Collecting Rent in the COVID Era
Once the Tenant Relief Act expires next year, how should I collect the 25% of unpaid rent? What if the tenant vacates before then? Will I ever be able to collect the remaining 75% of unpaid rent?
Firstly, everyone should note that the state legislature has strongly hinted that it may amend the Tenant Relief Act in January when the legislators reconvene after the year-end recess. With COVID cases ticking upwards at the time of this writing, do not be surprised to encounter additional extensions of the rental payment pauses that have been ongoing since the pandemic’s beginning in March of 2020. Indeed, 2021 may be just as unnerving as this past year.
That said, at present, the rent payment protections are set to expire on January 31, 2021. Tenants failing to make rent payments due between March 1, 2020 through August 31, 2020 (“Period I Rent”) because of COVID-related hardships may never be evicted because of this nonpayment. Rather, an owner’s exclusive remedy to recoup Period I Rent is to seek a monetary judgment in court. Effective March 1, 2021, the jurisdictional limitations of the small claims courts in California will be lifted for missed rent, so owners may file an action without incurring attorney fees and have a quick hearing before a judge and without a jury beginning this spring. At any time, however, an owner can file a breach of lease lawsuit in regular superior court, although attorneys should be utilized in this venue since all of the complex procedural rules apply and either side may invoke a jury to hear the case.
For rent that became due between September 1, 2020 and January 31, 2021 (“Period II Rent”), tenants impacted by the pandemic need only pay 25% of the rental payments missed during this time period on or before January 31, 2021. Tenants do not have to pay 25% per month and are only required to make a payment by the end of January for the entirety of the 25% accrued amount. If this obligation is met, then the owner cannot evict the tenant for the remaining 75% of the missed Period II Rent but may instead pursue a monetary judgment in court (and, if desired, utilize the small claims department after March 1st).
For both Period I Rent and Period II Rent, owners should begin the process of seeking collection by serving the new 15-Day Notice to Pay Rent or Quit SFAA forms as to existing tenants. There are separate notice forms for each period. An additional form, Informational Notice of COVID-19 Tenant Relief Act of 2020, also known as Form CA-400, should also be issued. If the tenant has vacated, you need not go through the 15-day noticing. Instead, you may immediately file a breach of contract claim in regular court or, after March 1st, small claims court. The bottom line, though, is that a lot of owners will have to make a tough business decision: Is it better to just move on, or do you want to expend time and resources filing court actions and trying to collect money from people that may be living outside of California and/or who are broke? Certainly existing tenants should be treated in a different vein in terms of collection efforts, but even these folks may warrant some degree of rent forgiveness as the City’s rental prices are plummeting while the vacancy rates are setting monthly records. In other words, act smart by keeping honest tenants in your building and by not wasting good money pumping empty wells.