Questions answered on small claims court and recovering rent debt accrued during the pandemic
A landlord advocacy group posed a series of questions about small claims court and how to recover rent that goes unpaid during COVID-19. We answer these questions here.
Why do I have to collect past-due rents through Small Claims?
California lawmakers wanted to avoid a tsunami of evictions once the pandemic is over and reasoned that COVID-related rent debt should not be grounds for an unlawful detainer (eviction) action, but instead be classified as “consumer debt.” This means the tenant still owes the money. Small claims court is the proper venue to seek a judgment for this rent debt after lawmakers removed limitations on the type and number of cases that could be heard. Small claims courts can now air out disputes over amounts that exceed $10,000 and plaintiffs can file an unlimited number of cases, whereas, before the new law, landlords could file no more than two actions in a calendar year.
What are the key dates regarding those collections?
Small claims courts will begin hearing cases involving COVID-related rent debt beginning March 1, 2021. If rent payments are missed (in whole or in part) between March 1, 2020 and January 31, 2021, landlords can commence a small claims action against the tenant.
What can I expect when I file in Small Claims Court (timing, delays, etc.)?
Many of your members are probably familiar with small claims courts from past disputes over security deposits, and it’s not all that cumbersome of a process - a one-page document starts the action. Come springtime, we predict that small claims courts will be inundated with cases and we can only hope that personnel and processes can accommodate the increased demand without much delay. What we can recommend as some time-saving advice is that if a landlord has multiple tenants who have an outstanding rent balance, file all of the small claims actions on the same day and get one court date. For instance, if there are eight tenants who have failed to pay COVID-related rent debt, file eight actions at once, rather than having to run back and forth to the courthouse eight times.
What are some things I can do to improve my chances of winning?
Document, document, document. Meticulous bookkeeping has always been critically important in landlording and property management and is all the more vital now. You want to be very clear with a tenant paying partial rent that the money is deferred, not waived. For example, if the rent is $1,000 and the tenant is paying $750, we don’t want you to lower the base rent. Instead, take the $750 and in no uncertain terms inform the tenant that you are carrying a debt that will be pursued later on if it goes unpaid. Put this in writing.
What are some things I can do to improve my chances of collecting?
Even if you get a judgment, whether or not you collect is a matter that is still yet to unfold. Many tenants conscientious of their credit and future ability to apply for loans and so forth, will have the incentive to pay. Other tenants who already have blemishes on their credit will not care so much about another judgment hanging over them.
In terms of sticks and carrots, one option is to file a lawsuit in the Superior Court instead of a small claims court. One drawback to small claims court is that plaintiffs cannot be represented by an attorney, unless the defendant appeals. Not so in Superior Court. It will be more costly at the outset, but another advantage to Superior Court is that attorneys’ fees are recoverable, and this can be a good motivator for tenants to pay the rent debt owed. If the landlord prevails in Superior Court, the tenant will not only be responsible to pay the rent debt accrued during the pandemic; they will also be liable to pay the plaintiff landlord’s attorneys’ fees, which can be substantial.
Are there things I can do now that may prevent the need to go through the Small Claims process?
Now is the time to make smart deals with tenants and hopefully, avoid an appearance in court later on. The landlord certainly has the prerogative to make concessions by waiving part of the rent or lowering the base rate. With rents declining throughout the Bay Area, this may make sense or it may not, depending on the individual circumstances. Suffice it to say, empathy and compromise have been the order of the day.
One option is to engage in an ethical, proper, and enforceable tenant surrender of possession agreement, also known as a tenant buyout agreement. That is, the tenant agrees to voluntarily vacate the unit in exchange for compensation, a rent waiver, or both. More than “cash for keys,” a tenant buyout agreement releases all legal claims that may arise from the tenancy.
Many of your members might find it emotionally painful to fork over money to a tenant who is chronically late or paying no rent at all. To this group, we say that it might be a good investment. Traditionally, when there is a voluntary vacancy, the landlord can raise the rent, and we also know that a vacant property will sell more than a tenant-occupied one. As a general rule of thumb, every additional $1,000 in rent commanded for a unit will translate to an additional $100,000 in selling price. This is especially fortuitous in a rent-controlled jurisdiction. Our offices have been prolific in effectuating tenant buyout agreements, and your members owe it to themselves to consider this as an option.