PH COVID-19 Client Alert Series: California Judicial Council Prohibits All Evictions and Judicial Foreclosures

April 10, 2020

By Patrick Ramsey, Steve Berkman & Mitchell Menzer

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On April 6, 2020, the California Judicial Council issued two sweeping Emergency Rules that bar all unlawful detainer actions and judicial foreclosures in California. The Emergency Rules will be in effect until 90 days after Governor Gavin Newsom’s COVID-19 state of emergency is terminated, unless the Judicial Council amends or repeals the rules earlier. The Emergency Rules, which govern all courts in California, are in addition to the patchwork of orders and ordinances recently adopted by local governments limiting evictions and landlord remedies in response to the COVID-19 pandemic.

Prohibition of Evictions

Emergency Rule 1 prohibits any court from evicting a tenant. Specifically, the Rule prohibits a court from (1) issuing a summons to a tenant on a complaint for unlawful detainer until the 90-day period expires, and (2) entering a default or a default judgment for restitution on an unlawful detainer action for failure of the defendant to appear.

If a defendant makes an appearance in the action, the court may not set a trial date earlier than 60 days after the trial is requested. In eviction actions for which a trial request was pending as of April 6, the court must continue the trial for at least 60 days.

This rule applies to both residential and commercial leases as well as ground leases. The Judicial Council rules prohibit evictions regardless of whether the eviction is due to a default in the payment of rent or other lease default or whether it is a so-called “no fault” termination, such as the expiration of the lease term. Furthermore, the rule does not require the tenant to show its inability to pay rent due to the COVID-19 pandemic. The prohibition on evictions does not apply if the court finds that the action is necessary to protect public health and safety.

Because the Judicial Council rule only binds the courts, it does not limit the landlord’s right to deliver a notice of default, file a complaint, utilize security deposits, either in the form of cash or a letter of credit, or to sue a guarantor for delinquent rent payments. The rule only delays the eviction remedy but the rule does not reduce or eliminate the tenant’s obligation to pay rent. However, as a result of the rule, tenants who are judgment proof and who have provided little or no lease security may be able to occupy the leased premises rent-free throughout the state of emergency, an additional 90 days thereafter, plus the period of time necessary to complete an eviction once the state of emergency is lifted.

Prohibition of Judicial Foreclosures

Additionally, Emergency Rule 2 prevents judicial foreclosures of any deed of trust or mortgage by (1) immediately staying any pending judicial foreclosure actions, and (2) prohibiting a court from taking any action or issuing any decision or judgment in a foreclosure. In recognition of its effect on creditors, the rule tolls the statute of limitations for filing judicial foreclosures. It also extends the time periods that apply to judicial foreclosures, including the right of redemption from a foreclosure sale and applying for a deficiency judgment.

The rule has no effect on non-judicial foreclosures (i.e., trustee sales) or lender remedies against pledges of equity interests.

Local Governmental Actions Limiting Evictions

In response to the COVID-19 pandemic, numerous local governments in California have issued orders or enacted ordinances that also limit evictions. Because the Judicial Council’s rules are statewide and prohibit evictions of all residential and commercial tenants, its rules will in most cases have the practical effect of superseding the local government’s eviction limitations. However, because some local orders and ordinances impose additional limitations on the landlord’s remedies, landlords and tenants will need to check these local rules carefully and frequently, as there have been numerous changes already. By way of example, the local orders and ordinances adopted by the City of Los Angeles, County of Los Angeles, and San Francisco are discussed below.

Los Angeles. In the City of Los Angeles, the City Council passed, and Mayor Eric Garcetti signed, Ordinance No. 186585, which prohibits evictions of all residential and certain commercial tenants for nonpayment of rent during the emergency period. Commercial tenants that have more than 500 employees, are publicly traded, or are a “multi-national company” do not have the benefit of the ordinance. In all cases, the tenant must show an inability “to pay rent due to circumstances related to the COVID-19 pandemic,” such as loss of income due to a COVID-19 related workplace closure, child care expenditures due to school closures, health-care expenses, and other factors. Landlords must give written notice to all tenants of the protections afforded by the Ordinance within 30 days of its effective date and failure to provide notice may result in penalties.

Although the Judicial Council rule extends beyond the Los Angeles Ordinance in many respects, the Ordinance includes provisions that do more than limit the unlawful detainer remedy. For example, the Ordinance purports to prevent landlords from imposing late charges and default interest on unpaid rent during the state of emergency. In addition, the Ordinance includes what is essentially an extensive cure right: qualifying residential tenants have up to 12 months and qualifying commercial tenants up to three months following the expiration of the emergency to repay past due rent.

Los Angeles County. By Executive Order, the County of Los Angeles imposed protections for residential and commercial tenants in the unincorporated areas of the county. These include a prohibition on evictions, whether for nonpayment of rent or no-fault terminations. The protections apply only to tenants who demonstrate an inability to pay due to COVID-19 and provide notice to the landlord within seven days after the rent due date. The County order gives the tenant six months following termination of the Executive Order to pay the landlord the amounts owed.

San Francisco. In San Francisco, Mayor London N. Breed enacted an eviction moratorium via an Emergency Proclamation and several supplements, which applies to all residential tenants and to commercial tenants with gross worldwide receipts of $25 million or less in 2019. In the case of residential tenants, the tenant must provide notice to the landlord within 30 days of the missed payment and, within one week of providing such notice, the tenant must show an inability to pay rent due to the COVID-19 pandemic. The San Francisco order gives residential tenants up to six months after the emergency is over to repay past due rent that came due after March 13, 2020 and prior to the earlier of (1) April 17, 2020 (as that date may be extended) and (2) the termination of the emergency period, and the right to postpone eviction due to such nonpayment for the same six-month period.

For commercial tenants under the $25 million threshold, the landlord must provide the tenant a notice of nonpayment and provide a cure period of no less than 30 days from the date the tenant receives the notice. Commercial tenants must then pay within the cure period or show an inability to pay rent due to the COVID-19 pandemic in order to obtain a one-month further extension. Commercial tenants may obtain consecutive one-month extensions to the cure period by showing a continuing inability to pay due to the COVID-19 pandemic each month up to a maximum of six months from the due date of the missed payment. The San Francisco order currently only applies to rent that came due on or after March 17, 2020 and on or before April 17, 2020, unless the Mayor extends the order.

In addition, the order confirms that the landlord may utilize security deposits of commercial tenants to satisfy past due rent during the emergency period, but such use is discouraged. However, if the lease requires the tenant to replenish the security deposit after it is used by the landlord, the order gives the tenant additional cure periods to replenish the deposit, as with nonpayment of rent up six months. Mayor Breed also issued a clarification that the eviction moratorium on commercial tenants also applies to “all attempts to recover possession of a unit due to non-payment,” thus potentially proscribing other actions a landlord may take against a commercial tenant.

Implications

The Judicial Council eviction rule is sweeping because it prohibits the eviction of commercial tenants, it does not require a showing that the tenant could not pay rent, and it extends the prohibition for 90 days after the state of emergency is lifted in California.

Furthermore, some local governments have provided tenants with extended periods in which to pay past due rent and prohibited landlords from charging late fees or default interest. These local orders and ordinances will surely be challenged in court as impermissibly impairing the terms of a private contract and as an improper use of the local police power, but it will be many months before these issues are decided. However, local governments may very well adopt additional tenant protections, such as prohibitions on rent increases.

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