03 Mar The Scales Appear Slightly Off Balance
“Tenants claiming to be adversely affected by the pandemic can remain in possession and not pay rent for at least 15 months.”
The Scales Appear Slightly Off Balance
When the scales of justice are gazed upon, they are viewed as a symbol…that law is distributed fairly. Yet, when a landlord is placed on one side of the scale and tenants on the other, there is a tip so distinct that it moves the scale in favor of tenants.
So, let’s look at legislation that leads us to conclude the scale of justice may not be conducive to ownership of residential rental property.
Assembly Bill 1482 was signed into law by Governor Newsom in June 2019, and it placed California under a statewide rental cap on residential rental units. Unfortunately for landlords, it became effective in January 2020, during the same time the country was placed on notice about what is now known as a worldwide pandemic. COVID-19. (The word alone has proven worthy of constructing a full sentence).
Impact: AB1482 limits annual (12 months) gross rent increases to 5 percent plus the county’s (of property’s location) CPI; or to 10 percent—which ever is less. Plus, it set standards for “no-fault” and “at-fault” evictions.
Governor’s Executive Order
On March 4, 2020, Governor Newsom proclaimed a state of emergency in response to the COVID-19 pandemic.
On April 6, 2020, the Judicial Council’s Emergency Rule temporarily halted evictions; and on August 14, 2020, the Council voted to extend the protections through September 1, 2020. Then two weeks later Governor Newsom signed into law Assembly Bill 3088.
Impact: There is currently no declared end date regarding Newsom’s executive order, and the courts have severely limited evictions. Tenants claiming to be adversely affected by the pandemic can remain in possession and not pay rent for at least 15 months.
Assembly Bill 3088 created the “Tenant Relief Act of 2020”, which applied protections for tenants unable to pay rent as a result of complications related to COVID-19, and effective until February 2025.
Impact: In order for a tenant to qualify for the protections under AB 3088, tenants are required to sign a declaration, under penalty of perjury, that the tenant is experiencing COVID-19-related financial distress. Financial verification is not required, unless the tenant had a reported income that exceeded 130 percent of AMI prior to March 1, 2020. Even under this situation, the landlord must adhere to very strict guidelines; for if a landlord proceeds to request documentation in violation of AB 3088, the landlord is subject to heavy civil penalties. Arguably, when the courts do open to evictions, tenants can sign the declaration form when in court which, as a result, may undermine the intent of the need and purpose of the declaration.
AB 3088 also created a “Covered Period” from March 1, 2020, through January 31, 2021, during which the tenant protections apply. The three main protections apply: 1) to a further division of periods of time; 2) each period of time has a different set of rules to be followed regarding how landlords may collect COVID-19 Rental Debt; and 3) rental debt became a “consumer debt” not part of an unlawful detainer. AB 3088 also opened up the small claims court to the middle of this year (only to have the small claims court re-open at a later date due to another law the Governor signed on January 29, 2021).
The first subset of dates, referred to as the “Protected Period”, is from March 1, 2020, through August 31, 2020, which permitted a tenant to remain in possession of their rental unit while technically breaching contract by not paying rent for the exchanged possession, if the tenant alleges COVID-19-related financial distress. While it is true that a landlord may collect all of a tenant’s Rental Debt in full starting February 1, 2021, collection required that the landlord send a specific notice to all tenants relating to this period of time within weeks of the bill becoming law.
The second subset of dates is from September 1, 2020, through January 31, 2021, referred to as the “Transition Period”, which permits a tenant to continue remaining in possession if that tenant alleges COVID-19-related financial distress and pays an amount that equals at least 25 percent of each rental payment that came due for each month during this period on or before January 31, 2021. During this period of time, as was the case during the “Protected Period,” the state compelled owners to rent the dwelling units and perform all legal obligations to maintain and offer the units for rent. And all the same restrictions apply to this period of time as the first subset.
The language in AB 3088 also, notably for owners/managers, places all COVID-19 Rental Debt under the debt collection category of “consumer debt”.
