Can I Conduct Lien Sales and Charge Late Fees During the Coronavirus Pandemic?

Joe Doherty posted on 8/25/2020 4:44:00 PM

Lien Sales & Late Fees During the Coronavirus Pandemic

As the coronavirus (Covid 19) has spread throughout the United States, several states and localities have enacted restrictions on foreclosures and evictions. Many of these orders that have been issued to date exclusively cover residential evictions and foreclosures. However, some states have expanded those restrictions to cover commercial or non-residential evictions and foreclosures as well. Some of the commercial / non-residential eviction or foreclosure moratoriums may prevent operators from conducting self storage liens sales, performing overlocks, or imposing late fees.

Although self storage lien sales are not evictions in the usual sense of that word, SSA urges all operators to exercise great caution if they operate in an area covered by a moratorium on commercial or non-residential evictions or foreclosures.

First, self storage lien sales are a form of non-judicial foreclosure. Therefore, an order that imposes a foreclosure moratorium may apply to self storage lien sales. Second, the overall intent of many government restrictions at this time is to keep people at home as much as possible. It arguably frustrates the intent of the orders if a landlord creates a situation that forces a tenant to leave home for a non-essential purpose. Third, the orders are often hastily drafted and vague and do not define the term “eviction”, “foreclosure”, or other key terms in the orders. The overall intent, coupled with the vague wording, indicates that the term “eviction” or “foreclosure” is meant to cover any unilateral action by an operator that terminates a rental agreement. This certainly covers lien sales, even if the primary purpose of a lien sale is to recover unpaid rents.

The sheer volume or orders, especially from local governments, makes it difficult to provide a comprehensive list of jurisdictions that have enacted eviction or foreclosure moratoriums. Additionally, in the interest of space, we did not include local orders that affect only residential evictions or lawsuits filed to evict a tenant.

We intend to update this document frequently to include new orders and previous orders we missed. Please email Daniel Bryant and Joe Doherty if you believe any orders are missing.

California 

• Governor issued an order, issuing a statewide moratorium on residential evictions. 
• Governor also issued an executive order and a subsequent extension that authorizes local governments to pause evictions for residential and commercial tenants. The protection is in effect through September 30, 2020.
• Pursuant to the Governor’s order, tenants are still obligated to pay rent, and landlords can still recover rent that is due. The order only applies to the imposition of limitations on evictions when the basis for the eviction is nonpayment of rent, or a foreclosure, arising out of a substantial decrease in household or business income (including, but not limited to, a substantial decrease in household income caused by layoffs or a reduction in the number of compensable hours of work, or a substantial decrease in business income caused by a reduction in opening hours or consumer  demand), or substantial out-of-pocket medical expenses; and the decrease in household or business income or the out-of-pocket medical expenses was caused by the COVID-19 pandemic, or by any local, state, or federal government response to COVID-19, and is documented.
• In other words, the statewide order limits local governments to protecting tenants that provide a COVID-19 related reason for non-payment. If the tenant does not provide such a reason, a California operator can likely proceed with the lien process against that tenant. However, operators should carefully review the local orders linked to below to determine the exact protections available to tenants in the jurisdictions where the operator does business.
• Commercial evictions and commercial and residential foreclosures are suspended only as set forth by local governments. Some of the local orders provide protections past the statewide date of September 30, 2020. A complete list of California orders can be found here.

Livermore, CA 

• The Director of Emergency Services issued an order stating that “no landlord or lessor shall endeavor to evict a commercial tenant for nonpayment of rent, limit their physical access to personal property or conduct lien sales, including but not limited to any such provisions under.... Business and Professions Code section 21700 et seq., if the tenant or lessee demonstrates that the inability to pay rent is due to, or arising out of, a substantial decrease in business income or substantial out of pocket medical expense, or extraordinary child care needs, any of which was caused by the COVID-19 pandemic, or by any local, state, or federal government response to COVID-19, and is documented in writing.”
• A landlord who knows that a tenant cannot pay some or all of the rent temporarily for the reasons set forth above shall not serve a notice pursuant to . . . Business and Professions Code section 21703 as applicable, . . . conduct a lien sale, or otherwise seek to evict or terminate a rental agreement for nonpayment of rent during the period of the local emergency and while this Order is in place.
• A landlord is presumed to know of a tenant’s inability to pay rent within the meaning of this Order if the tenant or mobile homeowner, within 30 days after the date that rent is due, notifies the landlord in writing of tenant’s inability to pay full rent because of a substantial decrease in business income, or out of pocket medical expenses caused by the COVID-19 pandemic, or extraordinary child care needs, or by any local, state, or federal government response to COVID-19, and provides documentation to support the claim. Any medical or financial information provided to the landlord shall be held in confidence and only used for evaluating the tenant’s claim.
• A landlord is also prohibited from retaliating against a tenant that qualifies for the protections set forth in this order during the term of the moratorium. For example, a landlord, and any of the landlord’s employees or agents, is prohibited from terminating utilities or blocking physical access to personal property to a qualified tenant protected by this moratorium.
• The order remains in effect until September 30.

City of Los Angeles, CA 

• The Los Angeles City Council passed an ordinance requiring self storage owners to defer rent if a tenant is unable to pay for a COVID-related reason and provides documentation to the owner no later than seven days after the rent is due.
• The deferral lasts until three months after the local emergency period.
• The ordinance prohibits late fees on deferred rent.
• The ordinance also requires that owners provide notice of the ordinance to their tenants.
• Owners in Los Angeles are strongly encouraged to consult with legal counsel before proceeding with lockouts or lien sales. 

