Surreal Estate

Rent Between the Lines

written by Justin A. Goodman

The COVID-19 pandemic has been an interesting study in public health and market regulations.

When I titled this column “Surreal Estate,” I meant to playfully evoke some of the unusual laws and market strategies that emerge in one of the nation’s hottest—and most heavily regulated—residential rental markets. I didn’t anticipate a wave of COVID-19 laws, regulations, proclamations and emergency orders that made the head of every San Francisco rental law practitioner spin. We’ve never had to adapt so quickly.

Thanks to some bold choices by Governor Newsom, Mayor Breed, and Presiding Judge Wong, San Francisco has weathered this relatively well. “Flattening the curve” never meant “obliterating the problem”—it only meant that we were marshalling our resources to serve our most vulnerable, while keeping as many of us as safe as possible for what comes next.

In the meantime, your faithful SFAA-affiliated attorneys have been working overtime, undaunted, to keep you ahead of the changes in law. Shelter-in-place doesn’t stop Dave Wasserman from leading virtual legal Q&A panels via Zoom. And these updates are more important than ever. While tenants’ obligations are suspended, landlords’ violation of tenant protection laws are not—the standard is high.

My last column was about how lawmakers could regulate timing and procedure to control substance. But emergency powers collapse timing to a singularity. This column looks at the propriety of rulemaking that exists outside normal space and time.

Of course, space and time mean nothing to you now. Your weekends are weekdays are weekends. Your cellphone eliminated your office hours. Your alarm is incessantly snoozable. Zoom “locates” you to the destination of your choosing… which is probably not in front of the pile of laundry on top of your unmade bed. Your Schrödinger’s kids are simultaneously in school and out of school. To tell this story, I need to take you back to the time just before it was always five o’clock everywhere.

Normal time existed until Gov. Newsom declared a state of emergency on March 4. The declaration initiates anti-price-gouging regulations, which prevent increasing rental housing prices above 10% for 30 days. (Some have waited patiently to serve Costa-Hawkins increases since last year’s statewide fires, only to watch them collide with the Penal Code again.)

Gov. Newsom supplemented his declaration on March 16, to invite local moratoria on non-payment evictions and to extend the eviction prohibitions through May 31. On March 27, he extended the time to respond to non-payment evictions by 60 days, and suspended enforcement of writs of possession in eviction cases through May 31. Significantly, he allowed local governments to extend their state of emergency declarations indefinitely, without legislative renewal.

Usually, the local health officer declares the emergency, and the Board of Supervisors has the authority to revisit and extend the declaration. The difference here is a political one. Instead of making findings to affirmatively renew a declaration, the Board of Supervisors now had to vote to end it. Efficiency is anathema to separation of powers, but at least all the same decision makers were involved. But San Francisco lawmakers now had the go-ahead to enact laws under the “emergency ordinances” section of the San Francisco Charter. Emergency ordinances require only one reading by the Board of Supervisors (instead of two), and they take effect immediately (instead of 30 days after passage).

Meanwhile, the California Judiciary took extraordinary steps to safeguard its litigants and its staff. Chief Justice Cantil-Sakauye authorized, and Presiding Judge Wong adopted, a stay of all unlawful detainers through June 19. Court holidays applied to other cases through June 1.

This patchwork still allowed evictions based on violence, threats of violence, or health and safety issues to go forward, until the Judicial Council of California (the rulemaking arm of the judicial branch) ordered several critical changes, preventing defaults, extending unlawful detainer trial setting, and withholding summonses for evictions other than those “necessary to protect public health and safety.” (A summons is a command for the defendant to submit to a court’s jurisdiction. Without it, a lawsuit can be filed but not prosecuted.)

Over the weeks these laws were passed, it was a part-time job just keeping up with what they said. We now have a bit of space to consider whether they’re enforceable.

The California Emergency Services Act gives extraordinary powers to the various branches at the state and local level. Gov. Newsom may declare a state of emergency with immediate effect. His emergency regulations may extend price gouging rules and suspend statutes. And this was how he implemented the emergency rental regulations: he extended the prohibition on evicting in order to “price-gouge” and he suspended the time a tenant had to respond to a nonpayment-of-rent eviction (generally five days, extended to sixty days during the order).