On January 29, 2021, Governor Newsom signed into law the offspring of AB 3088: SB 91. In all, the 59-page bill was introduced on a Monday afternoon and was signed into law on Friday morning. The measure provides additional tenant protections, a longer eviction moratorium, and further restrictions regard ing an owner’s/manager’s ability to collect rent.
Most notably, SB 91 creates a Rental Assistance Program that will be funding with $2.6 billion dollars from the federal government and was allocated throughout the state in an effort to alleviate some financial hardships suffered by low- and very low-income tenants. The state acted as an administrator of the federal program. Without the federal govern ment, our state and local governments would not have stepped in and provided rental assistance.
SB 91 requires each tenant make a good faith effort to apply for rental assistance if they have accrued COVID-19 Rental Debt from April 1, 2020, through March 31, 2021.
SB 91 prevents owners/mangers from assigning or selling any COVID-19 Rental Debt to a debt collection company if a tenant paid no rent during the period of time between March 1, 2020, and June 30, 2021, or would have qualified for rental assistance funding during the same time period.
SB 91 prevents an owner/manager from “retaliating” against any paying tenant who complains to an appropriate agency as to the tenantability of a rental unit. SB 91 prevents an owner/manager from charging tenants any fees associated with late rental payments and/or reporting to a credit bureau about late payments or no payments that occurred from March 1, 2020, through June 30, 2021. The new law also bars property owners/managers from deducting rent from a tenant’s security deposit without the consent of the tenant.
SB 91 requires landlords to send additional Notices to tenants regarding the provisional language of SB 91 as it pertains to COVID-19 Rental Debt and the Rental Assistance Program.
SB 91 prevents owners/managers from initiating an unlawful detainer action relating to COVID-19 Rental Debt prior to July 1, 2021.
However, a tenant shall not be guilty of an unlawful detainer if the tenant makes one or more payments that total 25 percent or more of each rental payment demanded from September 1, 2020, through June 30, 2021, on or before June 30, 2021.
Pursuant to SB 91, eligible uses for the funds made available under the Rental Assistance Program are as follows:
(A) Rental arrears.
(B) Prospective rent payments.
(C) Utilities, including arrears and prospective payments for utilities.
(D) Any other expenses related to housing as provided in Section 501(c)(2)(A) of Subtitle A of Title V of Division N of the federal Consolidated Appropriations Act, 2021 (Public Law 116-260).
Additionally, any assistance provided to a tenant from the Rental Assistance Program shall include a receipt that provides confirmation of payment made out to the landlord and the tenant.
According to SB 91, if an owner/manager agrees to accept payment through the Rental Assistance Program, the landlord must agree to the following terms:
(A) Limiting unpaid rental debt to 80 percent of the total rent due from April 1, 2020, through March 31, 2021;
(B) Agreeing to release any and all claims for unpaid rent owed from April 1, 2020, through March 31, 2021.
Conversely, if an owner/manager does not agree to accept payment through the Rental Assistance Program then a tenant may apply for rental arrears assistance from the local government, which shall be limited to 25 percent of the tenant’s total COVID-19 Rental Debt from April 1, 2020, through March 31, 2021.
SB 91 provides that if an owner/manager initiates an unlawful detainer action and the tenant files a Declaration of COVID-19-related financial distress, the case shall be dismissed.
SB 91 permits a Locality to apply for a Block Grant through the Rental Assistance Program
The provisions of AB 3088 and its offspring, SB 91, places a state stronghold on private landlords who are business owners by mandating the landlord perform by permitting a tenant possession of a rental unit, while at the same time permitting the tenant to breach his/her duty by not providing payment for the possession. Further, it is arguable that by the provisions of these bills, the state is taking private property without just compensation, which could arguably be a violation of the United States Constitution.
Issues to Consider:
This article has discussed just four actions of the Governor and California Legislature that have changed interest in owning/managing existing and the development of new rental housing.
Rental payments, judicial remedies for intentional contractual default, intentionally clogging the courts, barring owners to occupy their own properties, increasing owners’/managers’ duties and responsibilities, increasing operating costs, and constitutional issues are issues owners/managers must consider in the not-too-distant future. Those that advocate “cancel rent” may have just killed the goose that lays the golden egg.
Ron Kingston may be reached at [email protected]