I think this is day 30 of SIP and we are hanging in there! In some ways, the novelty has worn off. I’m working harder than ever at keeping my mental state in a great place. The laws, with relation to real estate, seem to be changing hourly, and that has been challenging. But I remind myself that I love a challenge and look for the fun in all of this. When I look at the numbers for the Bay Area, I couldn’t be more proud of what we have accomplished.
You may not know, but real estate is now considered essential in CA and nationwide. Business is anything but back to usual, but there are still quite a few buyers and sellers out there. We have started doing virtual showings, and in some cases, with very strict protocols in place, one-on-one showings can be done. We launched some new properties virtually this week and are excited to see that there continues to be active buyers out there, even in these uncertain times.
We are continuing to do our best to bring some great content right to your inbox. Yesenia, a fantastic buyer’s agent on my team, sat down via Zoom with attorney, Chris Dolan, to chat about the Eviction Moratorium. As of the end of March through the end of May, San Franciscans are not allowed to evict tenants who have been affected by COVID and cannot pay rent. Chris is not only an attorney, but also a commercial and residential landlord, so he was able to share both perspectives pretty clearly. I hope you find this valuable.
Yesenia Rogers: Hi Everyone, I’m Yesenia Rogers with the Ruth Krishnan Team at Compass in San Francisco. I’m here with Chris Dolan, from the Dolan Law Firm, to chat about the COVID-19 Eviction Moratorium and what that means for both landlords and tenants. Before we dive in, Chris, why don’t you go ahead and introduce yourself?
Chris Dolan: I’m Chris Dolan, owner of the Dolan Law Firm in San Francisco. I’ve been practicing law in San Francisco for 27 years, but we also have offices in Oakland and Los Angeles, so I monitor the different laws that apply in those areas, as well. Not only because we have clients in that area, but because I also write on these subjects in order to bring people up to speed. My situation is unique, in that I am both a lawyer and a landlord, so I want to know what my obligations are and what rights I have.
Yesenia Rogers: I hear that if you’ve been affected by COVID-19 in some fashion, that as a tenant you don’t have to pay your rent. Is that true?
Chris Dolan: I think everybody has been affected by COVID-19 in some fashion. What matters is the degree to which you’ve been affected. The answer is no, you simply can never not pay your rent. It’s about when you can pay your rent, whether you’re entitled to defer that or pay it later, and whether you can be evicted for not paying on the usual schedule.
Yesenia Rogers: How long will this last? Is there a time limit on this?
Chris Dolan: The way the proclamations work is that they’re generally set in place for a period of time and then they are renewed, both under the government code. That’s generally what’s required in a state of declaration, so that we don’t stay in a constant state of declaration for an undefined period of time. In his executive order, Governor Newsom has allowed municipalities to either re-issue these declarations or not to re-issue them as necessary, up and through the time of the expiration of his declaration of emergency.
What’s important for both landlords and tenants to know, is that there is a process with which to deal with this. I think it’s extremely important for landlords to understand what their obligations are during this time period, as well as tenants to understand what their rights are.
Yesenia Rogers: As a landlord, I understand that there’s a mortgage forbearance in which you can stall your mortgage with most banks up to 90 days, and some banks up to 30 days, but eventually the landlord has to pay that mortgage. What about the tenant in this situation, do they ever have to pay that rent?
Chris Dolan: What we’ve been seeing is, as the protections for the tenant move a certain way, the protections for the mortgage holders have to move that way too. If not, there is the possibility that because of the law affecting renters, landlords could end up losing their property. The goal behind all of this is to keep people housed.
There’s an important reason why people need to be kept housed. It’s not only for humanitarian reasons, but to reduce the spread of this disease. How can you shelter in place if you don’t have a place?
Yesenia Rogers: Right.
Chris Dolan: San Francisco is a very tenant friendly town and a very pro-housing town (which in itself is not a bad thing), but we know that certain buildings are covered by rent control and certain buildings aren’t. The overarching message is that tenants have protections, and in this case, those protections extend both to commercial and residential tenants, as the result of two different proclamations. Currently, it’s two proclamations, one of which clarified the earlier one.
