A smorgasbord of rental takings cases

Recently, the country was treated to the spectacle of several members of Congress sleeping on the steps outside their marble office building to protest the fact that their colleagues in Congress had failed to extend a moratorium on evictions of residential tenants who had ceased paying rent during the pandemic. That Congressional failure sparked the Centers for Disease Control and Prevention to take it upon itself to extend the moratorium, even after President Joseph Biden had appeared at a press conference and told the assembled reporters that the legal advice he had received was that an extension by an executive agency was probably not legal. His concern was well taken. In addition to the opinions of the experts he consulted, there was a clear warning from the U.S. Supreme Court at the end of June in Alabama Assn. of Realtors v. Dept. of Health & Human Services, 2021 DJDAR 6720. Justice Brett Kavanaugh's concurring opinion (the only opinion issued in the case) plainly expressed the view that executive agencies could not act on their own, but that "clear and specific congressional authorization (via new legislation) would be necessary."

The result is that in California and elsewhere we are now facing a veritable smorgasbord of lawsuits challenging such moratoria. Litigation is pending against similar eviction moratoria declared by the federal government (the CDC), the State of California, and the City of Los Angeles.

It is not the point of this column to discuss the philosophical issues on either side. Rather, our focus is on the fact that there are indeed two sides to the underlying issue and only one of them seems to be garnering angry headlines and sympathetic press. We need to be clear.

Tenants -- some of whom have lost their jobs due to the pandemic and have thus seen their income, and sometimes their savings as well, depleted or eliminated -- have a legitimate fear of being added to the ranks of the homeless (or "unhoused," as some have decided to call them).

But "landlords" are neither faceless nor monolithic. They are neither uniformly wealthy nor composed of faceless bureaucracies. Some, indeed, are ordinary individuals or "mom and pop" operations -- people who invested their savings in order to earn income to support themselves and their families. When a government agency tells them that they must keep maintaining their buildings for the benefit (and use) of tenants who are relieved of the necessity of paying rent, the hardship inflicted on them can be intense. Some have had to take out loans in order to pay their mortgages and the costs of maintaining the buildings so that their tenants (who are not paying their agreed upon rent) can continue to occupy the premises.

There are two common threads that run through these moratoria, regardless of which entity enacted them. First, they put the tenants in control, by barring the landlords from pursuing eviction proceedings for non-payment of rent. Second, they require the landlords to maintain the premises, i.e., paying the mortgage, utility bills and tax bills. To avail themselves of the benefits of these moratoria, all the tenants need do is aver that they are in financial distress because of the pandemic. Interestingly, the United States Supreme Court dealt with a variant of such averments in a New York law earlier this month. That law precludes a landlord from contesting a tenant's claim and denies a hearing on the issue. The Supreme Court enjoined enforcement of that portion of the New York law, invoking what it called "the Court's longstanding teaching that ordinarily 'no man can be a judge in his own case." Chrysafis v. Marks, 2021 DJDAR 8367. In other words, a tenant cannot simply claim hardship and then use that claim to conclusively demonstrate that the hardship exists.

The federal version of the moratorium began with the so-called "CARES Act" (i.e., the Coronavirus Aid, Relief, and Economic Security Act.) It applied to rental properties that received federal assistance or were subject to federally backed loans. When the CDC extended that moratorium, it also enlarged it. Concluding that an eviction moratorium "can be an effective public health measure . . . to prevent the spread of communicable disease," the CDC order is not limited to properties receiving the benefit of federal money, but applies to essentially all residential rental properties nationwide. Violation of the CDC order can result in penalties in the hundreds of thousands of dollars.

The state program is similar, stemming from legislation that began as Assembly Bill 832. AB 832 prohibits eviction proceedings even when tenants have the financial ability to pay rent, as long as they submit a declaration saying that the pandemic has caused them financial distress.

The city program likewise prohibits landlords from initiating (or continuing) residential eviction proceedings based on non-payment of rent. Nor may landlords charge late fees or interest. Although the city moratorium does not relieve tenants of the responsibility to eventually repay the back rent, it provides a one-year grace period after the city ends the moratorium to either pay the back rent or reach some agreement on how the repayment will be made.

The federal complaint was filed in the U.S. Court of Federal Claims by the National Apartment Association, a national trade association with more than 82,000 members. See National Apartment Association, et al. v. United States. The state complaint was filed in the Eastern District of California by the California Rental Housing Association, a group with more than 19,000 members. See California Rental Housing Association v. Newsom, 2:21-cv-01394-JAM-JDP (E.D. Cal., filed Aug. 5, 2021). The city complaint was filed by a substantial group of Los Angeles landlords.

There is a fascinating constitutional question at the heart of these tenant protections, one that gained substantial currency as the Supreme Court ended its last term in June. At that time, you may recall, the court decided Cedar Point Nursery v. Hassid, 2021 DJDAR 6262, the case involving California's regulation allowing agricultural labor unions to trespass on farms in order to seek to recruit workers to join a union. In the process of ruling in favor of the farm owners, the court reinforced one of its long-standing rules related to the rights of property owners. Reverting to the first-year property law professors' analogy of property to a "bundle of sticks," the Supreme Court confirmed that the "right to exclude" third parties from one's property is "one of the most essential sticks in the bundle of rights that are commonly characterized as property." With that as its core concept, the court held that governmental enforcement of access to property owned by another would violate the Takings Clause of the Fifth Amendment.

It will be interesting to see how the courts deal with this latest pronouncement from our highest judicial body in the context of regulations mandating that property owners allow others to occupy their property -- while the owners are required to maintain it. Stay tuned. 