Simply Multifamily Episode 1: AB 3088 Update for Apartment Property Owners
Updated: Oct 5, 2021
Join us for a discussion between attorney Anthony Marinaccio of Marinaccio Law and Kiran Dhillon, Broker-Associate at KW Commercial regarding AB 3088's requirements for California apartment owners, how this new law intersects with local eviction moratoriums, and best practices for owners.
Kiran Dhillon (00:03):
Hi, everyone. Welcome to the very first installment of this series, which is called Simply Multifamily. My name is Kiran Dhillon and I am a Broker-Associate with Keller Williams Commercial and I specialize in representing buyers and sellers of multifamily properties. The purpose of this series is to highlight issues that affect owners of multifamily properties, via market updates, investment insights, and interviews with trusted professionals. Today, we're going to be talking about a very timely issue of eviction moratoriums in California. This is a very delicate issue, and I'm very sensitive to the financial struggles of landlords and tenants who are facing hardship during these unprecedented times. My hope is that today's update can really help to provide clarity and a path forward. So today's guest is Anthony Marinaccio of Marinaccio Law located in Glendale, California. Welcome Anthony. Thank you so much for being here today.
Anthony Marinaccio (01:02):
Hi Kiran, thanks for having me.
Kiran Dhillon (01:04):
Of course! So, let's just start off with a little bit of background on the type of law you practice and how that might be useful for owners of multifamily properties.
Anthony Marinaccio (01:13):
So my law firm handles evictions. We handle evictions from the beginning to the end, meaning we handle notices, serving them notices, preparing notices along with the unlawful detainer process. We also handle general real estate litigation, property line disputes, partnership disputes, and general title disputes.
Kiran Dhillon (01:34):
Perfect. That should be very in line for a lot of our listeners. So earlier in March, there was a flurry of activity when it came to eviction moratoriums, we were seeing moratoriums at the federal, state, county, local/city levels. And it seemed like just as everyone in this community was kind of getting a handle on what they all meant -- now everything's been turned topsy turvy, and we have a new series of eviction moratoriums again at the federal, state, and in some instances, county and city levels. So let's just go ahead and start with the federal level. So there's a new CDC Order that is instituting a temporary halt in residential evictions. What can you tell us about that Order?
Anthony Marinaccio (02:20):
So the CDC Order, although there's a lot said about it, it actually doesn't apply in California because California does have a little more stringent protections. So, really would not apply to almost any landlord in the state of California. That being said, it does apply to residential tenants who are unable to pay rent during this time. And that have a COVID-19 related a hardship.
Kiran Dhillon (02:48):
Got it. So, would it be fair to say that for California landlords, it's kind of okay to put a pin in the federal eviction moratorium and focus more on state and local legislation.
Anthony Marinaccio (03:01):
At this point? Yes. It would not apply to them.
Kiran Dhillon (03:03):
Got it. Okay. So let's move on to California. So we have a new law called the Tenant, Homeowner and Small Landlord Relief and Stabilization Act of 2020. It's commonly referred to as AB 3088. Why don't you go ahead and give us an overview of that?
Anthony Marinaccio (03:20):
Sure. It creates a somewhat different system than we were used to before regarding non-payment cases. It's important to note that it applies to all residential housing in California, including apartment buildings, single family dwellings, condominiums, ADUs, and mobile homes. It creates basically three time periods. One is pre-COVID, which is before March 1st, 2020. It creates a second period between March and August 31st of 2020. And finally a third period from September 1st, 2020 until January 31st, 2021. Specifically, for the period before COVID -- March of 2020, if a tenant owes rent from that period, a landlord can commence any unlawful detainer after October 5th of 2020. For rent essentially from March until August 31st, a landlord would be required to serve a 15-Day Notice and a Declaration that basically would require the tenant to state that the tenant is facing a COVID-19 financial hardship. If the tenant within those 15 days -- and it's important to know that those 15 days are 15 business days, not including weekends or judicial holidays -- if the tenant returns a Declaration of hardship, the tenant, although he owes the rent from March to August, the tenant cannot be evicted. The tenant cannot be evicted for the rent that is owed between March and August, if he does prepare that Declaration under penalty of perjury. The final period is this Transitional Period from September 1st to January 31st, 2021. During that time, if rent is owed, a landlord still has to serve the same 15-Day Notice and a Declaration. The tenant has to return the Declaration and pay at least 25% of the rent that is owed before January 31st, 2021. If he returns the Declaration and pays the 25% of the rent that is owed, the tenant cannot be evicted for rent that is owed during that period.
