Chris Evans Archives - Gupta Evans and Ayres

Ajay Gupta and Chris S. Evans Obtain Six-Figure Jury Verdict For Client in Property Dispute

June 10, 2022/in All Blog Posts/by The Gupta Evans & Ayres Team

Gupta Evans and Ayres is proud to announce they were able to secure another resounding victory and six-figure verdict for their client after over four years of litigation and a hard-fought jury trial in San Diego County.

GEA represented a purchaser of a home in Oceanside that the purchaser later discovered to be littered with an assortment of undisclosed defects and faulty repairs. The Firm began representing the client in early 2017, which would begin what would become a marathon of litigation and include a litany of hotly contested issues, complete with extensive discovery and motion practice (and, of course, a global pandemic). Although the case concluded as a trial between a buyer and seller of residential real estate, the case began with three times the parties and several cross-complaints and competing defenses, all of which had to be resolved before trial.

Finally, after over four years of litigation, and a seven-day jury trial before Judge Blaine Bowman in the North County branch of San Diego Superior Court, the Firm established that the sellers of the home were liable to the client-buyer for breach of contract, fraud (intentional and negligent misrepresentation) and engaging in work as an unlicensed contractor. After establishing such liability, the jury returned a six-figure verdict in favor of the firm’s client.

As the prevailing party at trial, the Firm was then also able to succeed on a post-judgment motion for attorneys’ fees and costs incurred by their client throughout the course of the litigation, in part by successfully arguing the “intertwinement” of the tort and contract causes of action.

After resolving claims against parties other than the seller pre-trial, and upon the successful jury verdict and attorneys’ fees motion, the client was granted a total award of approximately $540,000, inclusive of punitive damages. Congratulations to trial counsel Ajay Gupta and Chris S. Evans for bringing this case across the finish line and obtaining a victory for the Firm’s client!

AirbnBe Careful What You Ban: The Coastal Commission’s Broad Authority Over Short-Term Rentals in California

January 18, 2022/in Real Estate/by Chris Evans

Short-term rentals have been, and continue to be, a polarizing topic among residents of many California neighborhoods. This is particularly true in the beach and vacation communities along the California coast. The proliferation of short-term rentals in these areas has led to short-term rental bans regularly springing up to curb the side effects of what many neighborhoods perceive to be mini-hotel communities. Other property owners, on the other hand, resist these bans to take advantage of the revenue stream that companies like Airbnb and VRBO have made possible. In fact, here in San Diego, a short-term rental ban that we discussed over three years ago only just recently reached an apparent conclusion via a compromise between the relevant factions.

While these debates will undoubtedly persist and create uncertainty in the short-term rental industry, a semblance of predictability can be expected from the not so invisible hand operating throughout these communities—the California Coastal Commission (the “Commission”) and its enforcement of the California Coastal Act (the “CCA”).

Now, you may be asking yourself the obvious follow up question: how does a state agency whose mission is to “protect” and “enhance” the California coast get involved in short term rental bans? The answer is simple: broad interpretation. The Commission inserts itself into these short-term rental bans under the theory that it has authority over such ordinances because the bans constitute a “development” within the coastal zone, as defined in the CCA. As a result, such ordinances must adhere to the requirements of the CCA as applicable to other developments. Namely, the acquisition of a coastal development permit from the Commission for any “development” (read: rental bans) in the coastal zone. For reference, a map of California’s Coastal Zone by county can be found here.

The term “development” may be misleading as it often connotes significant, non-minor changes to the land (i.e., building an apartment complex or hotel). In reality, for purposes of the CCA, the term “development” is defined to include any changes in the density or intensity of use of land and changes in the intensity of access to water, such as simple lot line adjustments,[1] fireworks displays[2] or even putting up a sign[3]. Simply put, courts have interpreted the term broadly to encompass any impediments to access, not merely physical alterations, and the rise of short-term rental bans is another such impediment. In other words, the Commission maintains it has authority to interfere with short term rental ordinances because it is an extension of the Commission’s authority to protect affordable access to the California coast, which access is infringed upon by way of short-term rental ordinances because such ordinances impose monetary barriers to beach access.

As could be expected, the breadth of authority assumed by the Commission has been tested several times in the legal system. Most notably in Greenfield v. Mandalay Shores Community Assn. The Greenfield case was a 2018 case in which the Second District Court of Appeal held that an Oxnard homeowners’ association ban of short-term vacation rentals changed the intensity of use and access to single-family residences in the coastal zone and must be approved by the city and Coastal Commission. The court determined that a “development” does not necessarily need to be a physical barrier but can also include monetary barriers that change the intensity of use and access to single family residences in the coastal zone.

