On August 12, 2020, the California Assembly Judiciary Committee moved California Senate Bill 1410 forward to the Appropriations committee. SB1410 incentivizes landlords and tenants to enter “tenant-owner COVID-19 eviction relief agreements.” Those relief agreements:
1. Allow landlords (with an exception for the destruction of property and health and safety threats) to agree to the following:
a. Defer a specified amount of rent due during the COVID-19
pandemic (and an unspecified period thereafter)
b. Not serve tenant a notice to terminate tenancy (eviction notice)
c. Not file a complaint or take further action for unlawful detainer
d. Not request sheriff to execute a write of possession (removal).
2. Require tenants to sign an agreement to repay all or a portion of the deferred rent amount to the State of California (depending on income from tax returns) starting in the tax year 2024.
3. Requires landlord to execute eviction relief agreements for all tenants that rent units in the building or location. In the alternative, if the tenant rejects the offer, the landlord obtains an acknowledgment of rejection from the tenant.
The State, in this scenario, collects money directly from the tenant through State tax return withholdings beginning in 2024 in exchange for providing the landlord a personal income and corporate tax credit that they can use at any point between 2024 and 2034. Additionally, if the landlord is also a small business, the tax credit adjusts upwards by an additional 2%. At the same time, the bill allows for a tenant to apply to the State for a reduction or elimination of rent owed based on their taxable income.
This bill, if passed, would provide a pathway for people to stay in their homes and landlords to recuperate their lost rents during the pandemic. However, for multi-property residential owners who are looking for immediate relief, this bill would not provide such until 2024.
According to the California Rental Housing Association, “as drafted, we anticipate that almost any renter, regardless of ability to pay rent now, would force a housing provider to accept an agreement. The result will be a lack of income to rental housing providers, potentially increasing the likelihood of future foreclosures and reduction in the rental housing stock because of rental housing providers choosing to leave the rental housing industry.”
Of further concern is the unknown fiscal impact that rent reductions and forgiveness will have on the State budget. Proponents will point to the State’s moral imperative to protect its most vulnerable citizens, and the efforts made to offset the costs of the program through a 10-year amortized repayment. As it is drafted, this legislation aims at addressing a major problem on the market for landlords and tenants but needs to provide more detail and structure, and less opportunity for loopholes. One important absence in the bill is the failure to address the impact the bill has on the multi-family landlord/lender relationship. For example, how will State agreements under this program reconcile lenders requiring landlords to collaterally pledge rents to secure the note? Additionally, what considerations are given to landlords that use these agreements to avoid foreclosure with their lenders, some of which have strict cash flow requirements?