Anthony Marinaccio (05:56):
It's important to note that AB 3088 did not waive or release any tenant obligation to pay rent. As you may have noticed that I said the tenant cannot get evicted for the rent. However, our landlord will be able to collect using the small claims court for any rent that is owed between March and January 31st, 2021. And a landlord can file that action anytime after March of 2021. And it's important to note that there is no jurisdictional limit in small claims court when it comes to COVID-19 rent, meaning that even if the amount is more than $10,000, which generally would mean that you'd have to go to a different court than small claims, a landlord can still be in small claims, no matter the amount.
Kiran Dhillon (06:51):
Got it. So if there's a situation where during this last time period that you're talking about, which I think is referred to as the Transitional Time Period, if a landlord has a tenant that's paying that 25% every month, the landlord has to wait to start recovery on the remaining 75% until did you say, March 2021?
Anthony Marinaccio (07:12):
Kiran Dhillon (07:12):
Got it. And then there was also something about a slightly different requirement for high-income tenants. Is that right?
Anthony Marinaccio (07:21):
Correct. There is one exception. So a tenant that returns a Declaration to a landlord does not have to provide proof of the loss of income or the financial hardship, except for certain high-income tenants. High-income tenants would be considered anyone that makes more than a hundred thousand dollars a year or 130% of the median income for the county. Now it's important to note that a landlord, the only way a landlord would probably know that that person is making more than a hundred thousand dollars would be based on the application that they may have submitted when they rented the unit or some other information. A landlord has to have a reasonable basis to know that the tenant may be making more than a hundred thousand dollars a year.
Kiran Dhillon (08:11):
Got it. Would it be kind of a sticky or a gray area if a landlord thought this might be a high income tenant and they try to do something to gather that information now? What are your thoughts on that?
Anthony Marinaccio (08:26):
So if the landlord does not have any reason to believe the person is making more than a hundred thousand dollars a year, I would highly recommend a landlord not require financial documentation. However, for example, I've had some calls already, if the rent is for example, six or seven thousand dollars a month, there's probably a high likelihood that that person -- just common sense says that they should be making more than a hundred thousand dollars a year. I would also base it generally on the application of the tenant when they moved in at the time.
Kiran Dhillon (09:00):
Got it. So, just practically speaking, if we want to break it down and make it easy for landlords: If they have a tenant who's not paying rent, let's say currently, right now we're in the third period, what are the steps that they need to take in order to protect their right to later collect the rent or proceed with an eviction?
Anthony Marinaccio (09:23):
So a landlord needs to provide certain notices before September 30th first, if the tenant has not paid rent prior to this time -- so, anytime between March and August. It's also very important for all landlords to keep very good accounting records of what has been collected and what is owed. I generally think that the way to figure out what is owed is, and I know some landlords do this differently where for example, if rent is paid today, that's technically September's rent, but technically it should always be paid to the last month that's owed. So, if a tenant hasn't paid since March and they finally paid this month (September 2020), technically they've paid March's rent, not September's rent, but very good accounting, particularly if a landlord is receiving partial payments. And I've been hearing a lot of landlords who are also forgiving parts of the rent or, you know, for partial payments, or for example, if the rent is $3,000, they say, if you pay off all of it, I'll accept $2,500 right now, for example. The best thing to do in those cases is put it in writing. I also think that writing, although writing can even mean a text message, I generally think a short statement on a piece of paper would be the best way to avoid confusion later as to what is owed and what is not owed. Currently right now, most landlords are unable to collect late fees. And I think, late fees do generally create other issues in an unlawful detainer, so it's best to try to figure out what is owed without figuring out late fees or penalties of any type.
