April 1, 2020
With “social-distancing” and “self-isolation” directives mounting to slow the spread of COVID-19, one question rises to the surface: how will people and businesses pay rent if they are required to stay home or “close shop?” On March 16, 2020, Governor Newsom issued Executive Order N-28-20, encouraging local governments to restrict landlords from evicting residential and commercial tenants. That “encouragement” has since—as of March 27, 2020—become a statewide moratorium on evictions, leaving little discretion left for local governments. However, that does not mean individuals and businesses can simply stop paying rent.
Governor Newsom’s Initial Eviction Ban
Executive Order N-28-20 begins by recounting that on March 4, 2020, Governor Newsom proclaimed a state of emergency resulting from the COVID-19 pandemic. That action triggered the protections of Penal Code section 396(f), which prohibits the eviction of a residential tenant from the time the state of emergency is declared to the date thirty days thereafter. The initial executive order ensured that provision would remain in effect through May 31, 2020.
Although Penal Code section 396(f) pertains to residential tenants only, Executive Order N-28-20 sought to protect residential and commercial tenants alike. More specifically, Governor Newsom suspended (through May 31, 2020) “[a]ny provision of state law that would preempt or otherwise restrict a local government’s exercise of its police power to impose substantive limitations on residential or commercial evictions….” Even then, local governments could only limit evictions when:
- The basis for the eviction is nonpayment of rent, or a foreclosure, arising out of a substantial decrease in household or business income (including, but not limited to, a substantial decrease in household income cause by layoffs or a reduction in the number of compensable hours of work, or a substantial decrease in business income cause by a reduction in opening hours or consumer demand), or substantial out-of-pocket medical expenses; and
- The decrease in household or business income or the out-of-pocket medical expenses described in subparagraph (i) was caused by the COVID-19 pandemic, or by any local, state, or federal government response to COVID-19, and is documented.
In other words, Governor Newsom’s initial eviction ban ensured that no residential tenant could be evicted through May 31, 2020 but left local governments to decide whether to impose a broader ban on both commercial and residential evictions. That choice no longer exists.
The Current Moratorium on Evictions
Governor Newsom placed additional limits on evictions in Executive Order N-37-20. The impetus for this change comes from the support of a range of third parties. As stated in the recitals to E.O. N-37-20, “the Department of Business Oversight secured support from national banks, state banks and credit unions for temporary delays in mortgage payments and foreclosure sales and evictions for homeowners who have economic impacts from COVID-19 with the objective of maximizing consistency and minimizing hurdles potentially faced by borrowers.”
The protection afforded by E.O. N-37-20 came in the form of a 60-day extension of the time for a tenant to respond to any complaint filed against them seeking their eviction (known as an unlawful detainer complaint). For a tenant to benefit from this delay, the following conditions must be satisfied:
- Prior to March 27, 2020, the tenant must have paid rent due to the landlord pursuant to an agreement.
- The tenant notifies the landlord in writing before the rent is due, or within a reasonable period of time afterward not to exceed 7 days, that the tenant needs to delay all or some payment of rent because of an inability to pay the full amount due to reasons related to COVID-19, including but not limited to the following:
- The tenant was unavailable to work because the tenant was sick with a suspected or confirmed case of COVID-19 or caring for a household or family member who was sick with a suspected or confirmed case of COVID-19;
- The tenant experienced a lay-off, loss of hours, or other income reduction resulting from COVID-19, the state of emergency, or related government response; or
- The tenant needed to miss work to care for a child whose school was closed in response to COVID-19.
- The tenant retains verifiable documentation, such as termination notices, payroll checks, pay stubs, bank statements, medical bills, or signed letters or statements from an employer or supervisor explaining the tenant’s changed financial circumstances, to support the tenant’s assertion of an inability to pay. This documentation may be provided to the landlord no later than the time upon payment of back-due rent.
Thus, tenants cannot simply refuse to pay rent “because COVID-19.” They must instead (1) have previously paid rent under a lease agreement, (2) provide advance written notice that they will be unable to pay due to a reason related to COVID-19, and (3) they must provide documentation of that reason before paying their back-due rent. The order is clear that nothing should prevent a tenant from paying rent if they have the ability to pay, and nothing in the order prevents a landlord from seeking back-due rent after the protections of the order cease on May 31, 2020.
In sum, landlords and tenants alike should understand the requirements a tenant must meet prior to refusing to pay rent. Once rent is withheld, landlords and tenants need to monitor whether any new executive order, local ordinance or state regulation is passed that would impact their respective rights. Before the effect of these temporary regulations expires, tenants must be prepared to pay back-due rent.
On the other hand, landlords must determine how they will collect the documentation of a tenant’s changed financial circumstances. Landlords should also consider whether to seek legal advice as to any recourse that might exist for a tenant who withholds rent but fails to provide the required documentation upon payment of back-due rent. Presently, E.O. N-37-20 provides no specific remedy against such a tenant who might take advantage of these extraordinary times, but that may change as COVID-19 continues to modify the contours of our legal system on a near-daily basis.
Author: Eric G. Salbert, Associate, Enterprise Counsel Group