This line of reasoning was again tested—and expanded—last year in Kracke v. City of Santa Barbara and upheld. On May 4, 2021, the Second District Court of Appeal affirmed a trial court decision, in Kracke v. City of Santa Barbara (2021) 63 Cal.App.5th 1089, enjoining the City of Santa Barbara’s enforcement of a short-term vacation rental ban in the coastal zone, through proactive enforcement of existing zoning regulations, unless it obtains Coastal Commission approval or a waiver of such requirement. The underlying “ban” in Kracke stemmed from the Santa Barbara City Council’s direction to regulate short-term rentals as hotels under the city’s zoning code. Because the zoning code did not permit hotels in most residential districts, the city’s action was effectively a ban on short-term rentals in most residential areas. As a result, the number of short-term rentals in the coastal zone dropped drastically from 114 to 6. The owner of a company that managed short-term rentals filed a petition for writ of mandate challenging the city’s new policy. Relying on Greenfield, the Court in Kracke explained that although the City, rather than a private entity (the HOA in Greenfield), imposed the coastal short-term vacation rental ban, it was also accomplished without the Commission’s input or approval. The City cannot act unilaterally; rather, as in Greenfield, “[t]he decision whether to ban or regulate [short-term vacation rentals] in the coastal zone is a matter for the City and the Commission to decide” and the reduction in the number of short-term rentals in the coastal zone was inconsistent with the Coastal Act’s goal of improving the availability of lower cost accommodations along the coast.

The Court’s decision in Kracke hammers the fact that the Commission maintains broad authority and discretion over local policies that seek to impede access to the coastal zone, whether physically or monetarily and regardless of whether such policies are passed by private (HOAs) or public entities (cities and counties). In short, if a public or private entity wants to adopt such a policy, then it unavoidably must comply with the CCA and be approved by the Commission.

It would appear easy to say that the Commission has an unwavering desire to strike down any and all short-term rental ordinances. However, when one looks at the cases above, it becomes clear that the problem was not necessarily the ordinance, but rather the way in which the private entity (the HOA in Greenfield) or public municipality (the City in Kracke) imposed their bans. That is, without the Commission’s involvement.Communities and cities run into issues, when they side-step the Commission entirely, avoid the permit process mandated under the CCA and, instead, try to rush a short-term rental ban into action. The Commission even went so far as to issue a memo in 2016 to give guidance to the public and local legislatures about how the Commission views the short-term rental debate and how the interests of all affected can be balanced. For instance, while the Commission does not mince words in stating it does not support “blanket vacation rental bans” under the CCA, the Commission provided a list of provisions that could be included in a short-term rental ordinance that would likely allow the ordinance to pass muster under the Commission’s enforcement of the CCA. More importantly, the Commission approval process is an iterative process wherein the Commission and the municipality in question can confer and work together to develop an ordinance that is agreeable to all involved.

To that end, multiple California cities have successfully implemented short-term rental bans, within the coastal zone of California, after gaining the requisite approval and permit from the Commission. In October 2020, the Commission approved the short-term rental laws of Laguna Beach, California. This ban limited the geographic area in which short-term rentals could exist and required short-term rental operators to apply for and receive permit. Similarly, as of last year in September 2021, the Commission was in the process of reviewing short-term rental legislation from the City of Malibu wherein Malibu legislators were working with Commission staff to address any suggested modifications to ensure that the ordinance complies with the CCA. Finally, with the long-awaited passage of San Diego’s short-term rental ordinance last April, San Diego will now have its own showdown with the Commission to obtain Commission approval prior to the law taking effect this July.

While short-term rental bans may come and go, the broad powers of the Commission over the California coast are not going anywhere. Based on this sweeping authority, the Kracke case and the treatment of neighboring cities, one truth remains irrefutable: if a California city or neighborhood want to pass a short-term rental ordinance with any legal effect, such entities should aim to collaborate and work with the Commission, not against it.

Author: Chris Evans

Checking In On The Status of Residential and Commercial Leases in California

May 4, 2021/in All Blog Posts, Corporate Litigation, Real Estate/by Chris Evans

Vaccines are being administered, indoor and outdoor activities are beginning to resume throughout California and it would appear that life is starting to get back to normal. Well, not quite. Before you get ahead of yourself, a litany of COVID-related protections remain in place, namely in the landlord-tenant arena. The below is a quick refresher on the state of landlord-tenant protections in California, all of which must be considered before you seek to return to business (and evictions) as usual.

SB 91 – COVID Eviction Protections Extended Through June 2021

Our last landlord-tenant summary focused primarily on California’s then recently passed Assembly Bill 3088, adopted at the end of August 2020 and formally known as the Tenant, Homeowner, and Small Landlord Relief and Stabilization Act of 2020 (“AB 3088”). In short, AB 3088 was designed to protect residential tenants—not commercial tenants—who faced, and continue to face, economic hardship due to COVID-19. With limited exceptions, the protections of AB 3088 apply to any tenant who is unable to pay all or part of their rent due to a COVID-19-related financial impact, so long as they provide an economic hardship declaration to the landlord within a specific period of time. A more detailed breakdown of AB 3088 can be found at our previous post here.

