Impact of COVID-19 (SARS-CoV-2) on landlords, tenants, and payment of rent

Updated after Governor Ducey’s Executive Order 2020-14 re: Postponement of Eviction Actions, dated March 24, 2020.

Updated after President Trump signed Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) on March 27, 2020, re: 120-day moratorium on evictions.

Updated after Governor Ducey’s Executive Order 2020-21 re: Prohibiting Small Business Evictions, dated April 7, 2020.

Updated: April 8, 2020

Many of my landlord clients have called or emailed me about the impact of COVID-19 on their rental income (incidentally, COVID-19 is the disease, SARS-CoV-2 is the virus). They want to know if they can and, if so, whether they should serve their tenant with a 5-Day Notice for Nonpayment of Rent (referred to herein as “5-Day Notice“) and then file an eviction action if rent is not subsequently paid by their tenant.

Here are my recommendations based on the current law and my 30+ years of Arizona* landlord-tenant experience. Previously I said landlords lawfully could and should serve a 5-Day Notice on a tenant who does not timely pay rent. THAT IS NO LONGER TRUE.

Landlords and tenants see the impact of this pandemic differently:

  • The landlord wants the rent paid on time.
    • Whether or not the landlord receives rent and/or other income, the landlord (typically) must make loan payments for the rental property.
    • In addition, the landlord must pay all the normal (and perhaps more than normal) expenses for the rental property.
    • The landlord needs the rental income to pay these amounts.
    • The landlord has a legitimate reason to demand payment of the rent on time.
  • The tenant wants to pay the rent on time** and does not want to be evicted (and certainly not right now), but cannot pay the rent because their employer told the tenant/employee to stay home or other pandemic related reason.
    • Some employers are currently paying employees even though the employees are not working (but that will not go on forever). These employees/tenants should be able to pay the rent. So the first question you need to ask your tenant is whether their employer is continuing to pay them even though they are not working.
      • If the tenant says they are being paid, then there is no legitimate reason they cannot pay the rent, BUT YOU STILL CANNOT serve the 5-Day Notice because of the CARES Act. Read more about “Eviction,” below.
      • If the tenant says they are not being paid (and you believe them), then they legitimately cannot pay the rent. I know what you are thinking:
        • Don’t they have any savings? No, they don’t have any savings; that is why they are renting.
        • Can’t they borrow money from somewhere? Unlikely. Would you lend money to anyone right now?
        • If your tenant falls into this category, then read more about “Eviction,” below.
      • If the tenant does not want to give you that information, then that probably means they are being paid, but they still don’t want to pay the rent. I know you want to, but YOU CANNOT serve those types of tenants with a 5-Day Notice. Read more about “Eviction,” below.
    • Some employers will not pay their employees. These employees/tenants have a legitimate reason for not paying the rent. Ordinarily, a tenant’s problem is the tenant’s problem, not the landlord’s problem, and the landlord would simply serve a 5-Day Notice and then evict the tenant. These are extraordinary times and, therefore, landlords need to consider other factors. Read more about “Eviction,” below.
    • Some employers are small businesses and cannot afford to pay employees who are not working. Some of those small businesses will go out of business because of this crisis, which means these employees/tenants aren’t being paid and, in addition, may no longer have a job. Read more about “Eviction,” below.

Governor Ducey’s Executive Order 2020-14 (the “Governor’s Order“) allowed ALL residential landlords to serve a 5-Day Notice for Nonpayment of Rent, file an eviction action in court, and get a judgment, but the Order said Arizona sheriffs and constables could not execute on the Writ of Restitution to physically remove a residential tenant from a residential rental property. In short, “currently” all residential landlords may send any tenant a notice (i.e., a 5-Day Pay or Quit, 10-Day Notice of Material Noncompliance, 30-Notice of Termination of Month-to-Month Tenancy), file an eviction action, and get a judgment, BUT no one (i.e., sheriffs/constables) will execute a Writ of Restitution if the judgment was based solely on nonpayment.

