On January 29, 2021, Governor Newsom approved SB-91, a critical new law with far-reaching implications for landlords and tenants. The legislation extended the existing broad eviction moratorium for most residential tenants who have been financially impacted by COVID-19, imposed just cause eviction protections on nearly all residential tenancies in the State, created new procedures for lawsuits and small claims actions to recover rent debt, and required landlords to provide their tenants written notices containing certain required information.
But arguably the most important aspect of SB-91 is the creation of a new and unprecedented rent relief options for landlords and tenants.
Even before the pandemic, many California households were having difficulty affording the State’s seemingly inexorably rising cost of living. The unprecedented lockdowns imposed to limit the spread of COVID-19 have put household finances under further stress. According to a report released in January, 2021 by the Bay Area Equity Atlas, which tracks county- and state-level data, about 1.1 million California households fell behind on their rent (amounting to almost 20 percent of all renter households), with an average rent debt per householding reaching $3,400 and total outstanding rent debt hitting $3.7 billion.
While nothing in SB-91 relieves a tenant of liability for unpaid rent, many landlords are asking themselves whether their tenants will realistically ever be able to repay large accumulated back rent. Experienced landlords know that once a tenant falls badly behind on rent, it is difficult for them to ever make up the lost ground. Many tenants with large arrearages may simply choose to move out when the eviction moratorium is lifted, leaving the landlord in a position to have to chase down their former tenant and proceed through slow civil litigation system to obtain a judgment which may not be collectible in practice. Meanwhile, policy makers have asked themselves whether the eventual lifting of eviction moratorium would result in a catastrophic wave of mass evictions.
The ticking time bomb of back rent set up a policy debate that ultimately resulted in SB-91’s Rental Assistance Program.
Under the program, landlords and tenants can apply to have the State pay up to 80% of unpaid back rent owed from April 1, 2020, through March 31, 2021, in exchange for the landlord agreeing to forgive the remaining 20% for that period.
The program is not available to everyone. The tenants’ household income must be at or below 80% of the Area Median Income. Priority will go to households with incomes at or below 50% of Area Median Income or households unemployed within the last 3 months.
Landlords will need tenant cooperation to apply for the subsidy, while tenants are able to apply with or without their landlord’s cooperation. If a landlord chooses not to participate, the tenant can still apply for relief valued at 25 percent of unpaid back rent they owe for the period from April 1, 2020, through March 31, 2021. Some tenants will also be able to apply for a subsidy to cover 25% of the prospective rent for April, May, and June of 2021.
Before applying, landlords should collect and make copies of several required documents:
- Property Deed
- Mortgage Note
- Property Tax Statement
- Copy of Property Insurance Statement
- Lease or rental agreement reflecting renter’s name, residence address, and monthly rent due.
The program began accepting applications on March 15, 2021. While there is currently no announced deadline to apply, funds are limited – $2.6 billion has been set aside for roughly $3.7 billion in outstanding debt. There is no guarantee everyone who applies will receive the subsidy. First priority will be given to tenants earning up to 50% of area median income, and second priority to residents of communities disproportionately impacted by the pandemic. The remaining qualified applicants will receive their subsidy only after the first two groups are paid out. Therefore, it is critical that any landlord interested in taking advantage of this program put in their application as soon as possible, especially if the tenants fall within the priority groups that will be paid out first.
Most people will have to apply directly from the State. A few cities will be administering the program directly.
There is no legal requirement that landlords take advantage of this program, but for those with qualified tenants that have accumulated a large arrearage, this may be their best chance of ever recouping financial losses from the pandemic.
If you have any questions or need assistance applying for the Rental Assistance Program, do not hesitate to contact your OMLO attorney.