The Judicial Council rules are less sound. It has constitutional authority to make rules and statutory emergency powers to declare court holidays (like Gov. Newsom did) to prolong the last day for a party to do something. But this is clearly not what the Judicial Council did. The unlawful detainer statutes command that “a summons shall be issued” upon the filing of a complaint; that once a tenant is served with a complaint and does not timely respond, the clerk “shall enter the default of any defendant so served”; and that trial “shall be held not later than the 20th day” after the request. The Judicial Council is prohibited by the Constitution from changing statutes like this, and no emergency powers change that.

The Judicial Council issued these rules because Gov. Newsom invited it to. His March 27 order essentially delegated the power to make “rules” (which the Judicial Council may do) that supersede “statutes” (which even Gov. Newsom can’t do, without the legislature).

Separation of powers shouldn’t be taken lightly. But as a practical matter, these changes only alter timing that the Judicial Council could have regulated anyway. For instance, if the rules extended the time to respond to a complaint, by declaring a term of judicial holidays, the clerk cannot be asked to take the default in the first place. The implementation was wrong, but the result may have been inevitable.

And then there’s San Francisco, which exists in its own universe sometimes. Proposed legislation from Sup. Preston would forever prevent a landlord from evicting a tenant for failure to make a rent payment that came due during the statewide eviction moratorium. SFAA and other trade groups wrote Mayor Breed, questioning what authority San Francisco had to deprive landlords of their state procedural protections to collect unpaid rent via an unlawful detainer. So far, no response.

The city took a more subtle approach to the rate of rent. Mayor Breed signed the ordinance on April 24 with immediate effect. It says that any rent increase imposed from April 7 through the end of the local eviction moratorium is suspended. Foundational cases on rent control require ordinances to allow rental rates to grow with inflation. Ordinances that froze rents were “confiscatory” and invalid. Technically, this is not freezing the rate, only delaying when landlords can expect the increase. It’s still wholly improper,
but it effects tens of dollars at a time when many tenants are demanding outright rent forgiveness. The most troubling part of this legislation is the ante-dating to April 7 (the date it was introduced). Emergency ordinances are effective the day they’re signed, but the Board of Supervisors cannot procedurally time travel.

The retroactivity calls to mind the 1999 “Leno Amendment,” challenged in Danekas v. CCSF. The law eliminated evictions for subletting if the new roommate was a “one-for-one” replacement. The Court of Appeal determined the amendment did not improperly impair contracts, because landlords were on notice of frequent changes in this heavily regulated industry, and because “the ordinance and the regulation have no direct effect on the rent received by the landlord.” Applying that reasoning here, landlords of course wouldn’t be surprised to see this regulation, but it certainly affects the rent they receive.

Then there’s Mayor Breed’s eviction moratorium, which achieves its substantive eviction defense goals through time-dilation. It is well-settled that cities may regulate the substantive grounds for evictions, but they may not regulate the procedural protections of the state law unlawful detainer statutes, which control the timing of three-day fault-based notices or sixty-day non-fault notices, followed immediately by a lawsuit.

SFAA recently litigated this issue, challenging San Francisco’s “educator” defense to non-fault evictions. The law prevents a notice from expiring during a school term, if the household has a minor child or an educator.

The Court of Appeal noted the “shadowy” line between procedure and substance, likening the educator defense to other “protected tenant” defenses (like age or disability), and deciding the educator defense was substantive. It contrasted this result with a hypothetical “procedural” regulation, given that “an ordinance limiting the timing of all evictions would appear to be preempted by the unlawful detainer statutes.”

This year, the fall term commences on August 17. But the moratorium is a defense for eviction notices that expire before August 30. This well-meaning law wants to create an eviction defense for San Francisco citizens, all of whom are presumed to be sheltering-in-place because of COVID-19. Indeed, the city would characterize this as a substantive defense for a new class of susceptible people. Shadowy though the line may be, it is difficult to characterize this regulation as substantive when it now prevents owners from recovering their property for all of 2020, if their tenant happens to have a child or educate one.

The pandemic has been an interesting project in public health and market regulations. Our industry has patiently partnered with regulators and tenants to work together to get through this. It will be interesting to see how the courts interpret these unprecedented changes in law. For now, we hope you are staying safe and sane.

Justin A. Goodman is with Zacks, Freedman & Patterson, P.C. and can be reached at 415-956-8100.