The CARES Act put a 120-day moratorium on evictions for nonpayment for residential properties secured by a “federally backed mortgage loan” (which is broadly defined in the CARES Act). It went even farther by prohibiting: (1) “initiating” an eviction for nonpayment, (2) charging late fees, penalties, or other charges related to nonpayment, and (3) issuing a 30-Day Notice of Termination. In short, “currently,” and for the next 120 days, all residential landlords (with some exceptions) are prohibited from charging late fees, sending a notice to the tenant for late fees, and/or filing an eviction for nonpayment of rent.

  • The CARES Act and the Governor’s Order
    • The CARES Act prohibits residential landlords from sending a 5-Day Notice to Pay or Quit.
    • The CARES Act prohibits residential landlords from filing an eviction based on nonpayment of rent.
    • The CARES Act prohibits residential landlords from giving a month-to-month tenant (who is not paying the rent) a 30-Day Notice of Termination.
      • Note 1: neither the Governor’s Order, nor the CARES Act applies to commercial rental property (at least, not yet). If you have a commercial tenant who is not paying rent (or any other breach of the lease), you can still evict the commercial tenant. But do you want to? See “Eviction,” below. THE FOREGOING IS NO LONGER TRUE.
        • Governor Ducey’s April 7, 2020 Executive Order 2020-21 prohibits: (1) sending an eviction notice, (2) filing an eviction action, or (3) locking a commercial tenant out based on nonpayment of rent if the inability to pay rent is caused by the COVID-19 pandemic. In my view, all commercial landlords should assume nonpayment of rent by a commercial tenant is caused by the COVID-19 pandemic. If a commercial landlord does any of the foregoing prohibited acts and the tenant can prove they could not pay rent — at least in part — because of the pandemic, the landlord is likely to sustain some amount of monetary damages.
      • Note 2: neither the Governor’s Order, nor the CARES Act applies to residential evictions for reasons other than nonpayment, meaning if the tenant has committed a non-monetary breach (e.g., unauthorized pets, unauthorized occupants, threatening landlord, etc.), then the landlord may evict the tenant.
      • Note 3: The CARES Act 120-day moratorium does not apply to residential rental property that are not secured by a “federally backed mortgage loan.” Although it may be difficult to determine whether the loan you have on your rental property is a “federally back mortgage loan,” if you own the property free and clear of any loans, then the moratorium does not apply to you, but the Order still applies to you.
  • EVICTION
    • DON’T SERVE a 5-Day Notice to Pay or Quit (this is a change from my prior recommendation). The Governor’s Order allows a residential landlord to serve a 5-Day Notice to Pay or Quit, but the CARES Act prohibits it.
    • SERVE a “Statement of Account.” A Statement of Account shows amounts due and amounts paid by the tenant. In the description for late fees, the fees will be discussed, but they will be “held in abeyance” until the law allows residential landlords to assess and collect those amounts. At some point in the future, the federal and/or state government may give landlords and/or tenants the right to file a “claim” for amounts landlords did not receive and for amounts tenants couldn’t (or wouldn’t) pay. If you “waive” all or part of the rent or “waive” all or part of the late fees, then when it comes time to file a claim for rent and late fees a landlord did not receive, the government is likely to decline all claims for amounts “waived,” whereas, holding those amounts in abeyance (i.e., a state of temporary suspension) may allow the claim to be paid. I have put a link below with an example that you may edit to suit your circumstances.
    • Based on the current law, here are my recommendations:
      • If the tenant IS being paid even though they are not working, then send a Statement of Account.
      • If the tenant IS NOT being paid even though they are not working, then send a Statement of Account.
      • Serve a new Statement of Account each month. The federal and/or state government may enact legislation that allows people who sustained financial losses as a result of the pandemic to submit a claim for full or partial reimbursement. If that occurs, then the government is likely to insist on documentation of the losses and that you took reasonable measures to avoid the losses. Serving a Statement of Account every month — which shows all or part of the rent and/or late fees being held in abeyance — will document your losses and that you were taking reasonable measures (i.e., everything short of actually evicting the tenant) to avoid the losses. Make sure you include all amounts due (i.e., rent, pet rent {if applicable}, notice fees {if your lease includes a “notice fee” provision},*** and late fees).
    • Do you file the eviction for nonpayment of rent?
      • If the eviction is only for nonpayment, the CARES Act prohibits you from filing the eviction.
      • If the eviction is for a non-monetary breach, you may lawfully file the eviction.
      • Here are some other factors you must consider:
        • The outcome in court is uncertain (actually, that is always true, but the outcome is even more uncertain now). Some judges simply will not issue a judgment against the tenant during these troubling times no mater what the law says and no matter the reason for the eviction.
        • Some judges will issue a judgment against the tenant (provided you have done all the “right things,” i.e., timely served notice, service of the Summons and Complaint, etc.). Assume that to be the case for your eviction. Is that what you want?
          • Will you be able to find a new tenant at this time?
          • If the rental unit is empty, can you make use of that time (e.g., renovate the unit, sell the unit, etc.)?
          • Is there a difference between having an empty rental unit and having a tenant in the rental unit who is not paying the rent?
          • If this tenant cannot pay the rent to you and you evict this tenant, where will that tenant go (e.g., homeless, move-in with a friend or family member)?
          • Will you be able to sleep at night, knowing you evicted this tenant when you know they legitimately could not pay the rent?
        • Maybe the federal government will allow you to file some type of claim to cover the losses you have sustained as a result of the pandemic. If the government allows landlords to file a claim for losses, then will your claim for “some number” of months’ rent be more likely to be paid if you let the tenant stay without paying rent, than if you evicted the tenant and the rental unit just sat empty during those months? I believe the former demonstrates your efforts to “help” during this crisis, whereas the latter does not.
        • After considering the foregoing, you, as the landlord, will need to decide whether you will file an eviction action or not.