Currently, the protections of AB 3088 remain largely in place. Originally slated to protect residential tenants only through January 2021, the AB 3088 safeguards were extended by a second piece of legislation signed by Governor Newsom on January 29, 2021, known as Senate Bill (“SB 91”). The main thrust of SB 91 was to preserve the vast protections afforded by AB 3088 and extend its provisions another six months through June 2021. As a result of SB 91, no residential tenant can be evicted before June 30, 2021, if the basis of the eviction is rent that has been unpaid due to a COVID-19-related hardship and the tenant attests such fact under penalty of perjury. Additionally, if the tenant pays 25% of the rent owed from September 2020 through June 30, 2021, then the tenant cannot be evicted after the June 30, 2021 expiration. Landlords will be able to recoup the remaining rent balance owed after June 30, 2021, via a reconfigured small claims court. Alternatively, SB 91 also instituted a rental assistance program whereby residential landlords can apply to recover up to 80% of the unpaid rental balance through federal funds.

Also remaining in place and a key point to keep top of mind, among other things, is the expansion of the “just cause” eviction requirement. In essence, unless a tenant fails to attest to his or her COVID-related financial hardship, a residential tenant may only be evicted for either an “at-fault just cause” or “no-fault just cause.” In essence, unless a tenant fails to attest to his or her COVID-related financial hardship, a residential tenant may only be evicted for either an “at-fault just cause” or “no-fault just cause.” In other words, whereas “just cause” was previously only required if certain length of possession thresholds were met (see Civil Code section 1946.2), AB 3088 extended just cause to all tenancies and this protection has been extended via SB 91.

The foregoing is a relatively general and tremendously compressed explanation of SB 91 (and AB 3088), and a thorough review of the Bill’s intricacies is highly recommended. To assist in such review, our Firm has put together this simplified and updated version of our prior flowchart.

Again, What About Commercial Tenancies?

Like AB 3088 that came before it, SB 91 did not extend eviction protections to commercial tenants. As a result, commercial landlords and tenants should continue to look for guidance on whether a commercial eviction can proceed by turning their attention to the respective eviction moratoriums in place, if any, at the city and county levels.

The City of San Diego (the “City”), for instance, currently has its own eviction moratorium in place that sets forth the specific rules and regulations that would either permit or prohibit a commercial landlord from pursuing the eviction of a commercial tenant. The City of San Diego’s commercial eviction moratorium was re-adopted[1] on January 26, 2021 and will remain in place until June 30, 2021. Under the City’s commercial eviction moratorium, a commercial landlord cannot endeavor to evict (e.g. serving 3-day notices, filing unlawful detainer) a commercial tenant for nonpayment of rent if the tenant gives the landlord written notice of its inability to pay rent on or within seven days after the rent payment was due. The tenant’s notice must specify that the inability to pay is due to financial impacts related to COVID-19. The tenant will only be required to provide supporting documentation if the landlord asks for it within seven days of the tenant’s notice. If notice is sufficiently given by the tenant, the commercial tenant will have six months (or until December 30, 2021) to pay the unpaid rental balance due.

Our Firm has also put together a summary flowchart of the City of San Diego’s commercial eviction moratorium to help commercial landlords and tenants through avoid likely pitfalls.

Whereas the above only pertain specifically to the City of San Diego, if a commercial eviction moratorium is in place at your city or county levels, such moratoriums typically apply exclusively to the non-payment of rent scenario; but, landlords and tenants should carefully review each particular moratorium for the specific provisions, prerequisites and/or deadlines included in their respective moratorium, if any. As of the date of this posting, eviction moratoriums are currently in place in Southern California in, among other places, Carlsbad, Los Angeles County, and San Bernardino County. Notably, San Diego County does not have an overarching eviction moratorium in place; but, rather, such moratoriums, if any, are unique to the specific cities within the County.

Conclusion

As we near the end of the COVID-19 pandemic and begin to get back to business as usual, it is important to be cognizant of the fact that many COVID-related legislative actions and changes, particularly in the landlord-tenant space, will likely remain in place for months, if not years, to come. The landscape will continue to shift, and landlords and tenants should continue to look for the most recent updates with respect to how best to proceed, or not proceed, in the context of evictions.

The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this web site or any of the e-mail links contained within the site do not create an attorney-client relationship. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.

[1] Oddly, the City of San Diego’s prior commercial eviction moratorium expired on September 30, 2020, and many commercial evictions were able to move forward given the gap in protection between October 1, 2021 through January 25, 2021.

Oh The Places You Will (Or Won’t) Go: An Update on Commercial and Residential Evictions in California Amidst COVID-19

December 8, 2020/in All Blog Posts, Corporate Litigation, Real Estate/by Chris Evans

Given the ongoing COVID-19 pandemic and the resulting changing legislative landscape, the state of commercial and residential evictions in California has been in what feels like a constant state of flux. Since March of this year, mandates and ordinances have been implemented at the state and local levels, rules have been adopted and withdrawn from the California judiciary, legislation was finally passed by the California legislature, and the Centers for Disease Control and Prevention (“CDC”) even chimed in in September. These changes have often led to more questions than answers.

