The ongoing COVID-19 pandemic has affected all aspects of the US economy, including the rental market. As a result, tenant protections (which vary in form, function, length, and eligibility requirements) have been implemented by the federal, state, and local governments. These protections (including without limitation an eviction moratorium) apply broadly to residential tenants, whereas no federal or state protections apply to commercial tenants (who are therefore subject to localized community protection).
National Tenant Protections – US Centers for Disease Control Eviction Moratorium
The US government, through the Centers for Disease Control (CDC), has issued an order (Agency Order) prohibiting residential evictions for covered persons who (1) are unable to pay rent and (2) meet eligibility requirements. It has been extended several times and is currently set to expire June 30, 2021. Qualification does not require a person’s financial hardship be directly COVID-19 related. The Agency Order protections have been mirrored by the USDA, HUD, VA, and FHFA. The CDC has issued non-binding guidance in connection with the Agency Order (of note, this guidance has not been updated to include the most recent extension). It should be noted that the Agency Order does not require a landlord to forgive or forbear rent, it merely creates a moratorium on evicting covered persons. There are currently no active federal rent forbearance or forgiveness programs, however, the recently enacted American Rescue Plan Act seeks to provide $100 million in rental assistance programs. The Agency Order protections only apply if they are greater than those offered by the applicable state or local government.
California COVID-19 State and Local Tenant Protections
California has implemented residential tenant protections through a progressive series of actions, which are generally more expansive than the Agency Order. Of note, unlike the Agency Order, the California residential protections do restrict eligibility to persons with COVID-19 related hardship and require the tenant meet financial eligibility requirements. In 2020, Governor Newsom issued a series of Executive Orders protecting residential tenants. These were followed by the enactment of the Tenant, Homeowner, and Small Landlord Relief and Stabilization Act of 2020 (Tenant Stabilization Act). The Tenant Stabilization Act prohibits a tenant’s non-payment of rent eviction due to COVID-19 related hardships experienced between March 4 and August 31, 2020 so long as the tenant delivered a hardship declaration. Tenants who experienced such hardships between September 1, 2020 and January 31, 2021 are required to pay 25% of the rent owed by June 30, 2021 to retain such protection. The Tenant Stabilization Act imposed additional landlord obligations, including revised notice requirements and an extended 15-day notice to quit, rather than the standard 3-day notice. The Tenant Stabilization Act also expanded the small claims court jurisdiction to cover unpaid rent claims, regardless of the amount owed.
In January 2021, the heavily pro-tenant Senate Bill 89 (Budget Act of 2020) (SB 89) and Senate Bill 91 (SB 91) were passed (collectively, the 2021 Protections). The 2021 Protections generally prohibit unlawful detainer actions prior to July 1, 2021; expand the previous protections; and add new protections, obligations, and time constraints. See Cal. Civ. Proc. Code § 1179.03.5. Generally, SB 91 revises the Tenant Stabilization Act protections in the following ways:
Extends the prohibition on a landlord interrupting or terminating a tenant’s utility service with the intent of terminating the tenant’s occupancy
Extends until July 1, 2021 the time in which a tenant may avoid eviction by paying 25% of rent arrearages
Prohibits the use of COVID-19 rental debt as a negative application factor or as the basis for refusal to rent a dwelling unit to an otherwise qualified person (of note, this provision does not include a termination date, and therefore, arguably, such COVID-19 related debt may never be used as a negative factor)
Prohibits a person from selling or assigning specified unpaid COVID-19 rental debt until July 1, 2021 (this prohibition is permanent with respect to unpaid COVID-19 rental debt owed by qualifying tenants)
Prohibits COVID-19 rent default retaliatory unlawful detainer actions
Prohibits late payment fees or additional/increased fees for services previously provided at no charge where the tenant has COVID-19 rental debt and has submitted a hardship declaration
Permits temporary reduction or cessation of a service or amenity as the result of compliance with federal, state, or local public health orders or guidelines
SB 91 included the following protections, obligations, and time constraints:
Extends (until July 1, 2025) the small claims court jurisdiction over COVID-19 rental debt recovery and prohibits the commencement of an action until August 1, 2021.
Imposes (until July 1, 2027) additional landlord documentation requirements for the recovery of COVID-19 rental debt.
