SLG Client Alert: Eviction Update: Changes Every Day. This Update Should be of Interest to All Lenders and Landlords

Note: The following is a general discussion on the specified topic or issue and may not be relied on as legal advice in any specific case or matter you encounter. You should review any applicable case, or matter with counsel experienced in this area of law and should not generally rely on the discussion in this Alert.

Date:  May 27, 2020
To: All Scheer Law Group Clients and Affiliates
From:  Jon Seigel
Subject:  Eviction Update

Significant restrictions on commercial and residential evictions have occurred or are proposed in CA. These restrictions have changed and will dramatically change the rights of landlords/property owners and tenants. When taken in conjunction with recently enacted rent control and eviction control laws, it is critical that you stay informed on the laws governing and in many cases restricting your rights. We stand ready to assist to help you navigate these troubled times.

Since our last posting as to restrictions on evictions due to COVID-19, various moratoria imposing these restrictions have been extended and sometime modified. Below is an update as to some of the restrictions.  In addition, various new laws have been proposed in the state legislature—some of which would have material impact on landlords and tenants beyond the period of the COVID-19 emergency. Some of these proposals are discussed below.

STATUS OF RESTRICTIONS ON EVICTIONS

In viewing the restrictions on evictions, keep in mind that there are three hurdles to evictions: (1) whether, under the restrictions, it is permissible for a landlord to serve an eviction notice, (2) assuming it is allowable to serve an eviction notice, the Court must issue a judgment of unlawful detainer (eviction), and (3) if the tenant has not vacated, the county sheriff must perform a “lock out.”

FEDERAL LAW

If a landlord has a federally backed (Fannie Mae, Freddie Mac or HUD) mortgage, the recent Federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the landlord is prohibited from serving an eviction notice for nonpayment of rent or initiating eviction proceedings in court for nonpayment of rent and other fees. Late charges are prohibited. This moratorium expires on July 25, 2020.  Similarly, the Federal Housing Finance Agency (FHFA) has placed a temporary ban on evictions.

STATE LAW APPLICABLE TO SERVICE OF EVICTION NOTICES

None, but legislation has been proposed. As discussed below, the state has addressed evictions by allowing cities and counties to restrict the service of eviction notices and has also issued orders delaying most evictions from being processed through the state court system.

LOCAL LAWS APPLICABLE TO SERVICE OF EVICTION NOTICES

Many cities and counties have passed their own legislation restricting or prohibiting the service of eviction notices. Local restrictions on residential evictions are more stringent than the state law restrictions. Some jurisdictions restrict the service of residential eviction notices and some restrict the service of both residential and commercial eviction notices. For example, in San Francisco, no residential evictions are allowed except those involving violence, threats of violence, health and safety issues, and evictions under the Ellis Act are allowed while the Mayor’s Executive Order is in effect.  In addition, even after the Mayor’s Order ends, residential tenants will have up to six months after the Mayor’s Order expires to pay their missed rent if the tenant was unable to pay rent because of financial impacts related to COVID-19. The expiration date of the Order has now been postponed to June 30, 2020 which, if not extended again, will give residential tenants until December 30, 2020 to pay the rent.

In San Francisco, in commercial cases, eviction notices served for nonpayment of rent on tenants with gross receipts of less than $25 million in 2019, must give the tenant at least one month to cure. If the tenant provides documentation of a financial difficulty related to COVID-19, the cure period is automatically extended for successive periods of one month, up to a total of six months. These restrictions have just been extended to June 16, 2020. 

These orders preclude the service of eviction notices unless an exception applies. Although, as shown below, even if the landlord is allowed to serve an eviction notice, the courts are largely closed to eviction actions, if an eviction notice may be served now and expires, the tenancy will be considered terminated (subject to the tenant challenging the basis for the termination) even if an unlawful detainer action may not be filed in court at that time. However, because eviction notices generally cannot be served now, by the time landlords are allowed to do so, the basis for termination of the tenancy (nonpayment of rent, lease violation, nuisance, etc.) may have been cured and there will be no ground to terminate the tenancy.

STATE LAW APPLICABLE TO COURT PROCESSING OF UNLAWFUL DETAINER ACTIONS

Residential Evictions Commercial Evictions

SUMMARIES OF SELECTED PROPOSED STATE LAWS RESTRICTING OR IMPACTING EVICTIONS

The following are very general summaries of selected proposed landlord-tenant legislation that we find to be interesting. This proposed legislation may never be enacted or could be enacted in modified form. There is other proposed legislation on the state and local level that may impact landlords and tenants. In addition, there is significant proposed and newly enacted legislation of interest to landlords in connection with real estate loans and some of this legislation is discussed in other alters on SLG’s website.

SB 939:

would prohibit the eviction of tenants of commercial real property statewide, including businesses and nonprofit organizations, until 90 days after the governor’s COVID-19 state of emergency is lifted. There is an exception if the tenant poses a threat to the property, other tenants, or a person, business, or other entity including the landlord. Otherwise, eviction notices could not be served even for lease violations and other grounds for eviction that do not involve nonpayment of rent.  Further, with respect to nonpayment of rent, the tenant would not have to demonstrate that the failure to pay rent was due to COVID-19. Tenants would have 12 months following the date in which the COVID-19 state of emergency ends to pay the unpaid rent and late fees would not be allowed.

Further, this legislation would provide restaurants, bars, and entertainment venues with a decline in revenue of 40% as compared to before shelter in place and face an ongoing reduction of capacity of 25% or more, with a one-time opportunity to engage in good faith negotiations with their landlord to modify any rent or economic requirement regardless of the term remaining on the lease. If no agreement is reached, the tenant would have the option to terminate the lease and not be liable for more than three months of past or future rent accumulated during shelter in place.  In addition, any third party guarantees would expire with the lease termination. This part of the legislation is deeply controversial and is likely to be challenged in court if enacted.

SB1410 :

Attempts a “win-win” approach between landlords and tenants SB 1410 by creating a “COVID-19 Emergency Rental Assistance Fund” to provide rental assistance payments on behalf of any residential tenants who demonstrate an inability to pay all or any part of the household’s rent due between April 1 and December 31, 2020, as a result of the COVID-19 pandemic, if the landlord participates in the program. Participating landlords would receive rental assistance payments covering at least 80% of the amount of unpaid rent for not more than seven (7) months of a household’s missed or insufficient rent payments. In exchange, the landlord would be required to agree to: (a) not increase rent until after December 31, 2020; (b) not charge or attempt to collect any late fee for any unpaid rent due between April 1 and December 31, 2020; and (c) accept the rental assistance payment as full satisfaction of late or insufficient rent payments covered by the program.

AB3260:

Would require property owners to allow a new tenant to pay a security deposit over a six‐month period or to obtain a security deposit insurance policy to cover damages they cause at the property. If the tenant chose to pay the deposit over time, if the tenant moves out early in violation of the lease and before the full deposit is paid, the landlord would be left with limited funds.  If the tenant chose to obtain insurance, it is unknown whether the insurance would pay to the landlord unpaid rent for the duration of the lease term, as opposed to reimbursing the landlord only for physical damage to the premises. In addition, if there is physical damage covered by insurance, making a claim to the insurance company and scheduling an appointment with the insurance company to view the premises may delay the landlord in repairing and re-renting the premises, thereby adding to the landlord’s losses.

SB1431:

would allow landlords to request property tax reassessments based on the loss of rent and other tenant protections imposed by governments in response to COVID-19.  This legislation would apply retroactively to April 5 and allow landlords to apply for an expedited COVID-19-related reassessment.

Please call or email if you have questions about this alert.

Spencer Scheer