Tenant Stabilization Act of 2021
The California Assembly currently considers the Tenant Stabilization Act of 2021 for approval. 1(Assem. Bill No. 15 (2021-2022 Reg. Sess.).) This bill modifies language and rules put into place by the COVID-19 Tenant Relief Act 2Assem. Bill No. 3088 (2020-2021 Reg. Sess.), but what rules would change? And, how does it impact you as a landlord?
Note: This bill has not yet passed. This is a review of the bill as it exists on January 21, 2021. According to the San Francisco Tenants Union, the bill requires a 2/3rd vote to pass before January 31 if it is going to have effect. This gives the legislature ten days to make up their minds on whether these new rules should take effect.
Here is an overview of how this rule change affects landlords. Read them all the way to the end, because the notices that impact you most are likely the changes to the 25% rule, the COVID-19-related financial distress rules and the changes to the notice requirements. The Tenant Stabilization Act seeks to make your life more difficult!
Changes to Definitions
Definitions are very important. Here, the Tenant Stabilization Act only seeks to change two definitions. The Bill extends both “covered time period” and “transition time period” to December 31, 2021.
This change has ramifications to the meaning of “COVID-19 related debt” which is based on the covered time period. And, it naturally extends the prohibition that stops any court from issuing a summons on any complaint that seeks possession of property based on nonpayment of COVID-19 related debts. In short, evictions based on nonpayment would be impossible until January 1, 2022.
This change does not prevent a court from evicting people for other reasons. Tenants causing damage to the property (waste) may be evicted. 3Code Civ. Proc., § 1161, subd. (4). Tenants causing a nuisance to neighbors can be evicted. 4Code Civ. Proc., § 1161, subd. (3). Tenants violating other terms of the lease may still be evicted. 5Code Civ. Proc., § 1161, subd. (3). However, to evict based on any of these other terms, the landlord likely needs to waive any claim for the COVID-19 related debts so that they can assert without doubt that the eviction is not based (even in part) on the nonpayment of debts. 6Code Civ. Proc., § 1179.01.5, subd. (b).
Changes to High Income Tenant Rules
The COVID-19 Tenant Relief Act of 2020 had special rules for “high income tenents.” The Tenant Stabilization Act of 2021 makes it harder for landlords to implement these rules.
In California Code of Civil Procedure section 1179.02.5, the Tenant Stabilization Act would add the following language:
“A tenant shall not be considered a high-income tenant and shall not be required to comply with the requirements of subdivision (c) unless the landlord has included a copy of the proof of income described in paragraph (1) that demonstrates that the tenant qualifies as a high-income tenant with the notice served pursuant to subdivision (b) or (c) of Section 1179.03.” 7Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 19 (emphasis added).
This means that to use the rules for high income tenants, the landlord has to include evidence of the tenant’s income with the notice to the tenant! Essentially, this rule asks the landlord to prove to the tenant that they are high-income tenants before the special rules can be implemented.
Changes to Notice Requirements
Strict Adherence to the Statutory Notice Language would be required under the Tenant Stabilization Act of 2021
The Tenant Stabilization Act of 2021 makes strict changes to the notice requirements. Unlawful detainer actions already impose strict notice requirements. The COVID-19 Tenant Relief Act of 2020 made those requirements even more strict, and now they raise the bar again!
Under the old rules, the landlord had to provide the tenant with statutory language. Most statutory language is provided as a guide, so modifications or alterations are usually permitted as long as the statute does not expressly state a strict adherence and the altered text conveys the same factual information.
Under the new rules of the Tenant Stabilization Act, “[a]ny language that is altered or added to the notice provided in paragraph (4) shall be void and nonbinding as a matter of public policy.” And, the Act changes the notice requirement to state that “[a] notice which does not meet the requirements of this section, including by modifying or adding to the language of the notice, regardless of when the notice was issued, shall not be sufficient to establish a cause of action for unlawful detainer or a basis for default judgment.” 8Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 20 (emphasis added).
This leads me to believe that the courts have identified landlords who have been burying the meaning of the notices by adding extraneous and wordy sentences that are intended to confuse, bore, or otherwise cause tenants to stop reading.