Over the past several months, our Firm has put together multiple blog articles and webinars to summarize the ever-changing state of commercial and residential evictions in California, particularly in San Diego. As it stands now, however, the eviction guidelines that landlords and tenants should follow essentially boil down to two components: the recently passed California Assembly Bill 3088 and the CDC’s September 4, 2020 Order temporary halting evictions.

California’s Assembly Bill 3088

On August 31, 2020, after weeks of drafts, negotiation and compromises between lawmakers, tenant advocates and landlord organizations, Governor Newsom signed Assembly Bill 3088 into law, known officially as the Tenant, Homeowner, and Small Landlord Relief and Stabilization Act of 2020 (“AB 3088”). AB 3088 is a complicated and nuanced piece of legislation that is designed to protect residential tenants—not commercial tenants—who have faced, and continue to face, economic hardship due to COVID-19. As a result, with limited exceptions, the tenants within the scope of AB 3088 are those residential tenants who are facing eviction due to the non-payment of rent, and not those who are in material breach of other, non-monetary obligations of his or her lease.

A simplified breakdown of AB 3088 can be found in this flowchart.

What About Commercial Tenancies?

Notably, and something to keep in mind throughout the remainder of this post, is that neither California’s Assembly Bill 3088 nor the CDC’s Order apply to commercial tenancies—only residential tenancies. Instead, on September 23, 2020, Governor Newsom issued Executive Order N-80-20 , which allows local governments to continue to impose commercial eviction moratoriums and restrictions, if such localities so choose, for commercial tenants who are unable to pay their rent because of COVID-19. This delegation of power will remain in place until March 31, 2021, if not longer.

As a result, commercial landlords and tenants looking for guidance on whether a commercial eviction can proceed should turn their attention to the respective eviction moratoriums in place, if any, at the city and county levels. For instance, the City of San Diego had its own eviction moratorium in place—applicable to both residential and commercial tenants—that set forth the specific rules and regulations that would either permit or prohibit a commercial landlord from pursuing the eviction of a commercial tenant. The City of San Diego’s eviction moratorium expired on September 30, 2020, however, and many commercial evictions have been able to move forward, with payment of any deferred rent currently due by December 30, 2020, unless extended.

If a commercial eviction moratorium remains in place at the city or county levels, such moratoriums typically apply exclusively to the non-payment of rent scenario, but landlords and tenants should carefully review each particular moratorium for the specific provisions, prerequisites and/or deadlines included in their respective moratorium, if any. As of the date of this posting, eviction moratoriums are currently in place in Southern California in, among other places, Los Angeles County and San Bernardino County. Notably, San Diego County does not have an overarching eviction moratorium in place; but, rather, such moratoriums, if any, are unique to the specific cities within the County.

AB 3088’s Application To Residential Tenancies

When considering the options and rights of both residential landlords and tenants under AB 3088, there are two time periods to keep in mind: (1) March 1, 2020 through August 31, 2020; and (2) September 1, 2020 through January 31, 2021. Each period dictates if, and when, a landlord can pursue an eviction of a residential tenant that has failed to pay rent, as follows:

If a residential tenant failed to pay rent due during March 1, 2020 through August 31, 2020:

Landlord must serve tenant with 15-Day Notice that explains the tenant’s rights under AB 3088 and provides a blank Declaration for the tenant to claim a COVID-19 economic hardship (the “Hardship Declaration”);
If tenant fails to return the Hardship Declaration (and evidence of hardship if “high-income tenant”) within the 15-day notice period (excluding weekends and holidays), then the landlord can immediately proceed with eviction and file an unlawful detainer action (Note: be sure to include the new Supplemental Cover Sheet now required for all unlawful detainers—located here);
If tenant returns the Hardship Declaration (and evidence of hardship if “high-income tenant”) within the 15-day notice period (excluding weekends and holidays), then the Landlord can never evict the tenant for such non-payment of rent. The unpaid rent is not waived, but instead converted into consumer debt that the landlord can collect in small claims court beginning March 1, 2021;

If a residential tenant failed to pay rent due during September 1, 2020 through January 31, 2021:

