6 minute read
PERSPECTIVE
Perspective INSIGHTS FROM EBRHA BOARD PRESIDENT
Wayne Rowland
Risky Business
At the outset of the COVID-19 pandemic, when shelter-in-place orders were imposed in California and people were essentially sidelined from their jobs, there was much talk on the part of elected officials about the need to fend off an expected tsunami of evictions that would likely result. Iterations of this concern became the justification on the part of the governor in taking executive action.
But in using his emergency powers to declare an eviction moratorium for residential and commercial rental properties throughout the state of California, Gov. Gavin Newsom, in one single action, permanently changed the risk profile of owning property in California. And not necessarily for the better.
Most of us, in getting into the “essential business” of providing housing for California residents, got into this field with our eyes open. None of us were expecting a free lunch.
It’s common knowledge that owning real property has always come with its own set of risks. That’s why, at the point of sale, buyers are always advised to perform careful due diligence before plunking down their hard-earned down payment and closing on a purchase transaction.
Due diligence is an essential part of buying residential real estate and typically starts with on-site inspections of a property’s condition. This, along with an examination of title, rental agreements and any contractual obligations that might encumber the property, forms a minimum basis of due diligence components.
In addition to the above, because California rental housing regulation comprises a complex jigsaw puzzle of state and local housing laws, which often contain stiff penalties for noncompliance, a review of applicable state and local laws has become necessary.
Having said all of that, it is still a business of “buyer beware.” Due diligence will not by itself contain the risks of owning rental homes. It can, however, help the prospective property owner identify and quantify those risks and be able to set plans in motion aimed at minimizing these known risks. I emphasize “known” risks.
As to unknown risks, if proper due diligence is performed, unknown risks are greatly minimized … generally speaking. But this is California, so “generally speaking” might not apply. And that’s the problem.
To that point, the various eviction moratoriums that spawned from the initial statewide moratorium are informative. Many counties enacted moratoriums while cities within those same counties enacted their own moratoriums. Some of the city moratoriums, to this day, contain provisions that directly or indirectly conflict with those of the county. Oakland, for example, which is in Alameda County, has a very different set of moratorium rules than those of Alameda County. Without getting into specifics, there are clear issues of preemption that muddle the applicability of many of its provisions. Meanwhile, the stakeholders, consisting of renters and property owners, are left with no clear guide as to which rules apply under what circumstances.
To be sure, the crisscross of competing provisions between city, county and state moratoriums is prevalent throughout the state.
In fact, about the only thing that all the moratoriums have in common is that they all apply broadly and without
regard to a renter’s income or net worth. That is, without having to show proof, so long as the renter declares that they have been impacted by COVID-19, they are protected from eviction for nonpayment of rent. There is no means testing. Unfortunately, the lack of means testing is exactly why many individuals who have not been affected by the pandemic, whose incomes or high net worth have continued uninterrupted, have chosen to not pay rent.
Why? Because, why not? There are no consequences. It should go without saying that the lack of means testing invites moral hazard and is bad public policy. But there … I’ve said it.
The broad application of the protections provided by the moratoriums extends beyond nonpayment of rent. It also protects nuisance conduct. Renters engaged in nuisance conduct are shielded from eviction as long as the nuisance conduct does not rise to the health and safety standards outlined in the various moratoriums. The standards, as you might guess, are vague. This has led to many instances of renters openly disturbing the peace and interfering with the right of quiet enjoyment of others, while mocking the rental owner who is powerless to act. Why? Because, why not? There are no consequences.
As an aside, living in a place where there are no consequences for nuisance behavior can be scary. With rental owners throughout the state powerless to abate such nuisance, renters and everyone else are being subjected to unwarranted personal safety risk.
But to get back to the risk profile of owning property in California, it is not new that California elected officials seem fixated on regulating rental housing. Year after year, notwithstanding the volume of arcane and granular housing regulations that might have been passed into law by their predecessors, newly elected officials quickly cast out in zealous pursuit of “new” tenant protections. The newness of the decades-long churn of new tenant protections having faded years ago.
Even so, strange as it may seem, many property owners have grown accustomed to seeing a certain amount of anti-housing-provider housing policy in California. It seems to come with the territory. But in ordering a moratorium on evictions, devoid of means testing, the governor opened a Pandora’s box of expropriation tools that we’ve never seen before. The result is that many rental owners have rents that have gone unpaid for more than a year. Some may not survive. No amount of due diligence would have seen that coming.
Of course, time may reveal that these new expropriation tools may be illegal for any number of reasons. That when added to the ever-swelling agglomeration of other rights-eviscerating housing regulation, they comprise an uncompensated, unconstitutional taking of property, albeit in slow motion. We’re likely to find out because the lawsuits are piling up and working their way through the legal system. But the damage is already done.
Moving forward, we will all have to adjust our assess- ments of the risks of buying property in California. As an association, EBRHA will be adjusting its education programs to include helping our members to expect the unexpected.
Last, as a point of clarification, just in case I’ve left you with the impression that California legislators are completely against means testing, let me set the record straight. Now, after more than a year of many property owners receiving absolutely zero rent, courtesy of the various eviction moratoriums, rent assistance dollars are finally on the way, mostly in the form of federal money given to the state, to be distributed to rental owners. But, as you might have guessed, these dollars are only going to be paid to rental owners after the renters who apply have been qualified by … means testing.
Longtime EBRHA member and current Board President Wayne Rowland owns Rowland Property Management and was also the founding president of CalRHA. He has played a significant role in many of EBRHA’s political campaigns and legal actions.