Kiran Dhillon (11:08):
Okay, that brings up a good point: under AB 3088 are landlords even permitted to collect late fees or other kinds of fees or assessments?
Anthony Marinaccio (11:17):
No, they are not.
Kiran Dhillon (11:19):
And you kind of also briefly touched on this under AB 3088, essentially, if the tenant fills out the Declaration, they're paying 25% of the rent, the remaining 75% turns into consumer debt because the landlord has to go to small claims court to get it.
Anthony Marinaccio (11:40):
Kiran Dhillon (11:40):
So what are your thoughts in terms of the likelihood of landlords ever, actually being able to recover that?
Anthony Marinaccio (11:50):
That would be on a case by case basis. It really depends on the tenant and the financial wherewithal. If anyone has received a money judgement for rent that is owed, oftentimes landlords do have some difficulties actually collecting it. The only interesting issue that this is going to create is that hypothetically you can have a landlord who has sued a tenant that is currently living in a unit for a money judgment, as opposed to usually it happens after the tenant has moved out. So hypothetically we could be in a situation where a tenant is still living in the unit, and now the landlord holds a money judgment against that tenant while the tenant is actually, maybe even continuing to pay rent later in the next year. So that, that could cause another issue with collections. That's why it's very important for a landlord to keep very good accounting records right now, and a very clear record of what is owed and what has been paid.
Kiran Dhillon (12:47):
Absolutely. I also heard that there was an extension of the LA County eviction moratorium up through October 31st. And that seems a little confusing considering we have AB 3088 also. So, do you have any thoughts on how those two intersect?
Anthony Marinaccio (13:05):
Yeah, so it's important to realize that there's a lot of local jurisdictions that have actually also imposed their own local eviction moratorium. The large ones that have gotten a lot of press are LA County's (eviction moratorium), which applies to every unit in Los Angeles County where there's not another local moratorium. The City of LA's (eviction moratorium) has also received a lot of press recently. Those are the two biggest ones in this area in Southern California. So the local moratorium would actually apply. However, City of LA's (eviction moratorium) created an indefinite payment plan based upon when the State of Emergency was over. AB 3088 actually has now created a timeline where basically even if there is no deadline in the local moratorium as to when rent is owed, the latest that it could be paid is March of 2022.
Anthony Marinaccio (14:06):
And what that does is it creates a cap because in the LA County ordinance, and also, but particularly the City of LA's ordinance, there was no deadline. So hypothetically, the State of Emergency can last another year, and when rent is owed would be a year after that. At this point, there's been created a cap, meaning that a local moratorium cannot extend a payment plan beyond March of 2022. So for example, just to clarify, if you're a landlord in the City of LA or in the County of LA, technically, although AB 3088 does apply to you, the local moratorium actually applies more to you.
Kiran Dhillon (14:48):
Okay, so always go local, or start local, right? But, components of the state law also apply in certain situations or in certain respects.
Anthony Marinaccio (15:04):
Correct. And in that example, it would. However, in the City of LA, currently a landlord still cannot serve a 15-Day Notice because the tenant is not required to show proof, or serve it, or file that Declaration that's required under AB 3088 because the local moratorium does not require it.
Kiran Dhillon (15:28):
And then if we're somewhere in LA County, but outside of the City of LA, landlords should still serve the 15-Day Notice, is that correct?
Anthony Marinaccio (15:40):
No, they actually would not want to serve the 15-Day Notice until the local moratorium terminates because technically right now that moratorium would apply.
Kiran Dhillon (15:53):
Even for the LA County one?
Anthony Marinaccio (15:55):
Correct. It's expected that it should be over October 31st, unless it gets extended.
