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Proposed California Legislation Seeks to Expand Eviction Protections Including Rent Reduction

By Procopio Associate Sara G. Neva and Partner Robert J. Brown

The California Legislature is currently considering two COVID-19 response bills aimed at protecting both residential and commercial tenants regarding evictions, foreclosures and unlawful detainer actions. If signed into law, both bills would take effect immediately. While their ultimate fate is uncertain, it’s important for landlords to consider now how they might manage should one or both become law.

Senate Bill 939

SB 939 would prohibit evictions of tenants of commercial real estate during the current state of emergency related to COVID-19.  Governor Newsome declared a state of emergency on March 4, 2020.  Violation of this protection would be a misdemeanor, an act of unfair competition, and an unfair business practice. If SB 939 is signed into law, any evictions that occurred after the state of emergency declaration would be deemed void and unenforceable evictions, even if the evictions occurred before the effective date of SB 939.  This would further create substantial potential criminal and civil liability to landlords, further complicating and frustrating the ability of landlords to evict tenants.

Assembly Bill 828

AB 828 would provide a temporary moratorium on foreclosures and unlawful detainer actions on residential real property. The moratorium would be in effect during a state-wide or local state of emergency related to COVID-19 and would end 15 days after the state of emergency is lifted, including extensions. The moratorium applies even if an action has already been filed or is in process.

Additionally, this bill provides protections for defendants in residential unlawful detainer actions. At a defendant’s election, a court would be required to determine whether the tenant’s inability to pay rent is the result of increased costs in household necessities or decreased household earnings due to COVID-19. If the court determines that the tenant’s inability to pay rent is the result of COVID-19, the landlord has the opportunity to show whether the court reducing rent would cause a material economic hardship for the landlord. If the landlord owns less than 3 rental units, then the court presumes that ordering a rent reduction would constitute material economic hardship on the landlord. If the landlord owns 10 or more residential units, the court presumes that ordering a rent reduction would not constitute material economic hardship on the landlord.

Ultimately, if the court determines that (A) the tenant’s inability to pay rent is the result of COVID-19 and (B) reducing rent would not constitute material economic hardship on the landlord, then the court must make an order (1) for the tenant to remain in possession, (2) to reduce the rent for the property by 25% for the next year, and (3) to require the tenant to make monthly payments to the landlord beginning in the next calendar month in the amount of the decreased monthly rent, plus 10% of the outstanding unpaid rent.  How this would play out in an over-crowded, post-lockdown court calendar is uncertain. 

Whether either or both of these bills will become legislation in their current form or any form is uncertain. Some believe in particular that AB 828 goes too far and is too complex to administer, and accordingly may be less likely garner enough legislative support to pass. As developments progress, we’ll be providing readers updates on our dedicated COVID-19 website page, which includes a breakdown of eviction restrictions across San Diego County.

 

Sara G. Neva is an Associate on Procopio's Real Estate team. She counsels clients on real estate, finance and general business transactions. Her practice involves real estate property purchase and sale, commercial leases and easements, joint venture formation and other equity investments, financing, land use and entitlements. Sara is experienced with developers, builders, lenders, borrowers, commercial real estate investors, entrepreneurs, non-profit organizations and commercial landlords and tenants. She was named a 2019 Leaders in Law Rising Star by the San Diego Business Journal.

Robert J. Brown is a Partner on Procopio's Real Estate team. He counsels clients on corporate and securities, real estate and tax. Robert’s practice focuses on tax and transactional planning and consulting over a broad range of business matters. He is experienced in tax planning, financing and structuring for real estate, joint ventures, private placement, as well as negotiating land acquisitions and financing. He was named a 2019 West Coast Top Rated Lawyer by American Lawyer Magazine.