May 15, 2020

City of L.A.'s New Ordinance Foretells More Trouble for Multifamily Property Owners

Part 1 of 3: Residential Landlords Face a New Type of Tenant Lawsuit
Holland & Knight West Coast Real Estate and Land Use Blog
Andrew J. Starrels
Breaking Ground: West Coast Real Estate and Land Use Blog

The Los Angeles City Council passed an ordinance on May 6, 2020, that dramatically expands the City's eviction moratorium in unprecedented ways. Several weeks ago, the City had instituted prohibitions on evictions of both residential and commercial tenants affected by the COVID-19 crisis. Under its new ordinance, the City expands tenant protections to, among other things, create a private right of action that allows aggrieved residential tenants to bring their own civil lawsuits against landlords.

The new ordinance does the following:

  • It represents an expansion of existing short-term eviction bans that many jurisdictions have consistently enacted — already, no residential or commercial evictions may be conducted during the "local emergency period" when the tenant's default was caused by effects of COVID-19. Removals of residential units from the rental market under the Ellis Act have also been prohibited.
  • It prevents any landlord action for nonpayment or for nuisance violation of occupancy restrictions or unpermitted pets, in cases where the failure is related to the COVID-19 crisis. Landlords are also prohibited from initiating enforcement actions or charging late or default fees during the crisis.
  • It takes the unprecedented step of permitting residential tenants to bring suit against a landlord or managing agent for injunctive relief, direct money damages or other relief, including — at the discretion of the court — an award of a civil penalty up to $10,000 per violation. If the tenant is over age 65, an additional $5,000 per violation could be awarded.
  • It affords residential tenants 12 months (three months under commercial leases) to repay any rent that was not paid during the COVID-19 emergency. Landlords and tenants may work out a payment plan, but the ordinance does not provide for what happens if no agreement is reached.

There will almost certainly be challenges to the ordinance on constitutional "takings" or other process grounds. Note that the interplay of the ordinance with other existing and proposed state laws affecting landlord and tenant rights, rent escalations and other aspects of tenancy is yet to be determined.

Undeniably, the impacts of the pandemic are real and widespread, and the economic shutdown it has triggered has brought real hurt to all aspects of business and society. Multifamily operators, however, say they have seen broader occurrences of rent payment — rather than defaults — in April and May than was originally expected. Despite this, some elected City officials have decried multifamily landlords, accusing them of harassing tenants without articulating how the residents were allegedly harassed nor how prevalent these alleged threats or incidents of abuse actually are. Moreover, the new law offers little comfort for landlords dealing with chronically defaulting tenants, defaults that existed prior to the virus or that are unrelated to the economic crisis.

Under the new restrictions, a landlord seeking to proceed against a tenant for violations of law, impermissible subletting or nonconformity with the provisions of a lease should anticipate having to defend against a civil action from the tenant. Moreover, as we will examine in Part 3 of this series, the amount of damages that a residential tenant may claim against a landlord may, in the cases of most leases in the Los Angeles area, exceed the amount of deferred rent from the COVID-19 crisis that a landlord looks to recover. Multifamily landlords will argue that a lease's prohibitions against unpermitted occupants, nuisances and violations of law, as well as other contractual provisions, have effectively been excised from the lease by the City Council's new ordinance and no longer carry any enforcement power. Similarly, they will argue that the Council has also effectively rewritten each lease to eliminate any late charge provision.

Against this backdrop, some elected officials have sought to go even farther by proposing outright rent forgiveness rather than deferrals or otherwise making it more difficult for landlords to pursue claims for deferred rent. For example, a separately proposed ordinance, which fortunately for multifamily operators failed to pass the City Council, sought to prevent landlords from exercising eviction remedies if tenants fail to repay the deferred amounts after the crisis. The ordinance's sponsors suggested that tenants should not face eviction if they cannot repay the deferrals and that the unpaid amounts should be treated as consumer debt, which could be collected like any other debt through an action in civil court.

In Part 2: The Challenges of Collecting Deferred Rents

In Part 3: A New Regulatory Climate Threatens the Feasibility of Residential Investments and Further Impairs Housing in California

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