Question 1: Can I apply the tenant’s security deposit to rent that is not being paid during the Covid 19 crisis? If so, can I then require the tenant to replenish the deposit?
Answer 1: The short answers are, probably, and probably not. I have a feeling I will be prefacing nearly every answer for the next few months with the following caveat: While nearly every aspect of residential tenancy life is currently being affected by legislative responses to the Covid 19-related states of emergency, the underlying rules remain, and, presumably, will be reinstated once the crisis has passed and the state of emergency lifted. Thus it is with security deposits.
As most landlords know (and all should know!), a tenant’s security deposit may be applied to the limited purposes set out in Civil Code Section 1950.5:
- The compensation of a landlord for a tenant’s default in the payment of rent.
- The repair of damages to the premises, exclusive of ordinary wear and tear, caused by the tenant or by a guest or licensee of the tenant.
- The cleaning of the premises upon termination of the tenancy necessary to return the unit to the same level of cleanliness it was in at the inception of the tenancy.
- To remedy future defaults by the tenant in any obligation under the rental agreement to restore, replace, or return personal property or appurtenances, exclusive of ordinary wear and tear, if the security deposit is authorized to be applied thereto by the rental agreement.
In general, the deposit is applied to those categories at the termination of the tenancy, but there is no reported case that discusses the landlord’s right to apply some or all of the tenant’s security deposit during the tenancy, and the right to demand the tenant restore the deposit to its original balance. Most leases, AOA’s lease included, has a provision that makes that scenario a contract provision, which has not, to my knowledge, ever been held an unenforceable provision. However, whether the deposit can be applied to unpaid rent when the tenant asserts the current pandemic protection from eviction for nonpayment of rent is a new wrinkle. Then, whether the owner can demand the tenant replenish it is a separate issue. While the answers may depend on the location of the tenancy (because the emergency ordinances vary from city to city, and county to county, with a basic state law overlaying all), certain common themes exist in the various versions.
Referring to the Oakland version, that ordinance provides that during the SOE, a residential tenant may not be evicted for any reason other than posing a threat to the other tenants, and rent increases are limited to the annual CPI adjustment (no banked rent increases), and late fees are waived if the reason the rent was late was due to the economic impact of the state of emergency.
Thus, it does not appear to prohibit applying the security deposit to unpaid rent, though a demand to replenish the deposit would likely be seen as a demand for rent, and so unenforceable. However, the wording of the ordinance seems to limit its restrictions to actions for non-payment of rent, whereas a demand to replenish the deposit would be an action for breach of the lease provision, a separate ‘just cause’ category. In short, there is no reliable guidance available on this specific issue, and a court might rule either way, depending on how the issue is presented (and of course, on possible subsequent ordinance provisions). The most reasonable course might be to hold off applying the deposit unless the owner had significant immediate need for it
Question 2: Does the state law limiting evictions control over the various local laws? Which do we follow?
Answer 2: If the state law provides greater protection than the applicable local version of the eviction protection emergency ordinance, the state law will apply. Otherwise, the local law will apply.
First, for all of California, no evictions for non-payment of rent are allowed in any California county, based on the March 27 EXECUTIVE ORDER N-37-20 issued by the Governor. That order is the baseline of tenant protections related to evictions for non-payment of rent. That order states that even if a local court accepts an unlawful detainer for filing (which most are not, discussed below), the time allowed for the tenant to file a response is extended by 60 days, if the tenant is served while the Order is in effect (and the current Order is to be in effect through May 31). This applies if the tenant was current with rent prior to the Order, and can show the reason for nonpayment is based on the impact of the virus on the tenant’s economic situation. The tenant is obligated to notify the owner in writing before the rent is due, or within a reasonable period of time afterwards not to exceed seven days, that the tenant needs to delay all or some payment of rent because of an inability to pay the full amount due to reasons related to COVID-19, including but not limited to the following:
- The tenant was unavailable to work because the tenant was sick with a suspected or confirmed case of COVID-19 or caring for a household or family member who was sick with a suspected or confirmed case of COVID-19;
- The tenant experienced a lay-off, loss of hours, or other income reduction resulting from COVID-19, the state of emergency, or related government response; or
- The tenant needed to miss work to care for a child whose school was closed in response to COVID-19.