Like the above, the Landlord must serve tenant with 15-Day Notice that explains the tenant’s rights under AB 3088 and provides a blank Declaration for the tenant to claim a COVID-19 economic hardship (the “Hardship Declaration”);
If tenant fails to return the Hardship Declaration (and evidence of hardship if “high-income tenant”) within the 15-day notice period (excluding weekends and holidays), then the landlord can immediately proceed with eviction and file an unlawful detainer action (Note: be sure to include the new Supplemental Cover Sheet now required for all unlawful detainers—located here); link: https://www.courts.ca.gov/documents/ud101.pdf]
If tenant returns the Hardship Declaration (and evidence of hardship if “high-income tenant”) within the 15-day notice period (excluding weekends and holidays), then the Landlord cannot evict the tenant so long as the tenant pays 25% of the rental amounts due by January 31, 2021. The balance of unpaid rent is not waived, but instead converted into consumer debt that the landlord can collect in small claims court beginning March 1, 2021;
If tenant returns the Hardship Declaration (and evidence of hardship if “high-income tenant”) within the 15-day notice period (excluding weekends and holidays), but fails to pay the required 25% of the rental amount due (see item c.), then the landlord can proceed with eviction and file an unlawful detainer action beginning February 1, 2021 (Note: be sure to include the new Supplemental Cover Sheet now required for all unlawful detainers—located here);

The foregoing is a relatively general and tremendously compressed explanation of AB 3088. A thorough review of the Bill’s intricacies is highly recommended. For instance, last year’s adoption of Assembly Bill 1482, which provided “just cause” protections to a limited number of residential tenants, has now been extended to all residential tenants until February 1, 2021, pursuant to AB 3088. A more detailed summary of AB 3088 can also be found in our previous blog post and webinar.

CDC’s Eviction Order

As if AB 3088 was not enough for landlords and tenants to get their heads around, the CDC issued its own eviction order just five days after AB 3088 on September 4, 2020 (the “CDC Order”). The CDC Order was issued to temporarily freeze evictions of residential tenants for the nonpayment of rent through December 31, 2020. In short, a tenant who wishes to rely upon the CDC Order must provide a declaration, under penalty of perjury, to the landlord certifying seven specific statements. A form declaration specifying the statements that can be used by tenants seeking the CDC Order’s protection can be obtained from the CDC’s website here.

The CDC Order has a shorter effective date than AB 3088 (prohibiting evictions until December 31, 2020 vs. potentially February 1, 2021), and presents significant concerns given the subjective and ambiguous nature of the CDC Order. For instance, one such statement that must be certified by the tenant is that he or she has used “best efforts” to obtain government assistance for rent or housing. This begs the obvious question—what are best efforts? The ambiguous nature of the language of the CDC Order invites potential disagreements between landlords and tenants about whether a tenant qualifies for the CDC Order’s protections, which may require the intervention of the Court to decide.

Notably, unlike AB 3088 and its mandated 15-day notice, there is nothing that requires the tenant to be made aware of the CDC Order or the tenant’s potential rights under the CDC Order. This fact, coupled with the existence and broad protections provided to residential tenants under AB 3088, make it unclear just how many residential tenants in California will actually rely upon the CDC Order (compared to states that do not have eviction protections in place). The CDC has provided a Frequently Asked Questions document that can further explain the scope and application provided by the CDC Order, which can be obtained here and is also highly recommended to review.

Conclusion

Commercial and residential landlords and tenants are facing an incredibly unique and unparalleled set of circumstances through the COVID-19 pandemic. The foregoing eviction protections implemented by California and the CDC have been enacted to try and combat not only the financial and economic stresses caused by the COVID-19 pandemic, but also the consequences of such stresses, such as being evicted from one’s home or office. That said, it is important to be cognizant of the fact that there are sure to be situations and instances that remain unaddressed, subject to dispute, or simply fall within the inevitable grey areas. Additionally, the interplay between local eviction moratoriums, AB 3088 and the CDC Order (or any other legislation that is ultimately passed) will unavoidably lead to conflicting language and further questions of uncertainty. The landscape will continue to shift, and landlords and tenants should continue to look for the most recent updates with respect to how best to proceed, or not proceed, in the context of evictions.

The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this web site or any of the e-mail links contained within the site do not create an attorney-client relationship. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.

Flowchart: California COVID-19 Eviction Protections

December 8, 2020/in All Blog Posts, Real Estate/by Chris Evans

This flowchart gives tenants an idea of how eviction protection works under the Covid-19 Pandemic guidelines.

Webinar: COVID-19 Impact and Options for Commercial and Residential Real Estate

April 17, 2020/in All Blog Posts, Real Estate, Webinars/by Chris Evans

The COVID-19 pandemic has had a dramatic impact on real estate issues and has prompted all levels of government to enact new legislation to mitigate the impact on landlords, tenants, and banks.

In an effort to help our clients and partners understand the impact of COVID-19 and the recent legislation on real estate matters, our office held a webinar April 15, 2020. Our panel composed of real estate professionals discussed the market for commercial and residential real estate as well as how recently enacted ordinances have impacted the local real estate market.

Our featured panelists:

Ajay Gupta, Founder of Gupta Evans and Associates. — Attorney Ajay Gupta is a certified bankruptcy specialist and has been working on real estate and bankruptcy matter since 2005. He represents both debtors and creditors in state and federal bankruptcy court on a host of matters from secured transactions, to landlord-tenant disputes, to complex bankruptcy matters.

