Landlords constrained when tenants pay no rent at all

There are a confluence of factors when communicating with cash-strapped tenants and making a strategic decision when it comes to rents, payment plans, and potential rent waivers during states of emergency. We provide a 360-degree view in this two-part series inspired by our recent webinar dedicated to landlording on the other side of COVID.

Throughout the public health crisis, there has been a lot of concern and talk about nonpaying tenants and comparatively little information about good tenants who are worth their weight in gold. The San Francisco Apartment Association recently queried landlords and reports that 97% of tenants are paying all or some of the rent. We don’t know how scientific this poll is, but we have anecdotal evidence of our own that by and large, landlords and tenants are working together to get over this hump.

Before we talk about managing the relationships with the majority of tenants who are paying rent in whole or part, here we will touch on the unfortunate situation of a totally nonperforming unit where there is no rental income at all, either because the tenant is unemployed and has no means to pay, or the rare circumstance of tenants refusing to pay because he or she is emboldened by the eviction moratorium.

Limited options

For those tenants who are not paying any rent, Bornstein Law has few resources at this point. Never in our 25+ years of practicing landlord-tenant law has our firm been so hamstrung with the courts essentially closed. We can still take action in circumstances like arson, narcotics activity in rental units, domestic violence, threats of violence, and other egregious health and safety issues that pose an imminent threat to residents in the building. 

As for less severe offenses like non-payment of rent, subletting, unauthorized pets in the dwelling, and other breaches of the lease, we have nary a solution except to effectuate a vacancy through a tenant surrender of possession agreement, also known as a tenant buyout agreement. Under this arrangement, the landlord dangles money, a rent waiver, or both, in exchange for the tenant voluntarily vacating the premises. 

Is a tenant buyout more attractive today?

Bornstein Law crafts proper and enforcement buyout arrangements on a regular basis. This vehicle may become even more attractive during the pandemic, and the reasons should be apparent. Although eviction moratoriums have prohibited the removal of a tenant for nonpayment of rent, there is no edict in any emergency order that prohibits two private parties from entering into a buyout agreement.

A tenant buyout agreement is one of the last remaining options the landlord has at his or her disposal to transition the tenant out of the unit. Moreover, tenants who have been furloughed from their jobs or who have otherwise experienced financial hardship would seem to be more motivated during these tough times to accept the buyout to get much-needed cash to sustain life and move to greener pastures.

We provide more information on tenant surrender of possession agreements in this whimsical video.

Certain no-fault evictions might also be permitted depending on your jurisdiction

Depending on the locality, owners might be able use an owner move-in eviction or relative move-in eviction (OMI/RMI) to effectuate the vacancy, so long as it is made in good faith and the owner or close relative continually resides in the unit for a specified time.

Owners who want to retire from the landlording business and permanently remove rental units from the market might have the ability to avail themselves of the Ellis Act, but this comes with a host of statutory obligations. 

Other things being equal, you might want a vacant unit rather than a one with a tenant paying no rent

Unless you or a close family member wants to repossess the rental unit for your own use, or you want to leave the landlording business altogether, the only viable option is to have a tenant buyout agreement. We can see little upside for maintaining a tenancy in which the landlord is not receiving any rent whatsoever. 

In certain locales, unpaid back rent cannot be used as a ground for eviction

In San Francisco and Alameda County, tenants who have failed to pay rent when states of emergencies are in full force and effect cannot be evicted for nonpayment of this accrued rent debt but, instead, the landlord has recourse by filing suit in court. The landlord is entitled to deduct from the security deposit if it isn’t already exhausted, but unfortunately, the dollar amount of the security deposit might be inadequate. 

What happens when we return to a semi-state of normalcy? 

Once emergency orders are lifted and current rent (versus back rent accrued during the pandemic) goes unpaid, we revert back to the standard statewide rules surrounding the eviction process and we can certainly serve a 3-day notice to pay rent or quit. 

For the visual types, you can download our signature chart that displays the carefully choreographed steps of eviction. 

During these most bizarre of times, our community must be prepared to accept the reality that some debt may never be recovered. With proper counsel, though, losses can be minimized. In our next article, we will look at considerations when dealing with tenants who are making a diligent effort to pay rent.