Los Angeles County, CA 

• The Board of Supervisors ratified an Executive Order stating that no residential or commercial property owner shall evict a residential or commercial tenant for: (1) nonpayment of rent, late charges, or any other fees accrued if the Tenant demonstrates an inability to pay rent and/or related charges due to financial impacts related to COVID-19, the state of emergency regarding COVID-19, or following government-recommended COVID-19 precautions, and the Tenant has provided notice to the Landlord within seven (7) days after the date that rent was due, unless extenuating circumstances exist, that the Tenant is unable to pay; or (2) reasons amounting to a no-fault eviction under the County Code, unless necessary for health and safety reasons.
• The order defines “no-fault  eviction” as  any eviction for which the notice to terminate  tenancy  is not based on alleged fault  by  the  Tenant,  including but not  limited  to,  eviction  notices  served pursuant to Code of Civil Procedure section 1161 et seq. or County Code.
• The Board later amended the Executive Order to cover the unincorporated areas of L.A. County and the incorporated cities without a local eviction moratorium.
• The amended order prohibits a landlord from charging late fees on unpaid rent.
• The amended order also states that “a commercial tenant includes, but is not limited to, a tenant using a property as a storage facility for commercial purposes.”
• The order provides tenants with 12 months after the expiration of the order to repay their unpaid rent.
• The L.A. Count order, as amended, may affect lien sales and late fees, particularly as applied to business tenants. Consultation with your legal counsel is strongly advised before proceeding with any lien activity.

Ontario, CA

§  The City Council ordered that no landlord shall endeavor to evict a storage unit patron (including a lien sale), in accordance with the ordinance, if the storage unit patron demonstrates that the inability to pay rent or fees is due to COVID-19, the state of emergency regarding COVID-19, or following government recommended COVID-19 precautions. To take advantage of these protections, the patron must satisfy all of the following requirements: 

1.       Prior to April 7, the patron paid rent due to the storage unit operator pursuant to an agreement. 

2.       The patron notifies the storage unit operator in writing before the rent is due, or within a reasonable period of time afterwards not to exceed 7 days, that the patron needs to delay all or some payment of rent because of an inability to pay the full amount due to reasons related to COVID-19, including but not limited to the following: 

• ·         The patron was unavailable to work because the patron was sick with a suspected or confirmed case of COVID-19 or caring for a household or family member who was sick with a suspected or confirmed case of COVID-19;
• ·         The patron experienced a lay-off, loss of hours, or other income reduction resulting from COVID-19, the state of emergency, or related government response; orThe patron needed to miss work to care for a child whose school was closed in response to COVID-19. 

3.       The patron retains verifiable documentation, such as termination notices, payroll checks, pay stubs, bank statements, medical bills, or signed letters or statements from an employer or supervisor explaining the patron’s changed financial circumstances, to support the patron’s assertion of an inability to pay. This documentation may be provided to the storage unit operator no later than the time of payment of back-due rent. 

§  If a storage unit patron complies with the requirements above, a storage unit operator shall not do any of the following: 

1.       Prevent a storage unit patron from accessing their stored items during the normal hours of operation of the storage unit facility; or 

2.       Send to the storage unit patron a Notice of Lien Sale pursuant to Business and Professions Code, Division 8, Chapter 10, or any other applicable statute regulating storage unit operators. 

3.     Conduct a Lien Sale pursuant to Business and Professions Code, Division 8, Chapter 10, or any other applicable statute regulating storage unit operators. 

§  For purposes of this ordinance, “in writing” includes email or text communications to a landlord or the landlord’s representative with whom the tenant has previously corresponded by email or text. Any medical or financial information provided to the landlord shall be held in confidence, and only used for evaluating the tenant's claim. 

§  The patron is not relieved of liability for unpaid storage fees, which the operator may seek after expiration of the local emergency and the patron must pay within six months of the expiration of the local emergency. Six months after the end of the emergency if the rent or storage fees are unpaid, an operator may charge or collect a late fee for rent/fees that is delayed for the reasons stated in the ordinance; or an operator may seek rent or storage fees that is delayed for the reasons stated in the ordinance through the eviction or other appropriate legal process.

§  The order remains in effect until further notice.

Pasadena, CA

• City Council passed an ordinance stating that “no landlord shall endeavor to evict a commercial tenant for non-payment of rent if a commercial tenant is unable to pay rent due to financial impacts related to COVID-19.”
• “Tenant” means a person, partnership, corporation, family trust or other business entity entitled by a written or oral agreement to occupy a rental unit to the exclusion of others, and actually occupy said rental unit for residential or commercial purposes (including, but not limited to, a self-storage facility, as defined by Pasadena Municipal Code Section 17.80.020).
• The Pasadena Municipal Code defines self-storage as “a structure containing separate storage space that is designed to be leased or rented individually in an enclosed building. This use does not include outdoor storage or recreational vehicles, boats, personal watercraft, motorcycles, or trailers.”
• A landlord shall give written notice of the protections afforded by this ordinance to each tenant no later than 30 days after its effective date. In lieu of providing written notice to each tenant's rental unit, a landlord may conspicuously post and prominently display such notice in the common areas of the property during the pendency of this local emergency.
• A landlord knows of a tenant’s inability to pay rent if the tenant, within 30 days after the date that rent is due, notifies the landlord in writing of lost income and inability to pay full rent due to financial impacts related to COVID-19, and provides documentation to support the claim. Any medical or financial information provided to the landlord shall be held in confidence, and only used for evaluating the tenant's claim.
• The tenant must pay any unpaid rent within six months after the local state of emergency ends.
• The landlord cannot charge late fees, deny a tenant access to the premises, or move or convert the tenant’s possessions.