Prohibits recovery (until July 1, 2025) of excess attorneys’ fees in COVID-19 rental debt matters
Extends the covered “COVID-19 rental debt” period to the period between March 1, 2020 and June 30, 2021, and further extends the repeal date until July 1, 2025.
Prohibits application of a security deposit to satisfy COVID-19 rental debt for any tenancy existing between March 1, 2020, and June 30, 2021 (absent the tenant’s written consent).
Modifies the requirement that a tenant “deliver” the COVID-19 hardship declaration, to require only that the tenant “provide” same.
Modifies required statutory landlord notice provisions.
The most expansive component of the 2021 Protections, however, are the provision of rental assistance to tenants. The 2021 Protections permit a landlord to elect payment of a rental subsidy equal to 80% of the total rent arrearages incurred between April 2020 and March 2021, in exchange for an agreement to (1) forgive the remaining 20% rent arrearage and (2) not pursue an eviction or other monetary judgment. Failure to make such election will result in the tenant’s eligibility to receive 25% rent arrearage as a subsidy. It is unclear if courts will permit landlords who refuse to participate to obtain a judgement for the full amount of the rent arrearage.
California commercial tenant protections are authorized by Executive Order N-03-21 and Executive Order -80-20, which provide authority to local jurisdictions to suspend COVID-19 related commercial evictions until June 30, 2021. This authority has been implemented by various local municipalities. Some California counties (such as Contra Costa and San Francisco) and cities (such as San Francisco and Oakland) have extended additional residential and commercial protections. For example, Contra Costa has utilized this authority to extend the eviction moratorium on qualifying small businesses until June 30, 2021 and has further expanded the residential eviction moratorium to prohibit evictions based upon (1) no cause, or (2) a tenant allowing an unauthorized occupant to live in the dwelling unit, if the occupant is a member of the tenant's immediate family living in the dwelling unit as a result of the COVID-19 pandemic. See Ordinance No. 2021-11. San Francisco adopted an ordinance protecting “covered commercial tenants” from eviction, for rent defaults from March 16, 2020 through June 30, 2021 which resulted from COVID-19 related impacts. The San Francisco ordinance imposes a commercial eviction moratorium, prohibits the assessment of interest or other charges based on unpaid rents that were due during the moratorium period, and provides smaller covered commercial tenants a forbearance period after the moratorium ends to repay the missed rent. The San Francisco residential ordinance imposes an eviction moratorium and permits tenants six months to pay missed rent, as well as tenant notice and documentation requirements. The City of Oakland’s commercial eviction moratorium prohibits eviction of small businesses for failure to pay rent if such failure is due to a documented substantial income decrease caused by the COVID-19 pandemic or by any governmental COVID-19 response. It will expire upon the termination of EO N-80-20 (currently set to expire on June 30, 2021).
Can Any Tenant be Evicted?
It should be noted that neither federal or state protections prohibit a landlord from evicting tenants who otherwise violate the rental agreement terms, it merely creates a moratorium on evicting protected persons. The right of a landlord to commence an eviction suit is also subject to variance between state and federal law. As a result of nationwide court closures due to COVID-19, few cases have been adjudicated, and therefore, it is undetermined if the CDC had the proper authority to issue this order. Several federal courts have determined that the Agency Order is unconstitutional but stopped short of imposing an injunction (which would effectively permit landlords to continue eviction proceedings). Additionally, there is currently no binding case law which determines whether the federal, state, or local residential protections offer tenants more benefit, and therefore it remains unclear which protections apply, in particular where California ties the protection to additional documentation or COVID-19 relationship requirements. California commercial tenants must avail themselves of the localized protections. Additionally, it is unknown if this patchwork system of federal, state, and local protections will continue to be extended or otherwise modified or amended. Therefore, we will continue to monitor this evolving situation and provide updates.
The expansive federal, state, and local tenant protections instituted as a result of COVID-19 inhibit a landlord’s ability to collect rents owed, remove defaulting tenants, and increase rental income through value-add renovation programs. SDC Capital can help close this gap. We specialize in providing short-term bridge loans (up to 24 months) with flexible terms to help meet the evolving needs of our borrowers, as they navigate through these uncertain times.
Kevin Arrabaca
Principal
P: (818) 835-8936
E: kevin@sdccap.com
