Options During the COVID Era

Posted by  wasserman 

Our tenant has not paid rent since March, claiming COVID-19 hardships.  We believe he is still working.  What are our options?

The COVID-19 crisis has forced us as an industry to instantly reevaluate how we do business.  As most of us now know, once the pandemic became pronounced in early March both the city and state governments issued moratoriums on almost all commercial and residential evictions.  The state’s Judicial Council, the policymaking body of the California court system, also implemented an emergency order that prevented court clerks from issuing summons for eviction actions, or UDs,  unless the tenant was committing violence or otherwise posing a threat to public health and safety.  Thus, from March through August, and likely beyond, California property owners have not had the ability to utilize the UD laws to remove tenants.  This is unprecedented and substantially alters the property management business model.

Suddenly, without the eviction courts open for business, we have had to step up and work with tenants that may not be able to pay rent as a result of the national economy contracting by over 30%.  With UD mills shuttered, property owners were quickly thrust into the arena of having to negotiate payment plans and rent forbearance agreements.  Yet after more than five months of threatened Armageddon, something very strange began to emerge from the wreckage of our eviction industry:  More than 90% of residential tenants remained current on their rent.  Yes, the vacancy rate has exploded and rents are being reduced to adjust to more supply than demand in this now deepening recession, but the feared mass rent strikes and gross tenant abuses for the most part never materialized.  Not surprisingly, though, there are some renters that are living each month with a total disregard as to their obligation to pay rent.  As this question insinuates, perhaps a few in this group enjoy full employment and are taking advantage of a worldwide crisis for their selfish benefit.  What can be done?

For starters, no one knows when evictions will once again occupy our legal lexicon.  With the layers of local, state, and judicially imposed moratoriums in place, “UDs as normal” may not commence until well into 2021.  In addition, this time in history might just compel lawmakers to reconsider the idea of ejecting tenants via the quick and streamlined UD processes.  Remember, UDs are not a constitutional right but rather a creation of statute that could be taken away or redefined by our legislators.  For almost 100 years, we have been able to bring UDs into court and have them decided within a few short months, whereas other civil disputes usually take well over a year from start to finish.

Without the ability to pursue UDs, we are left with the following choices: 

(1)  Use every effort to negotiate with the tenant.  We should have favored this route prior to COVID, but our UD infrastructure was such that it was oftentimes easier to call an attorney and have the legal paperwork served.  With the UD courts closed, try to work out a forbearance agreement or some other resolution shy of litigation. 

(2)  If the tenant is nonresponsive or unreasonable, you may file suit for breach of contract (the lease agreement) now.  Many in social media have wrongly characterized local and state rent moratorium edicts as rent forgiveness.  That is grossly incorrect.  Rent is still contractually due each month, and owners are able to – and many have already—filed breach of contract claims.  Unlike UDs, these actions take well over a year to litigate, but the losing tenant could face a judgment for back rent and attorney fees.  Thus, in this case where the tenant is employed, a money judgment, which will not result in eviction, could nonetheless yield wage garnishment and bank account levies.  Moreover, sometimes the filing and service of these lawsuits will convince tenants acting in bad faith to produce meaningful repayment plans especially when they have to hire a lawyer and are apprised of the credit risks associated with running up a large rent tab. 

(3)  In addition to a breach of contract claim, you may sue the tenant for “ejectment.”  Ejectment is also an eviction action, and, believe it or not, you may also pursue it now.  However, unlike the fast-paced UD, ejectments follow the same slow path as the breach of contract claim, meaning you will be waiting in line for at least a year before your tenant is removed by the Sheriff.  Ejectment and breach of contract lawsuits can be combined into one proceeding, and, incidentally, California also permits you to add a UD action into this litigation so in the event UDs are once again permitted you might be able to drop the ejectment and breach of contract claims in order to speed along as a UD.

So these are the basic options, but like all major historical events that promote social change, view the UD hiatus as a harbinger of things to come.  Consider a California where there may not be UDs, or the use of UDs might just be more restrictive.  For decades, housing rights activists have highlighted the socioeconomic costs of tenant displacements.  The legislature even passed statewide eviction control last October to combat evictions.  Thus, maybe now is the moment to adjust the property management business model by exploring alternatives to the fast-tracked UDs.  Just a thought for these challenging times.

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