Chris Evans, Partner at Gupta Evans and Associates. — Chris Evans is a litigation attorney, representing both businesses and individuals in an array of general civil litigation matters, primarily focused in the real estate and business context. Such matters include: lease disputes with respect to commercial and residential landlords and tenants; commercial and residential eviction proceedings.

Jon Hamby, Partner at Fortis Legacy. — Jon Hambyhas over $1 Billion in transactional experience and manages over $500 Million in real estate portfolio assets. He has a diverse commercial real estate background that encompasses the representation of both tenants and landlords in asset acquisition and disposition for lease and sale and runs a multi-family office for private real estate portfolios

Mark Kagan, Founder of Law Offices of Mark Kagan — Mark Kaganis a real estate attorney with 34 years of experience under his belt. He has worked on thousands of real estate contracts, negotiated legal terms, and drafted legal language for commercial and residential real estate transactions.

Henish Pulickal CEO of Cal Home Company. — Henish Pulickal is CEO and owner/operator of The California Home Company brokerage, as well as CalHomeCo Buys Houses. He is an investor, contractor, and a broker.

Please feel free to reach out to any of the panelists with questions or concerns.

Commercial and Residential Evictions in California in the time of COVID-19 (Part 1 of 3) Updated as of: August 13, 2020

April 10, 2020/in All Blog Posts, Corporate Litigation/by Chris Evans

As we continue to adjust to the “new normal” of a world battling the Coronavirus pandemic, previously meaningless words and phrases like the “curve,” “social distancing,” or “shelter in place” have become everyday vernacular. New directives continue to be issued that impact our daily lives and add to an already confusing landscape of do’s and don’ts. While good intentioned, the order has resulted in sudden, unanticipated changes in the way businesses can operate, if they can continue to operate at all. This has caused businesses, and the individuals they employ or once employed, to experience severe financial stress with no clear end in sight.

As a result, residential and commercial tenants experiencing Coronavirus-induced financial pressures are asking themselves not only how they will be able to pay rent this month, but for the foreseeable future. In response, state and local leaders in California have raced to enact legislation aimed at alleviating the enormous anxiety and stress felt by residential and commercial tenants as a result of this pandemic. Additionally, most recently, the Judicial Council of California adopted 11 categories of COVID-19 emergency rules, one of which suspends nearly all evictions in California.

While the passage of these orders and rules was a good first step, a sufficient understanding of what they mean is a necessary next step.

This three-part article, originally posted on April 10, 2020 and updated here to reflect changes over the past four months, aims to provide information for landlords and tenants alike with respect to rental obligations and evictions in: California; the City of San Diego; and how the Courts are similarly addressing these issues.

Statewide California Eviction Moratorium

First, on March 16, 2020, Governor Newsom issued Executive Order N-28-20, which was essentially a nudge to local municipalities that they can (and should) enact their own eviction and/or rent moratoriums for tenants that are unable to pay rent because of COVID-19. This Order, however, would pave the groundwork for local cities and towns across the state to institute their own eviction protections.

In just a week’s time, the landscape continued to shift; namely, California issued its statewide Stay At Home Order and many national and state banks and credit unions agreed, and continue to agree, to mortgage payment deferments or assistance for business and homeowners. This shift enabled further action by Governor Newsom in the context of rent and evictions.

On March 27, 2020, Governor Newsom added his necessary first boost to his prior eviction order and issued Executive Order N-37-20. The Order prohibited landlords from evicting residential tenants for nonpayment of rent caused by COVID-19 and prohibited enforcement of eviction orders by law enforcement or courts. This protection only lasted through May 31, 2020 and the Order did not apply to commercial leases.

In the time between Executive Order N-37-20 being issued and its expiration at the end of May, hundreds of local municipalities across California began to utilize the power entrusted to them by Governor Newsom (via his first Executive Order N-28-20) and instituted their own eviction moratoriums, often applicable to both residential and commercial leases. However, the ability of local municipalities to afford tenants protection from eviction was slated to expire on May 31, 2020, pursuant to Executive Order N-28-20, Paragraph 2. In other words, local eviction moratoriums would not be able to last into June.

With California residents confronted with a looming expiration of their eviction protections, Governor Newsom first issued Executive Order N-66-20 on May 29, 2020 (extending the timeframe 60 days to July 28, 2020); and then Executive Order N-71-20 on June 30, 2020, which extended the timeframe through September 30, 2020. As a result, local governments and municipalities were given the power to extend their eviction moratoriums through September.