 

FREE: COVID-19 – Statement of Account

_____________________________

The following relate to the asterisks above.

* I only know and practice Arizona landlord/tenant law, but much of what follows will likely apply in other states.

** I know some tenants could not care less about not paying the rent on time.

*** If your rental agreement does not include a “notice fee” and/or adequate DAILY late fee provision, then you need a new rental agreement form; Go HERE.

 

THE FOLLOWING NO LONGER APPLIES

The following was published on March 19, 2020 (before the updates discussed above).

Many of my landlord clients have called or emailed me about the impact of COVID-19 on their rental income (incidentally, COVID-19 is the disease, SARS-CoV-2 is the virus). They want to know if they can and, if so, whether they should serve their tenant with a 5-Day Notice for Nonpayment of Rent (referred to herein as “5-Day Notice“) and then file an eviction action if rent is not subsequently paid by their tenant.

Here are my recommendations based on my 30+ years of Arizona* landlord-tenant experience. Let me start by saying that landlords lawfully CAN and SHOULD serve a 5-Day Notice on a tenant who does not timely pay rent, but maybe not for the reasons you think.

Landlords and tenants see the impact of this pandemic differently:

  • The landlord wants the rent paid on time.
    • Whether or not the landlord receives rent and/or other income, the landlord (typically) must make loan payments for the rental property.
    • In addition, the landlord must pay all the normal (and perhaps more than normal) expenses for the rental property.
    • The landlord needs the rental income to pay these amounts.
    • The landlord has a legitimate reason to demand payment of the rent on time.
  • The tenant wants to pay the rent on time** and does not want to be evicted (and certainly not right now), but cannot pay the rent because their employer told the tenant/employee to stay home.
    • Some employers are currently paying employees even though the employees are not working (but that will not go on forever). These employees/tenants should be able to pay the rent. So the first question you need to ask your tenant is whether their employer is continuing to pay them even though they are not working.
      • If the tenant says they are being paid, then there is no legitimate reason they cannot pay the rent. Serve the 5-Day Notice if rent is not paid. Read more about “Eviction,” below.
      • If the tenant says they are not being paid (and you believe them), then they legitimately cannot pay the rent. I know what you are thinking:
        • Don’t they have any savings? No, they don’t have any savings; that is why they are renting.
        • Can’t they borrow money from somewhere? Unlikely. Would you lend money to anyone right now?
        • If your tenant falls into this category, then read more about “Eviction,” below.
      • If the tenant does not want to give you that information, then that probably means they are being paid, but they still don’t want to pay the rent. Serve these tenants with a 5-Day Notice. Read more about “Eviction,” below.
    • Some employers will not pay their employees. These employees/tenants have a legitimate reason for not paying the rent. Ordinarily, a tenant’s problem is the tenant’s problem, not the landlord’s problem, and the landlord would simply serve a 5-Day Notice and then evict the tenant. These are extraordinary times and, therefore, landlords need to consider other factors. Read more about “Eviction,” below.
    • Some employers are small businesses and cannot afford to pay employees who are not working. Some of those small businesses will go out of business because of this crisis, which means these employees/tenants aren’t being paid and, in addition, may no longer have a job. Read more about “Eviction,” below.
  • Eviction
    • Serve a 5-Day Notice – no matter what the circumstances, serve the 5-Day Notice. FREE 5-Day Notice form below!
      • If the tenant IS being paid even though they are not working, then serve the 5-Day Notice.
