Title
Adoption of an Urgency Ordinance Amending Uncodified Ordinance No. 3275 to Provide that any Agreement Between a Landlord and a Tenant Concerning Repayment of “Deferred Rent” Must Limit a Landlord’s Remedy for a Tenant’s Breach of the Agreement to Money Damages and, as to a Tenant’s Failure to Pay the Deferred Rent in the Agreement, Expressly Waive the Landlord’s Right to File an Unlawful Detainer Action to Recover Possession of a Tenant’s Rental Unit or for Any Unpaid Rent that was the Subject of the Agreement. (Community Development)
Body
To: Honorable Mayor and Members of the Alameda City Council:
EXECUTIVE SUMMARY
Replacing urgency ordinances adopted on March 17 and April 7, 2020, the City Council on April 21, 2020, adopted an urgency ordinance (Ordinance No. 3275) that provides a comprehensive set of protections for residential and commercial tenants, as well as residential homeowners and commercial property owners, impacted financially by the COVID-19 pandemic. The Ordinance provides tenants with an affirmative defense in an unlawful detainer (eviction) proceeding to terminate a tenancy during the local emergency if the grounds for terminating the tenancy is the failure to pay rent and the failure is due to a “Substantial Loss of Income” (as defined in the Ordinance) relating to or resulting from the COVID-19 pandemic. (Property owners whose properties are foreclosed have similar protection from being evicted following foreclosure.) As to any unpaid rent that accrues between March 1, 2020, and 30 days after the City of Alameda (City) rescinds the local emergency, Ordinance No. 3275 has been amended (assuming the City Council adopts the amendment on September 1), such that a tenant has 395 days (a year and 30 days after the City Council rescinds the local emergency) before the affirmative defense is lost.
Some tenants, however, may find it financially difficult to repay the full amount of the deferred rent, whether within the 13-month period or thereafter. Because of that, at its July 21 meeting, several City Councilmembers and members of the public raised the concern about what happens if tenants fail to pay deferred rent or if landlords, because of their superior bargaining power, pressure tenants into agreements regarding deferred rent that, for reasons beyond the tenants’ control due to the pandemic and ensuing economic impacts, tenants would not be able to honor. In either case, tenants could then be subject to an eviction action. City Council therefore requested staff to draft an ordinance that would protect a tenant from facing an unlawful detainer action if a landlord and tenant have entered into an agreement concerning deferred rent and/or, in the absence of such an agreement, if a tenant fails to pay deferred rent.
This amendment to Ordinance No. 3275 is an urgency ordinance (to take effect immediately upon its adoption) and will provide that any such agreement must provide that if the tenant is in breach of the agreement, the landlord’s remedy is limited to money damages. The agreement must also expressly waive the landlord’s right to file an unlawful detainer for the tenant’s breach of the agreement. Any agreement entered into after the effective date of this Ordinance that does not so provide is contrary to public policy and is null and void.
Concerning whether a landlord may collect any unpaid deferred rent as consumer debt, staff is not recommending the ordinance include such a provision. See Discussion, Section 2.
BACKGROUND
On April 7, 2020, the City Council adopted an urgency ordinance that established a “moratorium” on residential and commercial evictions for non-payment of rent. The City’s urgency ordinance provides for an affirmative defense to a tenant in an unlawful detainer (eviction) action based on the tenant’s failure to pay rent if the reason for such failure arises out of a tenant’s “Substantial Loss of Income” relating to or resulting from the COVID-19 pandemic. The ordinance does not prohibit a landlord from serving a three- day notice to quit or pay rent nor prohibit a landlord from filing an unlawful detainer (eviction) action if a tenant does not pay rent. Because of the substantive defense, most landlords will recognize that no useful purpose would be served by filing such action, assuming the tenant’s failure to pay rent was based on a Substantial Loss of Income relating to or resulting from the COVID-19 pandemic.
On April 21, 2020, City Council adopted Ordinance No. 3275 that expanded the protections provided by the April 7 ordinance by prohibiting evictions during the local emergency based on owner move-ins or on capital improvement projects, precluding a landlord from applying rent received after the local emergency is rescinded to “deferred rent” unless the tenant says otherwise, and imposing a rent increase freeze for fully regulated rental units for the remainder of 2020.
Because the affirmative defense in Ordinance No. 3275 would have been available to a tenant for only seven months after the declaration of local emergency was rescinded, and because the local emergency was continuing (and remains in place), the City Council introduced an ordinance on July 21, 2020, that increases the length of that affirmative defense to 13 months after the declaration of local emergency is rescinded. It is assumed the City Council will adopt that ordinance on September 1, 2020, and it will be in effect October 1, 2020.
