Due to the emergency shelter in place orders issued in California and in Alameda County the on 3/27/20 the Oakland City Council passed an ordinance that applies new rules to commercial leases a; restricts the filing of unlawful detainer actions (eviction); and severely limits a landlords right to evict even for non-payment of rent. There are also new notice requirements for tenant communications during this period or arising from payments during this period that a landlord should be especially certain to comply with.
The Oakland Ordinance applies only to a business that is an “independently owned and operated business that is not dominant in its field of operation, the principal office of which is located in California, the officers of which are domiciled in California, and which, together with affiliates, has 100 or fewer employees, and average annual gross receipts of ten million dollars ($10,000,000) or less over the previous three years, or is a manufacturer, as defined in subdivision (c), with 100 or fewer employees. Commencing January 1, 2019, the average annual gross receipts threshold shall be fifteen million dollars ($15,000,000).”
The Oakland Ordinance prohibits any eviction for nonpayment of rent “if the failure to pay rent during the local emergency was the result of a substantial decrease in income (including but not limited to a decrease caused by a reduction in hours or consumer demand) and the decrease in income was caused by the COVID-19 pandemic or by any local, state, or federal government response to COVID-19, and is documented.” Note that this only applies to nonpayment of rent during the “local emergency” which is set to end on May 31, 2020.
As with the Residential Eviction Moratorium the tenant will still owe the landlord the amount that would have been due, however, the landlord cannot evict based on that amount. Many, if not most, small businesses in California are going to have lost income as a result of Covid-19 / Coronavirus shelter in place orders or from lack of consumer spending. If a “small business” in a commercial unit can prove (with documents) such loses they are very likely to fall under this protection. It should be clear that this is a defense to an unlawful detainer action and would have to be proved by the tenant.
Tenant Relations
One of our fundamental rules for liability reduction is to strive for good relations based on empathy and understanding. There is often a view that landlords are large businesses with deep pockets that are can manage the burden of non-payment by tenants. The local government seems to share this idea as they have done little to assist landlords by applying similar rights and protections with respect to mortgage payments.
Although some some landlords are quite large and have fairly deep pockets commercial rentals can be a thin margin business and extended disruptions in payments can and will impair landlords ability to service mortgages and property costs. Many of our clients are smaller landlords with the little margin available or that rely on rental payments as a sole source of income. Balancing the needs of the landlord for debt service and income streams against a tenant’s inability to pay rent is difficult, however, it can be made easier for both parties:
- Instead of immediately disputing a missed rental payment it may be better to write to the tenant and explain your situation and to request that they provide proof that they meet the requirements in order to avoid a costly legal action. This can save both sides money in attorneys fees and risk, as a loss by a landlord on an unlawful detainer defense may trigger attorney fee shifting clauses or, at a minimum, require paying attorneys fees for an unsuccessful trial.
- Again with fee shifting there may be an incentive to file a standard claim for amounts due even if they cannot give rise to eviction and then to assess the tenant with the attorneys fees. We would again recommend a discussion, alternative payment arrangements, or some other workout of the debt prior to filing an action. Even if a judgment is desired it may be better to request a confession of judgment that would significantly reduce the costs for all sides and result in the same outcome. The reason for this is that attorneys fee shifting may be limited by reasonableness, not issued by the court or reduced, and that even if successful a tenant that has no money will not be able to cover such fees and the landlord will be out of pocket on these significant additional costs even after being successful in court.
BrightWork Law
If you are dealing with residential landlord / tenant issues we would be happy to assist at Brightwork Law. Our goal is to provide legal assistance that is efficient as possible with the best economic outcomes for clients. In order to support our community particularly the smaller landlords and businesses we are providing extremely discounted services for small landlords (<$100,000 in gross revenue) and small business commercial tenants (<$300,000 in gross revenue).