Tenant was behind prior to Covid-19

[Kasey Peterson]

Just got my hands on this. I have a handful of clients that were 1-3 months behind prior to the current lockdown, or are just in general late. Mainly commercial leases, but there is one or two residential.

I was going to mail them a late notice with some payment options, to be followed up with a 3 day pay-or-quit if I got no response. With the current situation, I feel I should extend that until after the lockdown ends? I think it might save me from some headache if they go and claim their issues were due to the virus.

What would you guys do in this situation? Pretty new to this, would love some input from you more experienced guys.

[Lawrence Leung]

@Kasey Peterson First off, I am not a lawyer and my comments should not be taken as legal advice. Instead, I want to provide my perspective as a Property Manager in San Francisco based on everything I have been experiencing so far with respect to Covid-19. This is a very challenging and difficult time for many and we as a community must try to empathize and help where and when it makes sense. 

My Understanding:

a) The California statewide eviction moratorium extends to both residential and commercial real estate. Local moratoriums may include more stringent and conservative aspects (i.e. San Francisco).

b) Late fees can never be included in a 3 day notice to pay or quit, instead if the tenant refuses to pay these will need to collected through a judgment in small claims court

c) 3 day notices to pay or quit for either 1) any rent due prior to the moratorium effective date or 2) any rent due after the moratorium date where the Tenant did NOT follow the proper procedure as stated in the moratorium instructions which usually includes a notification of Covid-19 impact to the landlord AND objectively verifiable documentation of the impact can still be issued as a pre-requisite to filing a UD

d) Courts ARE still accepting and processing UD complaints, but it will be a very very long time before you see any closure and resolution as most courthouses are closed due to SIP and once they open back up there will be a flood and backlog of cases.

My Perspective:

a) I want to be optimistic, but my biggest fear is that there will be a glut of lease breakage and refusal to pay deferred rent. It is a very real and distinct possibility that many Tenants will view Covid-19 as an opportunity to not pay rent for 3 to 6+ months and then sacrifice their ethics and decide to break the lease and forgo their security deposit because the numbers makes sense. And sadly, I reluctantly agree that the numbers do make sense especially when considering entering into a new lease with the expected lower rents.

b) if you have Tenants that are already behind in rent pre-Covid-19 I would think they are even more likely to not pay rent later on. In this situation you need to issue a 3 day notice to pay or quit as soon as possible so you can file a UD and take back possession and limit your opportunity loss. Best practice and prospectively, you should always issue a 3 day notice to pay or quit anytime rent is late. This policy and practice ensures that the Tenant understands and maintains compliance with the payment terms of the lease agreement. I do not recommend ever issuing a late notice, as was recommended above, as it doesn't have any teeth. Lease agreements are contractual obligations and the 3 day notice to pay or quit (or for that matter any cure or quit notice) is the best tool you have to effectively manage your property and reduce risk and liability.

c) if instead, you have a good rapport and relationship with your Tenants and believe there is a distinct possibility that they will pay in the future, then they are the type of Tenant you want to keep. You should, if financially possible, see what you can do to help them with a payment plan or forbearance agreement as you suggested originally.

d) it doesn't hurt to include late fees if the Tenant will pay, you just can't force them to pay as I mentioned above. I would still recommend keeping track and accumulating all late fees so that they can be deducted from Security Deposit in the future upon move out.  This is a more guaranteed solution then trying to collect from a small claims court judgment.

P.S. DM me if you need some example letters or example residential and commercial forbearance agreements.