Does this mean that notices need to be served on their own forms?
California Association of Realtors provides a form titled PMC-TP (“Notice to Cure Covid Transition Period Monetary Covenant or Quit”). This form describes the notices of the Tenant Protection Act of 2019 on page 1. On page 2, it describes the COVID-19 Tenant Relief Act notices. Would this constitute “adding to the language of the notice”?
I find it hard to believe that the legislature intends for landlords to withhold information about the tenant rights granted under other acts such as the Tenant Protection Act of 2019. For this reason, I believe that such forms will likely pass a judicial review, even under this new rule about additional text. I would infer that the statute has impact when additional text appears within the notice text or the words of the notice text are changed. So, as long as you copy and paste the required notice text into your document, you should be fine.
Also ensure that any text that you do add before or after this notice text does not serve to mislead, bury, or otherwise distract the tenant from important information about the tenant’s rights under the law.
The Tenant Stabilization Act of 2021 implements new language in the COVID-19 notices
The Tenant Stabilization Act adds a new sentence to the notices that we previously delivered. If the Act passes, the new notices must include the following sentence: “You do not need to enter into a repayment agreement or any other agreement with your landlord to have these protections.” 9Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 20.
This additional language implies that some landlords were stressing the need to create repayment agreements and implying that the repayment agreements were a necessary part of the process. I would imagine this might take the form of negotiating a higher rent to cover the past debts over time. Under the new rules, the tenant’s receive an express notice that they may refuse to enter into such agreements.
Changes to the 25% Rule
The Tenant Stabilization Act does not make significant changes to the 25% rule, and this could be a problem. 10Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 20.
The only change that we see is a change in the wording that does not have a change on the meaning. The old rule allowed tenants to remain in the unit as long as they paid 25% or more of COVID-19 related debt before January 31. 11Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 20. Under the new wording, the tenant has until the “end of the transition period.” 12Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 20. Essentially, this has the same meaning, because before the Tenant Stabilization Act, the end of the transition period and January 31 were the same date.
What this means to landlords though is scary. Consider the worst-case scenario. A tenant has until December 31, 2021 to pay at least 25% of all COVID-19 related debts.
This means that a tenant could, in theory, live rent-free until December 30, 2021. On the very last day of the year, the tenant could show up on your doorstep with a check for 25% of the year’s rents, and if this occurs, you cannot take any action against the tenant for the nonpayment.
No evictions based on nonpayment
Remember, that courts cannot evict tenants based on nonpayment of COVID-19 related debts. So even two years down the road, you would not be able to evict a tenant who still owed you 75% of the rent that was due between September 1, 2020 and December 31, 2021. 13Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 20.
The tenant still owes all money
The tenant still owes you 100% of the money until and unless you waive your claims to it. 14Code Civ. Proc., § 1179.03, subd. (c)(4) (quote from notice: “You will still owe the full amount of the rent to your landlord, but you cannot be evicted . . .”). There may be good reasons to waive your claims to rent, which we will touch on later. But, even if the tenant owes 100% of the unpaid debt, how are you going to collect it?
In the worst case scenario, the tenant is aware that he or she cannot be evicted. You cannot take any action that would be considered retaliatory. What are you going to do besides take them to court and get a judgment? Oh, and that judgment may be unenforceable.
Small Claims Court may no longer be an option.
Traditionally, if a tenant owed back rent and you were not evicting them, you would take them to small claims court. But, if the tenant owes you 75% of the rents for a time period that extends for a period of 15 months, then it is very likely that the amount they owe you exceeds the $10,000 limit.
You often could have a judgment issued as part of the unlawful detainer action in an unlawful detainer court. However, if you attempt to claim any COVID-19 related debts in an unlawful detainer court, the court will not issue a summons and will not issue any default judgments. Thus, the only way to get an unlawful detainer action heard during 2021 would be to waive your rights to collect any money while naming a non-retaliatory reason that the tenant must be evicted.
Judgments may be unenforceable.