      • If the tenant IS NOT being paid even though they are not working, then serve the 5-Day Notice. Service of the 5-Day Notice is different than filing an eviction. The notice tells the tenant that you want the rent (which is always the case), but it may compel the tenant to put pressure on the tenant’s employer to pay wages during these trying times and/or the tenant may actually find someone who will loan them some money. The point is: serving the 5-Day Notice on the tenant may compel the tenant to help solve the problem, rather than just throwing their arms in the air and giving up.
      • Serve a new 5-Day Notice each month. The federal government may enact legislation that allows people who sustained financial losses as a result of the pandemic to submit a claim for full or partial reimbursement. If that occurs, then the government is likely to insist on documentation of the losses and that you took reasonable measures to avoid the losses. Serving a new 5-Day Notice every month — with a running total of the amount due — will show the amount of your losses and that you were taking reasonable measures (i.e., everything short of actually evicting the tenant) to avoid the losses. Make sure you include all amounts due (i.e., rent, pet rent {if applicable}, notice fees {if your lease includes a “notice fee” provision},*** and late fees).
    • Do you file the eviction for nonpayment of rent?
      • If the tenant IS being paid even though they are not working and they don’t pay the rent after you serve the 5-Day Notice, then file the eviction action. There is not much more to say about this situation. Judges are unlikely to be sympathetic about this category of tenants and will likely enter a judgment for possession of the rental property in favor of the landlord (i.e., a judgment of eviction).
      • If the tenant IS NOT being paid and they have not paid the rent after you served the 5-Day Notice, then here are the factors you must consider:
        • The outcome in court is uncertain (actually, that is always true, but the outcome is even more uncertain now). Some judges simply will not issue a judgment against the tenant during these troubling times, with the possible exception of tenants who are being paid wages and could pay the rent, but have simply elected not to pay the rent.
        • Some judges will issue a judgment against the tenant (provided you have done all the “right things,” i.e., timely served notice, service of the Summons and Complaint, etc.), but is that what you want?
          • Will you be able to find a new tenant at this time?
          • If the rental unit is empty, can you make use of that time (e.g., renovate the unit, sell the unit, etc.)?
          • Is there a difference between having an empty rental unit and having a tenant in the rental unit who is not paying the rent?
          • If this tenant cannot pay the rent to you and you evict this tenant, where will that tenant go (e.g., homeless, move-in with a friend or family member)?
          • Will you be able to sleep at night, knowing you evicted this tenant when you know they legitimately could not pay the rent?
        • Maybe (and it is a big maybe) the federal government will allow you to file some type of claim to cover the losses you have sustained as a result of the pandemic. If the government allows landlords to file a claim for losses, then will your claim for “some number” of months’ rent be more likely to be paid if you let the tenant stay without paying rent, than if you evicted the tenant and the rental unit just sat empty during those months? I believe the former demonstrates your efforts to “help” during this crisis, whereas the latter does not.
        • After considering the foregoing, you, as the landlord, will need to decide whether you will file an eviction action or not.

 

FREE: Five-Day-Notice-to-Pay-or-Quit

_____________________________

The following relate to the asterisks above.

* I only know and practice Arizona landlord/tenant law, but much of what follows will likely apply in other states.

** I know some tenants could not care less about not paying the rent on time.

*** If your rental agreement does not include a “notice fee” and/or adequate DAILY late fee provision, then you need a new rental agreement form; Go HERE.

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