wait five consecutive years.

 

AB 1199 (Gipson) Massive tax on rental housing owners:

AB 1199 proposes to impose an annual excise tax upon rental housing owners who: 1) own ten or more properties that are single-family dwellings; or 2) own 25 or more properties that are either single-family or multifamily dwellings. The tax rate would be 25 percent of the gross receipts of the rental housing owner that are derived from rental income. The bill effectively diminishes the state’s constricted housing stock. Unquestionably, this even further exacerbates the current and future housing crisis. Thankfully, the bill was not heard this year. It could, however, be heard next year. This is an extremely dangerous measure.

 

AB 255 proposes to:

On top of the many other relief measures taken to address financial difficulties for commercial and residential tenants and the American population, this bill aims to provide even further rent relief to commercial tenants by making it nearly impossible for commercial rental property owners to engage in an unlawful detainer without even knowing with certainty whether the relief measures received by the tenant were used for its intended purpose.

 

Among the reasons to OPPOSE AB 255:

  • In light of Governor Newsom’s proposal made on 5/13/2021 to set aside “$1.5 billion to a program providing grants up to $25,000 to small businesses harmed by the COVID-19 pandemic in California, allowing thousands more to get financial help,” there is no need for this bill because this is the appropriate remedy. It balances the interests of both parties by making small business owners whole and the commercial rental property owners not even think about matters related to collection of rent and the sustainability of the business interests of both the rental property owner and the commercial tenant.
  • Governor Newsom made a proposal on 5/10/2021 projecting “a $75.7 billion budget surplus” to be used as part of an economic recovery plan for millions more Californians and additional relief for renters. The plan would provide the greatest state tax rebate in American history amounting to nearly $12 billion in total for stimulus checks. Two-thirds of Californians who make up to $75,000 annually will benefit from $600 direct stimulus payments—this also includes families with dependents and undocumented residents who will be eligible for an additional $500. This plan “triples California’s previous investment…sending payments to residents who didn’t get a check in the first round.” The governor also proposed to double rental assistance in the state by putting $5.2 billion to help low-income Californians directly impacted by the pandemic pay back 100 percent of their rent. “California is not just back. California is roaring back,” said Governor Newsom after making the proposal.
  • Senate Budget Chair and State Senator Nancy Skinner commented the following on the governor’s proposal, “because of California’s very progressive tax structure, and because most of our revenue comes from the wealthiest…we have money. Now, unlike other states, we are using that money to support the many Californians who’ve been hurt. We are in a position now to be able to provide more.” So, what more is needed? These efforts all indicate that the state has more than enough if not a surplus of remedies that address precisely what AB 255 is trying to achieve and it is doing so by focusing on re-employing Americans and Californians which is the appropriate action—not the drastic measures taken by AB 255.
  • There is no proof the remedy in AB 255 is needed due to the recourses taken by the President and Congress. The economy is coming back quickly and there is no proof that such extreme measures set out in this bill are required.
    • According to the Wall Street Journal, US government recently announced that there were over 8.1 million jobs, opening the largest number of jobs in the last 21 years. There is no question that many of these job openings are from small businesses. Small businesses yearn to operate and open—this shows that small business owners want to restore employees, want to pay their property owners, and other financial obligations they have. Unfortunately, this bill is not recognizing the desperate need to re-employ America.
  • According to the US Chamber of Commerce, “between March 2020 and March 2021, Congress has passed multiple massive pieces of legislation to help individuals and businesses make it through the pandemic’s economic turmoil. These packages have included forgivable loans, direct payments, tax credits, grants, expanded unemployment benefits and more.”
  • It is unclear what “hardship” really means for commercial tenants within the context of AB 255 when there have been all these COVID-19 relief measures stated above.
  • This bill will result in a drastic domino effect. If a commercial property owner does not receive revenue, they cannot pay their loans and their property may be taken away. The eviction process is already a lengthy process; with the new requirements of this bill it will make it take even longer, which deprives the commercial property owners of rent whom unlike the tenants do not have the available relief measures stated above. This in turn makes commercial property owners unable to pay their loans to maintain their property in the first place. The lengthier unlawful detainer process as well as the decrease in revenue for the property owner also increases the waiting time if the owner is to relet the premises to another potential tenant and makes it even harder for the property owners to look for a tenant if they cannot improve the premises for the potential tenant’s use due to decreased funds. As you can see there is an insurmountable domino effect that will not only deprive commercial rental property owners but other tenants who are ready to start a new business.
  • As discussed above, the President, Congress, and Governor Newsom have taken the approach of helping the employee or former employee to get them back to work and not the draconian and potentially litigious method stated in AB 255. The civil courts have been closed for well over a year because of COVID-19. When the courts are reopened, they are going to bleed heavily trying to figure out how to open the civil side of litigation and we do not need any more potential litigation that is easily addressed already through current and upcoming relief measures.
  • This bill will hurt the economy rather than make it prosper because it has potential long-term effects on new commercial centers. If potential commercial property owners know there is a precedent here for making it very difficult to obtain an unlawful detainer on commercial tenants, then they will take their business elsewhere to another state or maybe another country. This is something that in the current American Economy we just cannot afford.
  • AB 255 intends to create relief for commercial tenants without any evidence that it is going to help achieve anything and overlooks the surplus of already available aid to commercial tenants and small business owners.
  • In the government’s efforts to open America again, apart from the surplus of governmental aid to small businesses, the CDC has issued multiple guidelines including as to when people do not need to be masked. Furthermore, the health director is taking action to remove social distancing requirements because after all we are trying to reach herd immunity.
  • All the above points are evidence of an entirely different approach than what is proposed by AB 255. The approach to restore our economy should be a joint effort and not the one-sided approach taken up by AB 255. This is a time for all Americans to work together. We asked the Legislature: Why is this bill needed when all these other relief efforts are already present and under way and more importantly do not encourage further separation among California small business owners and commercial property owners to restore the California economy?

 

On a positive note, expect additional legislation to follow SB 91, the Emergency Rental Assistance Relief (ERAP) program. This will be clearly defined and acted on by the Legislature during June 2021. We will write to keep you informed as to the material changes that will occur. At the heart of the ERAP program is paying back unpaid rent during COVID-19 which as of the date of this article is struggling. We have presented doable solutions for the state and local governments that oversee implementing ERAP. This includes establishing a presumption that the application is true and correctly submitted by the property owner. The tenant under this circumstance would have 15 days to respond to the government and dispute the content of the owner’s application. Should a tenant fail to respond during this time, the government would be required to proceed to process the application for rent relief.

 

Ron Kingston may be reached at [email protected]