Not only will small claims court likely not be an option to you (which means you could spend as much as $20,000 or more to have your case heard), then you have the added problem of most tenants being judgment proof.
A court can issue a judgment stating that the tenant owes you money, but most tenants have no assets against which you can collect. If the tenant is self-employed, for example, there would be no way for you to garnish wages. The tenant likely is without assets like real property that you could levy. Ultimately, a judgment against a tenant for COVID-19 related debt may be as valuable as a roll of paper towels.
Actually, you may prefer the roll of paper towels. Those can at least be used to dry your copious amounts of tears.
Changes to the COVID-19-related financial distress rules
The Tenant Stabilization Act changes the COVID-19-related financial distress rules. 15Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 20. Under the old rules, the landlord had to provide the form and the tenant had to return it. Under the new rules, it doesn’t matter who gives the tenant a form as long as the tenant “provides” (not “returns”) at least one copy of the form. 16Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 20.
Under the old rules, the tenant had to return at least one form for every notice. Under the new rules, “[if] the case is based on multiple notices, one [distress] declaration shall be sufficient for the purposes of this subdivision.” 17Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 20.
This language suggests that the law now presumes a continuation of distress. If the tenant reports distress to you on the first notice, the court must presume that the distress continued on all future notices.
Note, the notice that landlords provide to tenants still says that “Your landlord may require you to submit a new declaration form for each rental payment that you do not pay . . .”, but this requirement is rendered toothless when “one declaration shall be sufficient for purposes of this subdivision.” 18Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 20.
Under the Tenant Stabilization Act, late fees are prohibited!
The Tenant Stabilization Act prohibits charging late fees or making any increases to fees during the covered time period. 19Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 9. I don’t know if this is retroactive. But, the Act adds Civil Code section 1942.5.5 which prohibits a landlord from “charg[ing] a tenant, or attempt[ing] to collect from a tenant, fees assessed for late payment of COVID-19 rental debt or interest on COVID-19 rental debt.” 20Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 9. It also prohibits an increase in fees charged to the tenant or charges to the tenant for services that were previously free of charge. 21Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 9.
Tenant Stabilization Act prevents landlords from considering COVID-19 rental debts as a reason to reject a housing application
The Tenant Stabilization Act adds Civil Code section 1785.20.4 which states that “[a] housing provider, credit reporting agency, tenant screening company, or other entity that evaluates tenants . . . shall not use an alleged COVID-19 rental debt as a negative factor for the purpose of evaluating creditworthiness or as the basis for a negative reference to a prospective housing provider, regardless of whether a report is received alleging that the tenant has COVID-19 rental debt.” 22Assem. Bill No. 15 (2021-2022 Reg. Sess.) § 6.
This scares me. If a tenant is applying for a new apartment, the new landlord is no longer able to ask if they have a history of making timely payments (or any payments at all for that matter). That is a critical aspect of whether a tenant is financially capable of supporting the new lease, because ability to pay through the evidence of a job and associated income does not translate to a willingness to pay. When the law gives the tenant a carte blanche right to avoid payment, having a job and pay-stubs may not be enough proof of the tenant’s character.
Regardless, under the new rules, if they pass, you are prohibited from considering this as a factor. So save yourself the trouble, don’t even ask about it! It’s easier to show that you did not use it as a factor if you don’t have any evidence showing that you have access to a payment history from prior locations.
What this means moving forward for landlords in California
I personally hope that this new legislation does not pass, but even if it does pass, we will get through this. Everyone (both tenants and landlords) is having a hard time. Talk to your tenants like people. Do what you can to work out mutual arrangements that are beneficial to both of you, and you will have fewer problems.
Treat tenants like people, not numbers. Take the time to talk to them and hear their concerns, but also remain firm and make clear the reasons that timely rent is still important even though the law says otherwise. Tenants are not interested in loosing their homes. When they understand that the place they live may be lost through foreclosure, they may be willing to meet you half way.
Try to do small things to make life for your tenants easier. They will respond in kind.
Show your tenants that you believe that we are in this together, and they will feel like they are part of a team that includes you. The teams mission: get through this without loosing the house.