New law goes into effect July 1st requiring landlords to offer the ability for low-income tenants to improve the renter’s credit by reporting a positive rent payment history
As of July 1, 2021, Senate Bill 1157 will mandate that a landlord of an “assisted housing development” give tenants the option of having dutifully paid rents reported to a credit reporting agency.
The whole idea, of course, is to build the credit of low-income tenants and give them upward mobility by making a favorable notation that they are dutifully paying rent.
This raises the question of what an “assisted housing development” is and whether landlords are subjected to the law. The easy answer is a multifamily rental housing development where tenants receive government assistance, and certainly, Section 8 housing meets that criteria. Yet there is a whole alphabet soup of programs that would impose additional responsibilities on landlords. We would have to turn to Section 65863.10 of the Government Code to spell out all of them.
We have to compartmentalize tenancies that began after July 1, 2021, and those leases that were inked prior to that date
For any tenancies that begin after July 21, 2021, tenants must be offered the option of rent reporting at the time the lease is commenced. For tenancies that pre-existed before this date, the landlord must make the offer of having his or her payments reported to a credit reporting agency by October 1, 2021. Assuming the tenant is on board with this program, he or she will pay a negligible fee to absorb the costs.
Of course, the new law dictates a pretty rigorous set of notices that Bornstein Law can prepare.
Who is exempt? Here's where it gets interesting
The law does not apply to any landlord of an assisted housing development with 15 or fewer units unless both two boxes are checked.
One, the landlord owns more than one assisted housing developments, regardless of the number of units in each of those developments. Two, the landlord is other than a natural person. This is of no surprise given the antipathy towards big or sophisticated landlords. We're talking about corporations, real estate investment trusts, or LLCs in which at least one member is a corporation. These entities are pariahs, deemed to be “greed-fueled speculators" by lawmakers.
Credit reporting of rents are optional and the tenant can stop it at any time
Should the tenant opt into this new regime, they are allowed to do an about-face and opt-out with written notice to the landlord, with one caveat: they cannot elect back into rent reporting again for at least six months.
Our soliloquy
It’s hard to argue against giving tenants the opportunity to improve their credit. We are all for giving renters upward mobility and enjoy the benefits that come with a higher credit score. Yet we have other reservations with the bill.
The first one that comes to mind is that landlords already tasked with complying with new laws are now mandated with even more notice requirements, even being told to furnish a self-addressed stamped envelope to the tenant in an assisted housing development.
Rental housing properties do have obligations to provide safe, secure, and sanitary dwellings. They have the further responsibility to document certain aspects of their business, serve notices, and so forth. But the paperwork, notices, and outreach have become excessive, in our view. Unsuspecting rental property owners have been cast into other roles they never sought or anticipated when deciding to play landlord.
We can’t help but draw a parallel with the requirement that landlords show that they have educated tenants on the availability of statewide rental assistance in order to recover the full amount of rent owed in small claims court. That’s right - the landlord has to put on the hat of a social worker by ensuring the renter is aware of the help available by state and local governments and that these rental assistance programs have been availed.
So what we are seeing is an evolving job description of a landlord
Landlords are not only in the business of housing. They have increasingly been obligated to be educators, social workers, and now, credit counselors.
A lack of accountability?
SB 1157 gives tenants the opportunity to benefit from making steady rent payments, but they can elect to stop volunteering their rental payment history at any time. This means they can reap the rewards of paying rent and avoid the consequences of missing rent payments. It would have been better in our view if, once enrolled, there was no option to opt-out of the program and this would have been a deterrent to gaming the system.
Another chapter in a long concealment of rental risks
Increasingly, landlords have been blinded to blemishes on a rental applicant’s credit, eviction, and criminal history. Enter the pandemic and certain COVID-related debt is off-limits when it comes to credit reporting. There seems to be a culture of amnesty and second chances and don’t get us wrong - we are all about second chances and we don’t believe that the past necessarily equals the future.
We also believe that landlords and property managers should have all of the data points they need to make informed decisions when evaluating the suitableness of a tenancy.