Kiran Dhillon (16:00):
Got it. That makes sense. And I think that was what I was going to ask you about next, was how do they all intersect? So I think we covered that pretty well. So, I outlined a couple of scenarios that I thought it would be useful to go through. So you mentioned, there are these three distinct time periods: pre-COVID, which is prior to March 1st, 2020. And then we have March 1st, 2020 through August 31st, 2020, which is the Protected Period under AB 3088. And then September 1st through January 31st, 2021, the Transitional Period. Right. Is that correct?
Anthony Marinaccio (16:37):
Kiran Dhillon (16:37):
So, give us a quick recap of, if you had a tenant who stopped paying rent in the Pre-COVID Period versus in the Protected Period, and then in the Transitional Period, when could you start your eviction proceedings against that tenant?
Anthony Marinaccio (16:54):
So if a tenant owed rent prior to March of 2020, you could serve it. You could still serve a Three-Day Notice. And you could commence an action for rent after October 5th, so in a few weeks. If the tenant now owes rent from March through August of 2020, a landlord can serve a 15-Day Notice with a Declaration. And if the tenant does not return the Declaration within 15 days, the landlord can file an eviction for nonpayment. Again, the same thing with the period from September 1st through January 31st, if the tenant does not return the Declaration, a landlord can commence the unlawful detainer after the 15-day period.
Kiran Dhillon (17:45):
Got it. So if the tenant in both of these situations (the Protected Time Period and theTransitional Time Period), the tenant returns the Declaration, and if they're in the Transitional Period, they're paying the 25% rent -- the landlord is kind of just waiting, right?
Anthony Marinaccio (18:03):
Unfortunately, the landlord would have to wait until February 1st. It's also important to note that 25% is not due until January 31st. So technically, even if the tenant does not pay this month's, rent September or October, but returns a Declaration, the tenant is not obligated to pay that 25% until January 31st.
Kiran Dhillon (18:26):
So it would be a cumulative 25% for all of those months.
Anthony Marinaccio (18:31):
It's the cumulative 25% of the entire period.
Kiran Dhillon (18:34):
Okay. So that's a really important distinction. So I feel like maybe a lot of landlords thought that every month that 25% would have to be paid, but that's not the case.
Anthony Marinaccio (18:46):
No, that is not the case.
Kiran Dhillon (18:48):
Okay. Got it. I think we, we kind of touched on this again, but I think it's an important question. So I'll just, ask you again for clarification: If a tenant did not pay rent during that Protected Time Period, somewhere between March and August of this year, but they paid September rent in-full on time. What are the landlord's next steps, especially given that you said, per accounting methods, that should technically go back to whatever the first month that was missed.
Anthony Marinaccio (19:18):
Hypothetically, I would argue that's March's rent that was paid if it was paid today and that tenant hasn't paid since March. And then you would have the period from April through August and then September. So a 15-Day Notice, a Declaration would have to be returned. And if the tenant returns the Declaration, unfortunately the landlord will not be able to evict until January 31st. I think prior to serving any sort of 15-Day Notice, I would encourage all landlords to try to talk to their tenants and try to figure out if there is some sort of payment plan or some sort of partial payment that can be received given the long period that's required of a 15-Day Notice. I don't think a day or two, trying to talk to a tenant is going to make a large delay in any of these issues.
Kiran Dhillon (20:10):
What about the situation where a landlord has a tenant that is paying rent, but they're causing a nuisance or they've breached the lease in some other manner? When would that landlord be able to evict?
Anthony Marinaccio (20:26):
That's a good question. A landlord would be able to evict immediately based on those reasons, if it's a nuisance or a material breach of the lease, a landlord can serve a 3-Day Notice to Quit or a 3-Day Notice to Perform or Quit immediately.
Kiran Dhillon (20:42):
So, the requirements under AB 3088, really only if you're trying to evict for nonpayment in any situation, right?
Anthony Marinaccio (20:52):
Kiran Dhillon (20:52):
And then later on you can figure out if it's COVID or not.
Anthony Marinaccio (20:54):
Correct, for nonpayment.
Kiran Dhillon (20:54):
You also hear stories of these bad apple tenants who are not actually experiencing COVID-related hardship, but they are taking advantage of the situation. They're not paying rent. What advice do you have for landlords in that situation?