Assuming a tenant’s local city, town or municipality elects to extend eviction moratorium, there are still requirements that tenants must meet in order to be protected under Governor Newsom’s Order(s). Specifically, unless a local ordinance specifies otherwise, a tenant will not be protected if they do not abide by the following requirements:

Prior to March 27, 2020, the tenant paid rent to the landlord pursuant to the lease agreement.
The tenant notified the landlord in writing before the rent is due, or within a reasonable period of time afterwards not to exceed seven days, that the tenant needs to delay all or some payment of the rent because of an inability to pay the full amount due to reasons related to COVID-19 (examples of reasons found in the Order);
The tenant must retain verifiable documentation explaining the tenant’s changed financial circumstances to support the tenant’s assertion of an inability to pay. The tenant is not required to submit the documentation to the landlord at the time of notice, but will be required to provide the landlord with documentation of his/her inability to pay no later than the time of payment of back rent owed.

It is important to note that the unpaid rent is not waived or excused and must still be paid to the landlord once the Order is no longer in effect. Additionally, subject to local ordinances specifying otherwise, landlords appear to still be allowed to terminate leases for non-payment and other, legal causes (e.g. serve 3-Day Notices To Pay or Quit); but, are simply banned from enforcing any evictions and removing tenants while the Order is in effect. While this ensures that those residential tenants that fall within the Order’s scope will not be physically removed from their homes during the pandemic, it does not alleviate the root problem of being unable to pay rent. Moreover, the Order does not provide any protection to commercial tenants (i.e. the thousands of businesses struggling to stay afloat.)

San Diego’s eviction moratorium, on the other hand, goes a bit further, and is addressed here.

The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this web site or any of the e-mail links contained within the site do not create an attorney-client relationship. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.

Commercial and Residential Evictions in California in the time of COVID-19 (Part 2 of 3) Updated as of: August 13, 2020

April 10, 2020/in All Blog Posts, Corporate Litigation/by Chris Evans

Part 1 of this three-part article, which addresses Governor Newsom’s statewide eviction moratorium in California, can be found here. Part two covers San Diego’s actions in the pandemic.

City of San Diego Eviction Moratorium

On March 25, 2020, the City of San Diego[1] adopted its own temporary eviction ban when the San Diego City Council unanimously adopted Ordinance No. O-21177. The Ordinance not only halted both residential and commercial evictions through May 31, 2020, but also provided affected tenants with approximately six months to repay any unpaid rent as a result of the Coronavirus pandemic.

Since passage of the Ordinance, the San Diego City Council has since extended the eviction protections twice—first to June 30, 2020, and then again to September 30, 2020.

Like the California Order, tenants must meet specific benchmarks in order to receive the protections of the City’s Ordinance. If a commercial or residential tenant does not meet these specific benchmarks, the tenant will not be protected under the City of San Diego Ordinance and a landlord will be permitted to immediately pursue any applicable rent enforcement or eviction actions, to the extent permitted by law. Tenants must satisfy all of the following criteria:

Unable to timely pay rent due on or after March 12, 2020;
Tenant’s inability to pay rent is due to financial impacts related to COVID-19;
- “Financial impacts” are specifically defined as: a substantial decrease in household income for a residential tenant, or in business income for a commercial tenant, due to business closure, loss of compensable hours of work or wages, layoffs, or substantial out-of-pocket medical expenses.
- A financial impact is “related to COVID-19” if: it is caused by the COVID-19 pandemic or any governmental response to the COVID-19 pandemic, including complying with any public health orders or recommended guidance related to COVID-19 from local, state, or federal governmental authorities.”
On or before rent due date, tenant must provide written notice to the landlord of inability to pay (e-mail or texts message is sufficient); and
- A sample letter that tenants can use to provide notice can be found at the San Diego Housing Commission’s website.
Within one week of giving landlord notice of inability to pay, the tenant must provide landlord with documents or objectively verifiable information that the tenant is unable to pay rent because of the financial effects of COVID-19
- Examples of documentation: note or letter from employer regarding tenant’s loss or substantial reduction in employment; payroll records showing substantial loss of income due to COVID-19; bank statements that illustrate a drop in income; or other documentation that proves that tenant has not been generating the same level of income due to COVID-19.

An obvious, and significant, difference in the City of San Diego’s Ordinance relative to both Orders previously issued by Governor Newsom is the application to commercial tenants, in addition to residential tenants. This paves the way for struggling San Diego businesses to get a much-needed reprieve from paying rent after their income stream has been drastically reduced, or disappeared, effectively overnight.

Additionally, the City’s Ordinance also prohibits landlords from “taking any action to evict a tenant,” which is explicitly defined to include serving notices (e.g. serve 3-Day Notices To Pay or Quit), as well as charging late fees. The prohibition against serving notices is a notable difference from the statewide eviction moratorium in that service of a notice to pay rent or quit, which would very likely expire and terminate tenancies, would effectively hand tenants a ticking eviction timebomb set to go off once the Ordinance was no longer in effect.