The tenant needs to retain and provide verifiable documentation, such as termination notices, payroll checks, pay stubs, bank statements, medical bills, or signed letters or statements from an employer or supervisor explaining the tenant’s changed financial circumstances, to support the tenant’s assertion of an inability to pay. This “documentation may be provided to the landlord no later than the time upon payment of back-due rent.” (This is the quote from the Order, though it is unclear what it means).
However, the state Order specifically permits more restrictive local ordinances, and in most cases, those local ordinances are more protective of tenants facing possible eviction than the state Order. For example, the state order only limits evictions for nonpayment of rent and only if the reason is related to the effects of the virus on the tenant’s circumstances. But the Oakland ordinance, for example, prohibits eviction for any reason “except when the tenant poses an imminent threat to the health or safety of other occupants of the property..” (and an eviction based on the state Ellis Act). It is a defense to any such eviction effort if the notice was served or expired, or the complaint was filed or served, during the Local Emergency. The dates of the Local Emergency continue to shift, but as of May 1, the date has been extended through May 31.
Finally, Alameda county is considering, and will likely issue at the May 12 Board of Supervisors’ scheduled meeting, an expanded county-wide ordinance that will not only limit evictions for all reasons (other than the Ellis Act and safety issues as the Oakland version does), but will provide “Tenants twelve (12) months to repay overdue rent, unless the tenant and landlord can come to a mutual repayment agreement. The repayment period will ensure residents have a reasonable amount of time to become current on past rent. The amended moratorium will also create a permanent ban on evictions for this overdue rent, instead making the overdue rent a consumer debt. Without this provision, the County’s eviction moratorium only delays a wave of evictions that will likely result from this crisis. By declaring that rent that becomes overdue during the public health crisis can never be used to evict a resident, landlords retain the ability to pursue the overdue rent as debt via small claims court, a payment plan or garnishing of wages.”
So, if that provision passes, any unpaid rent that accrues during the emergency period will not be due for 12 months, and may not be demanded by the three day notice to pay or quit option that is the landlord’s customary route to demand and collect past due rent. Obviously, removing the threat of eviction for failure to pay the rent, even 12 months later, provides a significant protection to the tenant, and a commensurate burden on the owner.
Question 3: What, if any, are landlords’ rights during the Covid 19 pandemic?
Answer 3: There has been a patchwork of emergency ordinances and rules passed or enacted in the recent weeks in response to the pandemic and its impact on tenants, primarily. These range from a provision in the federal CARES act against evictions, to court suspension of unlawful detainer proceedings, to state, county and city laws that allows tenants who have been financially impacted by COVID events to stay in place without current rent payments being made.
Most of the provisions require the tenant to notify the owner of the financial problem and provide documentation of their situation (notice of layoff, submission of request for unemployment etc.). Most of the provisions also require the tenant to make efforts to pay the back rent when the emergency provisions expire (which dates vary from city to city). However, most of the provisions also do not allow the owner to compel those late payments by the three day notice to pay or quit method most owners use when the tenant is behind on the rent. Rather, the provisions require the owner to seek the unpaid rent via the regular court system, or most commonly via the small claims route.
However, in one effort to assist the property owners, the state has provided some assistance to have lenders agree to allow owners to delay mortgage payments without penalties. A summary of that state effort is set out below. As far as I know, that remains the limit of statewide assistance, though local jurisdictions may, in some way, offer assistance to small property owners such as you. Check the city or county website for COVID updates to see what either jurisdiction may offer.
The State of California is working to soften the financial impact of COVID-19 on residents who are struggling to pay their mortgage and bills. Citigroup, JP Morgan Chase, US Bank, Wells Fargo, and nearly 200 state-chartered banks, credit unions, and servicers have committed to providing relief for consumers and homeowners in California.
If you are impacted by COVID-19, these financial institutions will offer mortgage-payment forbearances of up to 90 days, which allow you to reduce or delay your monthly mortgage payment. In addition, they will:
- Give you a streamlined process for requesting forbearance for COVID-19-related reasons, supported with available documentation;
- Confirm approval of and terms of forbearance program; and
- Provide you the opportunity to extend your forbearance agreement if you continue to experience hardship due to COVID-19.
Question 4: I have a tenant who has 3 months to go on her lease and she plans on moving out the end of April or first part of May. She has agreed to pay the rent if I can not get it rented because of the shelter-in-place. How do I handle the requirement to do a walk-through two weeks before she moves? I am 80 years old and have not been going anywhere since March 20.