Anthony Marinaccio (21:15):
Unfortunately, if a tenant returns that Declaration it's under penalty of perjury, eventually they may have to prove that what they said is true. However, at this point they will not be able to do the eviction or file the eviction until February 1st. That's why I was saying earlier, I would highly encourage most landlords to try to talk to their tenants and see if there is some sort of payment plan or some sort of move out agreement that could come together because the time period is going to be a while.
Kiran Dhillon (21:48):
What about if you have tenants who have been paying rent this whole time, there are no issues. Do you think it's still good for landlords to reach out to those tenants proactively and just check in? Or is it better to not rock the boat there?
Anthony Marinaccio (22:05):
I would say if a landlord has a tenant that is paying rent and not having any issues with the lease or a nuisance, to not rock the boat.
Kiran Dhillon (22:15):
Okay. Go with the flow.
Anthony Marinaccio (22:17):
Kiran Dhillon (22:17):
I imagine there will be a lot of evictions that are filed once the courts do open, first probably on or around October 5th, and then again, early next year. What do you anticipate to be some of the challenges and maybe a timeline in terms of what landlords can expect?
Anthony Marinaccio (22:40):
It's going to be a new environment. In Los Angeles County, we have not started bench trials and they most likely will not be starting until November of 2020. Jury trials will most likely not start until January 2021, meaning that there will be significantly long delays in any unlawful detainer proceeding that is filed. They are still trying to figure out how to handle capacity issues. For anyone who has been in an eviction court in LA County, they tend to be very crowded. And so I think they're going to have to deal with some of those issues. So the time periods are going to be very long. I do expect a lot of these cases also to be litigated pretty heavily, meaning that there will be significant delays.
Kiran Dhillon (23:27):
Do you think that they might have virtual hearings or do you think they will try to, like you said, figure out a way to increase capacity?
Anthony Marinaccio (23:39):
That's that's a good question. There are going to be some issues with that, just because a lot of tenants and landlords are self-represented. I don't think the court has given us an answer on that specific issue. Although some counties are starting trials and they are starting to allow witnesses back in the courthouse, just depends on the county.
Kiran Dhillon (24:03):
In summary, this seems to be an issue where prudent landlords should be keeping up -- it seems like there's a lot of changes day to day, week to week. They should be in touch with people like yourself and researching what they should be doing. So I wanted to kind of end off with, if any of the viewers have questions for you, what's the best way for them to connect with you.
Anthony Marinaccio (24:32):
So the best way to connect with me is by telephone. And my office number is (818) 839-5220. Before we end, I just wanted to add, with regards to AB 3088 and AB 1482, which was the statewide rent control, it's important to note, and I've heard this from a few landlords already, a landlord cannot serve a 60-Day Notice or a 30-Day Notice for no cause on a tenant. And unfortunately AB 3088 also extended that rule to single family dwellings and condominiums. So it's important that a landlord not serve those types of notices where there's no cause. Also a landlord cannot evict right now on expiration of the term of the lease. So if you have a lease that terminates on November 30th, for example, a landlord cannot simply just file the eviction on December 1st, right at the moment.
Kiran Dhillon (25:33):
I think that really highlights the importance of consulting with somebody like you, who's working in this space and you understand how different laws and ordinances intersect and how that affects what decisions need to be made. So I would really urge anyone who has questions and needs assistance with these matters to reach out to Anthony. Is there anything else, Anthony, that you'd like to add?
Anthony Marinaccio (25:59):
Like I said earlier, I always encourage landlords and tenants, if there are issues with payment, try talking to each other first before notices get served. And because I think by talking and listening to each other, most landlord/tenant issues can be resolved.
Kiran Dhillon (26:19):
I think you're absolutely right. Well, thank you so much, Anthony. I really appreciate you taking the time to go over this issue because it's very important and it affects a lot of people. I'll see you again soon and that's pretty much it. Thank you so much!
Anthony Marinaccio (26:36):
Sounds good. Thank you.