The information in the following blog post was provided by our colleagues at the Law Offices of Todd Rothbard.
As the pandemic lingers on, so do the economic challenges facing landlords wrestling with diminished income and loan obligations due to residential tenants who are unable to make rent payments during these COVID times. With most of the rent-forbearance moratoriums across the U.S. already expired, the state of California moved to pass new sweeping legislation on September 1, 2020, extending relief and protection for tenants through January 31, 2021 for those who declare an inability to pay all or part of rent due to a COVID-19 related reason.
Like with most new pieces of legislation, the devil is in the details and there are details aplenty with this new law, titled the COVID-19 Tenant Relief Act (CTRA). We thought this information might help you understand how CTRA will impact tenants and landlords alike. From California Governor Gavin Newsom’s website we have captured some of legislation’s specifics:
Under the legislation, no tenant can be evicted before February 1, 2021 as a result of rent owed due to a COVID-19 related hardship accrued between March 4 – August 31, 2020, if the tenant provides a declaration of hardship according to the legislation’s timelines. For a COVID-19 related hardship that accrues between September 1, 2020 – January 31, 2021, tenants must also pay at least 25 percent of the rent due to avoid eviction.
Tenants are still responsible for paying unpaid amounts to landlords, but those unpaid amounts cannot be the basis for an eviction. Landlords may begin to recover this debt on March 1, 2021, and small claims court jurisdiction is temporarily expanded to allow landlords to recover these amounts. Landlords who do not follow the court evictions process will face increased penalties under the Act.
The legislation also extends anti-foreclosure protections in the Homeowner Bill of Rights to small landlords; provides new accountability and transparency provisions to protect small landlord borrowers who request CARES-compliant forbearance; and provides the borrower who is harmed by a material violation with a cause of action.
Additional legal and financial protections for tenants include:
- Extending the notice period for nonpayment of rent from 3 to 15 days to provide tenant additional time to respond to landlord’s notice to pay rent or quit.
- Requiring landlords to provide hardship declaration forms in a different language if rental agreement was negotiated in a different language.
- Providing tenants a backstop if they have a good reason for failing to return the hardship declaration within 15 days.
- Requiring landlords to provide tenants a notice detailing their rights under the Act.
- Limiting public disclosure of eviction cases involving nonpayment of rent between March 4, 2020 – January 31, 2021.
- Protecting tenants against being evicted for “just cause” if the landlord is shown to be really evicting the tenant for COVID-19-related nonpayment of rent.
Existing local ordinances can generally remain in place until they expire, and future local action cannot undermine this Act’s framework. Nothing in the legislation affects a local jurisdiction’s ability to adopt an ordinance that requires just cause, provided it does not affect rental payments before January 31, 2021.
The author of the CTRA, California Assembly Member, David Chiu, has described the legislation as “a temporary solution meant to provide some level of certainty to renters, modest protections for small landlords and time for the state to determine what additional relief may be needed in the future.”
The bill does not provide any protections for landlords or commercial real estate tenants.
Most tenants can easily qualify for bill’s protections simply by signing a declaration indicating they have been impacted financially due to the COVID-19 pandemic. Those impacts defined within the concept of “COVID-19-related financial distress” include:
- Loss of income
- Increased expenses due to health impacts
- Increased childcare or eldercare responsibilities
Renters with household income over $100,000 may need to provide documentation proving financial loss.
CTRA does not provide protection for landlords from foreclosure, nor does it require lenders to provide landlords forbearance. However, the bill provides some relief for small landlords by extending the protections provided in the current Homeowner’s Bill of Rights. If you are considered a small landlord, you should seek legal council on these specific protections.
We hope this brief overview of the CTRA legislation, also known as AB 3088, has been informative. There are many more details to the bill which you should familiarize yourself with. We encourage you to contact your attorney to learn more, or do not hesitate to give us a call at 866-398-1031.
Our team at First Guardian Group will continue to monitor and report on new legislation that may impact landlords. Feel free to contact us at any time with your questions and we will do our best to provide answers or refer you to others for assistance. You can also schedule some time directly on Paul's calendar, here.
Disclosure: DSTs, like all real estate, have risks, including illiquidity, potential for loss of property value, costs and expenses that could offset the benefits associated with tax deferral, and reduction or elimination of monthly cash flow.
Disclaimer: There is no guarantee that any strategy will be successful or achieve investment objectives. All real estate investments have the potential to lose value during the life of the investments. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please be aware that this material cannot and does not replace the Memorandum and is qualified in its entirety by the Memorandum.
This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. This material contains information that has been obtained from sources believed to be reliable. However, FGG1031, First Guardian Group, LightPath Capital, Inc., and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies, declining market values, potential loss of entire investment principal.
Past performance is not a guarantee of future results: potential cash flow, potential returns, and potential appreciation are not guaranteed in any way and adverse tax consequences can take effect. The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. All financed real estate investments have a potential for foreclosure. Delaware Statutory Trust (DST) investments are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments. Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions. Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits.
IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, you should consult your tax and legal professional for details regarding your situation.
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