Thirty days after the local emergency is rescinded, however, tenants who were deferring rent must begin paying the monthly rent or else be subject to an unlawful detainer action for which there would not be an affirmative defense under the ordinance. As stated above, tenants would have 13 months to repay the deferred rent. At the end of that 13-month period, if a tenant had not repaid the full amount of the deferred rent, a landlord could then file an unlawful detainer action for which the tenant would no longer have an affirmative defense under the ordinance.
At its July 21, 2020 meeting when the City Council was considering the Ordinance to extend the repayment period of deferred rent from seven months to 395 days, several Councilmembers and members of the public raised the concern that tenants may not be able to pay the deferred rent or be pressured into entering into agreements regarding repayment of rent that, for reasons beyond their control due to the pandemic and ensuing economic impacts, tenants could not honor.
Accordingly, the City Council requested staff to draft an ordinance that where a landlord and tenant have entered into an agreement concerning deferred rent, for example the landlord agrees to accept less than the full amount of the deferred rent or the landlord agrees to a repayment schedule longer than 13 months, the landlord’s remedy for the tenant’s breach of such agreement is limited to money damage and that the landlord must waive any right to file an unlawful detainer action against the tenant if the landlord did not receive the rent as provided in the agreement. City Council also asked whether an ordinance could be adopted that would limit a landlord’s remedy for unpaid deferred rent to consumer debt and preclude a landlord from using the state unlawful detainer statutes to recover rent and evict a tenant.
DISCUSSION
A Landlord’s Remedy for Breach of an Agreement is Limited to Money Damages
The proposed ordinance would provide tenants with assurances that if they did enter into an agreement with their landlords concerning deferred rent and, if for whatever reason, they were unable to satisfy their obligations under that agreement, they would not be displaced through an eviction action. Accordingly, the proposed urgency ordinance provides protection to tenants by requiring that any such agreements limit a landlord’s remedy for breach of the agreement to money damages and expressly waive the landlord’s right to file an unlawful detainer action because the tenant has breached the tenant’s obligations as provided in the agreement. Any such agreement that did not have those provisions is declared contrary to public policy and is therefore deemed null and void.
Staff is recommending the ordinance be adopted as an urgency ordinance to take effect immediately upon its adoption (takes a 4/5 vote). To do otherwise would delay the effective date of the Ordinance until mid-October and any agreements as described in this report between a landlord and tenant would not be required to have the protection that the ordinance provides.
A Landlord’s Remedy for a Tenant’s Failure to Pay Deferred Rent is Limited to Money Damages
City Council has also asked whether the City’s ordinance alone could limit a landlord’s remedy for a tenant’s failure to pay deferred rent to money damages, i.e., consumer debt that could only be collected through a civil action, such as small claims court and not through an unlawful detainer action that would permit a landlord not only to obtain a money judgment but, more significantly, evict the tenant from a rental unit. The City Attorney’s Office has provided the City Council with a confidential memo concerning its legal analysis of this request. This Staff Report is not recommending adoption of such an ordinance but, as an alternative, City Council could provide direction to staff to prepare such an ordinance (see below, third bullet).
ALTERNATIVES
• Adopt an urgency ordinance as described above to ensure that tenants who enter into an agreement with their landlords for deferred rent will not be subject to eviction if they are unable to honor the agreement for any reason.
• Provide direction to staff to modify the urgency ordinance
• Provide direction to staff to prepare an ordinance to limit a landlord’s remedy to money damages if a tenant fails to pay deferred rent in all circumstances related to the COVID emergency.
• Decline to adopt the ordinance.
FINANCIAL IMPACT
There is no impact to the General Fund by this proposed amendment to Ordinance No. 3275. Tenants and landlords will rely on the amendment in crafting agreements concerning deferred rent and therefore there will be minimal staff time associated with implementing the amendment.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The amendment is proposed and drafted under the City’s general police powers, Section 3-12 of the Charter of the City of Alameda, Article XI of the State Constitution and Government Code, section 36937.
ENVIRONMENTAL REVIEW
Introduction and eventual adoption of the Ordinance is exempt from review under the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines, Section 15378 (b) [not a project] and Section 15061 (b)(3) [no significant environmental impact].
RECOMMENDATION
Adopt an urgency Ordinance amending uncodified Ordinance No. 3275 to provide that any agreement between a landlord and a tenant concerning repayment of “deferred rent” must limit a landlord’s remedy for a tenant’s breach of the agreement to money damages and, as to a tenant’s failure to pay the deferred rent in the agreement, expressly waive the landlord’s right to file an unlawful detainer action to recover possession of a tenant’s rental unit or for any unpaid rent that was the subject of the agreement.
CITY MANAGER RECOMMENDATION
The City Manager defers to the Community Development Director and City Attorney’s office recommendation.
Respectfully Submitted By:
Debbie Potter, Community Development Director
Michael Roush, Chief Assistant City Attorney
Financial Impact section reviewed:
Nancy Bronstein, Interim Finance Director
cc: Eric Levitt, City Manager