The commercial eviction process is governed by Mayor Breed’s fourth proclamation, and the current residential one is covered by the fifth proclamation. These can be found on the Mayor’s website. In essence, what the proclamations say is: We’re not going to evict anybody right now. Not only does the ordinance say that, but so do the courts. The San Francisco Superior Court has said they’re not going to be holding any eviction hearings for quite some time. And when they do begin holding them, they’re going to be rolling them out in the order in which they were filed. A landlord doesn’t even have a place to take these cases to right now, so it’s wise for the landlord to look at the ordinance and follow the ordinance, because the ordinance says tenants have to pay within six months of this emergency ending. Tenants have to make up for whatever was missed; the idea is not to give everybody a walk-away. With both rental and mortgage, the idea is to push things back until we get back to some normalcy.
Yesenia Rogers: I feel really lucky to live in a place like San Francisco, where our leaders are stepping into that leadership role and keeping the wellbeing of people in mind. It’s also great to hear that both the landlord and the tenant are being protected in tandem. Can you give a high level overview, pros and cons, of this moratorium for the tenant and for the landlord?
Chris Dolan: I think that’s a great idea. High level– someone’s been affected if they have lost their job, had diminished hours, had someone in their household who they depend upon for support lose their job, have diminished hours, or they have a different economic hardship that’s somehow related to the COVID situation, whether that’s an illness or any other economic impact (which is very broadly defined). For example, given the fact that we have shelter in place orders, people may have to be paying for someone to provide food to their parents that live remotely— that would be an impact from COVID. If there is any impact on the tenant’s ability to pay and the tenant can demonstrate that, if the tenant requests relief, the landlord is entitled to say, “Please provide me with some evidence that this is affecting you.”
This is not designed for people working at Apple remotely, who are making $200,000 a year, to throw the brakes on paying their mortgage. It’s designed for people who are living on a month-to-month paycheck– this is just another aspect of the safety net.
For landlords, the big picture takeaway is that you have to work with your tenants. If landlords fail to work with their tenants, I can see where landlords are going to get sued for failing to follow the emergency declarations. Should these go to trial, there’s a high risk for a landlord that a jury would be very upset by an aggressive stance taken during the COVID epidemic, which may have violated the emergency declarations that required all of those people to stay at home.
Landlords need to know this isn’t a complete shackle. If there is a health and safety issue, a threat of violence or those particular unlawful detainer actions, they can proceed. They are considered by both the declarations and the superior court to be emergency matters that can be handled, but landlords need to be very careful as to what they call a health and safety hazard.
Another thing that goes for both landlords and tenants is that there can be no shutoff of utilities during this time period. For example, if a tenant is paying a fraction of the water or sewer bill, or if you have common electricity that may be shared in some way (which is its own other issue), you can’t shut off anybody’s power, you can’t shut off water, and you can’t shut off internet during this period, because it’s an essential service for people to gain information.
Regarding mortgage protection, the governor negotiated with most of the major banks to get them to cooperate during this time period to have a forbearance, to push back the mortgage payment, and to not report adversely to credit agencies if someone is delinquent on a payment. I would tell landlords to be very cautious and not report a delinquency on a tenant if they have sought protection under the statute. In this case, tenants could sue the landlord for what they call credit defamation, so people need to tread lightly.
The idea is, if the tenants can’t pay and the landlords can’t pay the mortgage, we’re going to move everything back in tandem. However, landlords may have to spread this risk more because at the end of this period, the tenant has six months to make up the amount of delayed rent. It’s not like a landlord will get paid back three months of rent as soon as this is over; there will be a six month period. And the declarations say that the landlord has to act in good faith in terms of coming up with a payment plan.
Good faith is very broadly interpreted and it leaves a lot of room for a court to say, “I don’t think that’s in good faith.” The best thing landlords can do is have an open dialogue, because the tenant has up to 30 days after rent is due to say, “I can’t pay because of COVID.” Then, if you demand it, they have to provide that evidence. And then, that can renew every 30 days up until the time the declaration has been lifted. There is probably going to be a period of time later incorporated, so that there is a grace period for people to get jobs and get the economy started again. But landlords need to do it in writing and they need to appear kind. If a landlord is coming across as a hard-ass, I think they are going to get in trouble later on with the courts.
Yesenia Rogers: Lastly, Chris, do you think there are any unintended consequences for someone who wants to rent to a new tenant? We, in real estate, have heard some stories in which a buyer was recently in contract, did a seller rent-back, and at the end of the term for the seller rent-back (who is now the tenant) said, “I’m not moving out and I’m not paying rent due to this black swan event that is the COVID-19 crisis.” Do you foresee any other complications and different scenarios in which this might be a problem?
