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Landlords Beware of SB 1410

Landlords should be closely watching the California legislature over the new few weeks. Senators are currently considering SB 1410, which would allow tenants to defer paying rent until January 1, 2024 if they experience a COVID-19 related hardship. The state would then take “responsibility” for the unpaid rent and allow the tenant to make equal installment payments for a ten year period commencing in 2024. In turn, Landlords would receive a 10-year tax credit (2024-2034) for the same amount as the unpaid rent. Landlords would only be entitled to interest at a rate of 2% if they qualify as a small business owner.  

While the landlords would be able to sell these tax credits in order to obtain immediate funds, the Legislature has acknowledged that there is presently no market for such credits. Furthermore, it is unlikely that such a market would materialize given the low interest rate being provided to only a percentage of the landlords. Therefore, a landlord would likely be required to take a sizable discount on the credit in order to receive a bulk payment.  

This bill has been described as a “voluntary agreement structure” between the landlord and tenant. However, this statement is deceiving, as a landlord who declines to utilize the program will be prevented from evicting the tenant for non-payment of rent.

Furthermore, the bill imposes a moratorium on all evictions that do not involve a health and safety issue during the state of emergency and a yet to be determine number of days thereafter. This restriction would also prevent landlord from serving a tenant with a 30 or 60-day notice, which is especially problematic if the landlord desires to sell the property.  

While the bill understandably attempts to curtail the likely mass filing of evictions over the coming months, it essentially shifts all of the burden to landlords. Without monthly rent, many landlords will not be able to pay their mortgage, property taxes and the upkeep on the property. Unfortunately, this could lead to foreclosure and potential liability for failing to maintain the property in a habitable condition.

Written by: Christopher Delaplane – August 28, 2020

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