Answer 4: You are one of the lucky ones if your tenant has offered to continue to pay rent despite vacating early, if you are unable to re-rent the unit before her lease expires. As to the walkthrough, the Contra Costa emergency Shelter in Place ordinance does not define such efforts as ‘essential services”, though an argument could be made that it comes under the allowed provision set out below:
Service providers that enable residential transactions, including real estate agents, escrow agents, notaries, and title companies. Residential viewings may only occur virtually, or if virtual viewing is impossible and the residence is unoccupied, by appointment with no more than two visitors from the same household and one person showing the unit.
It is also worth noting that the order prohibits relocating unless necessary.
Individuals may move residences only if it’s not possible to wait until after the Order expires. In other words, you can move if the move is already planned or if it’s necessary to maintain shelter, to stay safe, or to stay in a livable residence.
In summary, I think under the circumstances, the owner should let the tenant know that the pre-move out inspection provided for under Civil Code 1950.5(f,g) is not practical now, and ask her if she can forward a video tour of the unit from which the owner may be able to deduce any needed repairs. But in the grand scheme of things, assuming she ultimately pays the rent, the owner should consider herself one of the luckier landlords in these days.
Question 5: One of my tenants has requested that I send his rental history to a credit reporter. His rents have always been on time and he is a very good tenant. I’m a small property owner and have never done this. Is this something I should address or will his credit history automatically be noted by credit reporting companies?
Answer 5: I am not a credit reporting expert, so am not sure how you would even fulfill that request. Generally, it is only the existence of negative credit events, like landlords reporting late payments that the credit reporting agencies note and report. It will be interesting if the reporting agency will accept, and then somehow note on this credit history, a report of timely payments. It would be interesting to know how the agencies would respond to such request.
Question 6: The tenant states there is mold in the house and I have to mitigate the mold by cleaning and painting. Yet, the tenant did not allow entry to her bedroom until the person contracted to take the mold air sample arrived. Once in the bedroom, it was noticed there are plants in the bedroom. The mold air check showed the presence of mold and I will be hiring a service to clean the room. I have requested the plants be removed but tenant refused as ‘the plants are my babies.’ Is there any recourse to having the plants removed, as the water may be damaging the floor?
Answer 6: The tenant has a duty to cooperate by taking reasonable steps to allow remediation work to take place. It is not easy to understand how moving her plants could be seen by her as an unreasonable request, unless this is a studio apartment with no place to temporarily move those plants. But as the problem area is a separate bedroom that presumes there’s another room in the apartment those plants could be moved to. The owner needs to let the tenant know she (the tenant) has an obligation to cooperate, though the owner should try to accommodate her concerns if it is reasonable to do so. But if the plants are causing damage to the floor, that’s a separate issue, and she will be liable for such damage. But that sounds like it could be solved by better containers under her plants going forward.
In the current legal climate, it will be difficult to invoke the court system to assist, so for now, a reasonable compromise effort is best for both parties.
Question 7: What documents or forms should I require from a potential tenant who is a self-employed freelancer, in order to verify their income?
Answer 7: I would check with AOA’s regional manager, as to the tenant credit check program AOA offers. An independent contractor is a more challenging credit check than an employed applicant, as the employee can provide his or her W-2 to confirm their income the length of employment can be verified by the employer. But self-employed persons file state and federal tax forms, which should reveal at least their most recent verified income statement. If the applicant is unable to verify sufficient income, and establish to some reasonable degree of certainty their gainful employment history, that would presumably constitute a sufficient basis to deny the application.
ALERTS AND UPDATES: As every member knows, what is written today may be subject to change tomorrow in the current crisis environment. AOA is committed to providing members with current updates via emails, and to the extent any of the responses above are affected by subsequent changes to the applicable laws I will strive to provide an update, in next month’s column. Until then, good luck to all, ‘practice the five,’ and stay safe.
Richard Beckman, of Beckman Feller & Chang P.C., has been practicing landlord-tenant law for over 26 years, primarily in rent-controlled jurisdictions such as San Francisco, Oakland and Berkeley. He represents clients in a broad range of real estate-related disputes, including partition of co-ownership interests, purchase contract disputes, insurance coverage analysis and land use. Mr. Beckman also specializes in all aspects of landlord-tenant issues, representing landlords and tenants in residential and commercial matters. He can be reached at 510-548-7474; email [email protected] or by visiting the website www.bfc-legal.com.