Chris Dolan: As a landlord I had to deal with this issue just last week. I had a two bedroom apartment rented to two young men who worked in tech. One of them moved out after the declaration and the other one said to me, “I cannot afford all of the rent on the unit. Would you do a rent reduction?” He said that his friend had to move out to take care of a family member who had been sick. At that point, that is a COVID related issue.
I talked to him and I said, “I’m not going to reduce your rent.” That’s very important because if you reduce the rent, you may be stuck with that lower rent at the end of all this since you adjusted it. What I said is, “I’m willing to engage in good faith negotiations with you. I will forbear a portion of that rent for a period of up to six months. If you find a new roommate within that six months, the rent returns to where it was; but if you don’t, I will give you this forbearance, not a rent decrease. The rent stays the same for six months.”
I knew this ordinance was out there and that I could be hit with a complete lack of payment for months; whereas this gentleman, who was acting in good faith, would be paying me something. If he moved out, I would have this vacant unit to rent out. And there’s so much economic strife right now, people aren’t making moves. I believe it was much smarter to have made the deal, kept the income stream, kept the tenant, had an abatement, and had a reduction not in the rent, but an adjustment on a good faith interaction for the period of six months. Are there unintended consequences? If you give someone a rent reduction and you’re in rent control, you may be stuck with it. So I would be careful not to reduce rent.
If someone moves into a unit to help pay for the rent, you need to be very careful that they don’t become tenants because then you may have unwanted additional tenants. There are certain steps that can be taken (i.e. you don’t take rent from that person) and there are particular ways of indicating that they don’t have tenant rights because this is part of the emergency. You need to be cautious that you don’t create new tenancies, lower rents, or become hamstrung.
The one thing that the San Francisco ordinance didn’t deal with but the ordinance in Berkeley did, is an Ellis Act eviction. It’s one of the exceptions in some of these proclamations. An Ellis Act eviction is an exception because you may have a sick family member who needs a place to live. But the reality is, you’re not going to get that through court any time in the next four to six months, so good luck with an Ellis Act eviction at this particular point.
Yesenia Rogers: For those of us who don’t know what an Ellis Act is, can you share what that is?
Chris Dolan: Sure. An example is: “I’m taking my unit off the market and I am not going to rent it any further for the next five years.” It is basically removing your rent controlled unit from the rental market. You can’t remove it for six months and then re-rent it at a higher price – you have to take it off the market. If you put it back on the market, you have obligations that relate to the prior tenant, such as giving them rights of refusal, similar rents, etc. If you try to get tricky with an Ellis Act eviction it can be very expensive.
Interestingly enough, they did not put in provisions for owner move-in. I guess you can Ellis Act for an owner move-in because you’re taking it off the market, but even that’s in limbo right now because I do not believe that the government’s inclined to displace anyone at this point in time.
Yesenia Rogers: That makes sense. So as a whole: tread lightly, handle situations on a case-by-case basis, keep open communication throughout this whole process, and seek legal counsel if needed.
Chris Dolan: And document everything.
Yesenia Rogers: Document everything, right.
Chris Dolan: Because these ordinances say that notices can be given by email, you have to watch the particular declaration or ordinance to see what is permitted vis-a-vis notice, demand, and communication. The mayor’s fourth and fifth proclamations govern commercial and residential, and you should read them because they’re not that complex. And then, the governor has his overarching ordinance. What that does is it empowers the local jurisdictions to go ahead and create these exceptions and that is executive order N, I believe it is 38-20, that was issued on March 16th. The governor said, “you can do this” and each one of these jurisdictions is doing it. So read them, pay attention, be nice, or I think you’re going to have trouble on both sides.
Yesenia Rogers: Thank you so much, Chris. All of that information was super helpful for both landlords and tenants, and we appreciate your time tonight. Thank you.
Chris Dolan: If anybody wants additional, more specific information, go to our website dolanlawfirm.com where you can read an article that goes into some depth about how the law allows these proclamations and declarations. Within that is a copy that directly relates to the fourth and fifth proclamations of the mayor. Stay tuned because I expect there will be many more proclamations in the future. If you go to the SF Gov site, you can find the page for proclamations, where they’re going to be coming out over the next couple months.
I wish you and all your tenants safety and health, and I hope we all have places to shelter in.