MORATORIUM - IMPACT ON APRIL RENTS
CONTENT WRITTEN BY ICONIC INVESTMENTS
With all of the actions being taken by government at all levels in response to the COVID-19 pandemic it is getting increasingly difficult to determine how the big and little moves made by our mayor, our governor, and our president, will affect us as property owners and as service providers within the industry. April 1, 2020 will be a benchmark day for landlords of all property types across the nation, as we eagerly await the answer to the question, “will my tenants pay rent?”
Our goal is to provide information, both factual and anecdotal, on how we and other property owners are dealing with the uncertainty and unique set of legislation that is being pushed down on us. This is meant to be a bird’s eye view of the eviction moratorium and tenant rights issues that we are hearing about from the property level.
Eviction Moratorium
On Friday, March 27th, California Governor Newsom issued an executive action and placed a statewide ban on the "enforcement of evictions by law enforcement or courts,” for the benefit of all tenants affected by COVID-19. The order is effective immediately and provides relief or tenants with rent due April 1. Tenants must provide landlords with written notice if they cannot pay rent due to the coronavirus outbreak. These tenant statements are due within seven days of rent being due, and tenants remain obligated to repay full rent in a timely manner.
This order will remain in effect until May 31, 2020, effectively providing two-months’ rent relief to all California residents who can provide statements detailing how they were affected by COVID-19. Unclear is how long is meant by, “in a timely manner,” when relating to repayment of past due rents. While tenants may still face eviction after the enforcement moratorium is lifted, it’s unclear how enforceable those cases will be or how they may even be handled in our already jammed courts.
In speaking with property owners, we hear a common set of messages:
Our tenants, by and large, are good people. But just because they are good people, it doesn’t mean they won’t take advantage of not paying rent, even if they can still do so.
Some people believe that low paying tenants will have no choice but to repay the deferred rents. Most people live paycheck to paycheck making it difficult to absorb the additional costs of repayment.
If a tenant is undocumented or is otherwise ineligible to collect a stimulus check, past due rent collection will be more difficult.
This may inadvertently lead to a mass exodus of residents have difficulty in paying back-due payments, creating a cycle of dropping rents and increased vacancies.
Market-rate or higher-paying tenants may skip out on past-due balances.
Tenants Unions & Tenant Advocates Descend
Tenant advocacy groups throughout the state have mobilized and even banded together in order to increase pressure on lawmakers to take additional advantage of the crisis by enacting rent freezes and extending eviction moratoriums up to 12 months. 200+ advocacy groups have banded together during this crisis to form HealthyLA, and are pushing strong pro-tenants legislative proposals.
Highlights of their proposals include:
Rent forgiveness offset by the suspension of mortgage payments for those landlords willing to work within the guidelines.
Up to 24 months for repayment of past rents.
Eviction moratorium would cover all evictions, not just those based on nonpayment of rent, and no requirement to prove a causal connection to COVID-19. This would prevent:
Evictions based on breach of lease covenants; unauthorized occupants and/or pets; nuisance (such as noise caused by children who are now at home after the closure of their schools); and no-fault evictions.
Rent freeze as of March 4, 2020 with an undetermined end date, and provisions to permanently modify the Los Angeles Rent Stabilization Ordinance to reduce allowable rent increases moving forward.
A long-time client with a large apartment portfolio in the Hollywood and Mid-Wilshire markets called US yesterday to discuss a letter he had found circulating in his apartment building by one of his tenants. The anonymous letter is encouraging other tenants within the property band together and withhold rent on April 1, essentially a rent strike with no end and no clear purpose except to push the pain and uncertainty of the time on to the building owner.
WHAT TO DO?
As property owners ourselves, we are dealing with this on the front lines. We’ve reached out to our tenants and kept them apprised of the legislation, giving them clarity on what is fact versus sensationalism. We recommend you do the same.
We also recommend that put a plan together to work with your tenants. This could truly be a time of need for many of them, given the economic shutdown we’re all enduring. If the tenant can pay a portion of the rent, take it and add the rest to a tab. Work with tenants now to develop a payment plan – it can be modified later if needed, but at least it sets up a plan and commitment. If tenants have no choice but to defer the rents, it’s better to work with them productively than as adversaries. And to be honest, it’s probably not worth the headache since the State courts will likely not have your back.
Lenders that we’ve spoken with have been in an unusually forgiving mood lately. Chase and Wells Fargo, among other lenders, are agreeing to mortgage payment suspensions or deferrals. Fannie Mae and Freddie Mac have also agreed to similar payment modification programs, with the caveat that tenants cannot be evicted – a concern our governor has made irrelevant. In the end, they don’t want to be left holding the bag either. It remains to be seen how the government plans to unravel the mortgage mess to come, but for now, they’re doing their part to keep building owners in charge.
We would like to hear from you. How are you handling this crisis? What are two or three things you’ve changed from your standard operating procedures? How have you reached out to your tenants and what are you hearing?
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