An interesting wrinkle in the ordinance is with respect to “no-fault” evictions—evictions not based on the tenant’s actions, such as the landlord removing the property from the rental market or performing renovations. If a tenant falls within the scope of San Diego’s Ordinance, as specified above, landlords are also prohibited from pursuing a “no-fault eviction.” This would appear to be an effort to avoid landlords that my try and do and end-around the Ordinance by disguising non-payment of rent (at-fault) evictions as no-fault evictions.

Lastly, it is important to note that the City’s Ordinance does not relieve the tenant of liability for unpaid rent after expiration of the provisions this Ordinance (currently September 30, 2020). Rather, the obligation to pay rent is simply deferred for up to six months, unless the tenant moves out sooner, in which case all unpaid rent becomes due upon move out. If the rent balance remains unpaid after six months, the landlord may pursue collection and eviction remedies immediately.

In addition to the relief efforts at the state and local level to avoid to evictions, the Judicial Council of California has also endeavored to cut to the chase and suspend all evictions across the State of California for the foreseeable future, but that may be coming to and end very soon—all of which is discussed in Part 3 of this article here along with next steps going forward.

[1] Imperial Beach, Chula Vista, San Marcos and Oceanside are also taking similar steps to shield renters from eviction.

The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this web site or any of the e-mail links contained within the site do not create an attorney-client relationship. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.

Commercial and Residential Evictions in California in the time of COVID-19 (Part 3 of 3) Updated as of: August 13, 2020

April 10, 2020/in All Blog Posts, Corporate Litigation/by Chris Evans

Part 1 and Part 2 of this three-part article, which addresses Governor Newsom’s statewide California eviction moratorium and the City of San Diego, can be found here and here.

The Judicial Council of California’s Emergency Rule 1

On April 6, 2020, the Judicial Council of California adopted 11 categories of COVID-19 emergency rules to assist California courts in a variety of respects, one of which is evictions. Pursuant to Emergency Rule 1, effective immediately, essentially all evictions and unlawful detainers are suspended. The rule prohibits any California Court from issuing a summons on any unlawful detainer complaint, as well as entering the default of any tenant in any unlawful detainer action. There is a narrow exception for actions necessary to “protect public health and safety;” however, this phrase is undefined. As originally drafted, this Rule was set to remain in place until 90 days after Governor Newsom lifts the California State of Emergency declaration.

As time ticked by and the pandemic worsened across California, it became quite clear that the California State of Emergency was not going to be lifted any time soon. As a result, the statewide ban on evictions, pursuant to Emergency Rule 1, was essentially set to be in place indefinitely. Realizing this and reiterating the intent of Emergency Rule 1 to only be temporary, the Judicial Council of California took action to amend Emergency Rule 1.

On August 13, 2020, the Judicial Council voted 19-1 to amend Emergency Rule 1 to end California’s statewide eviction freeze. Pursuant to the Judicial Council’s amendment, the statewide eviction freeze will be lifted as of September 1, 2020. In voting to amend the eviction ban, California Chief Justice Tani G. Cantil-Sakauye stated, “The duty of the judicial branch is to resolve disputes under the law and not to legislate. I urge our sister branches to act expeditiously to resolve this looming crisis.”

The Judicial Council’s eviction suspension was extraordinarily broad in that it did not limit itself to situations in which commercial or residential tenants are grappling with financial difficulties caused by COVID-19, and, instead, served as a blanket suspension on evictions. For over five months, the Emergency Rule has prevented landlords from taking any legal action against any tenant, regardless of whether the tenant has been affected by COVID-19. Now, with the passage of the Judicial Council’s Amendment to lift the statewide eviction freeze, California State Courts can now resume all unlawful detainer proceedings that came to a sudden halt in April of 2020 and begin processing all unlawful detainer complaints filed during the eviction freeze.

Similar to Governor Newsom’s eviction Order, the Judicial Council’s rule did not alleviate the root problem of tenants being unable to pay rent. As noted by the California Chief Justice, the legislature—not the judiciary—have the proper tools to attempt to solve the inevitable eviction crisis, and it will up to the California legislative bodies to craft a solution to afford relief to residential tenants. One such measure that the State Legislature is considering is AB 1436, which strikes a balance of protecting financially impacted tenants from eviction while also preserving landlords’ rights.

AB 1436 prohibits landlords from evicting tenants that cannot pay rent due to the economic effects of COVID-19. However, the proposed law permits landlords to evict a tenant that is not financially affected by COVID-19 and fails to pay rent, or a tenant that occupies the property unlawfully. In its current form, AB 1436 satisfies landlords’ interests and concerns and protects tenants that have felt the financial impacts of COVID-19. AB 1436 does not apply to commercial tenancies.

President Donald Trump’s Executive Order to Ban All Evictions

On August 8, 2020, President Donald Trump signed four separate executive orders, one of which was meant to protect all U.S. renters from eviction (the “Order”). However, the Order does little to achieve its overall purpose as it does not restrict any landlord, commercial or residential, from evicting a tenant.

The Order directs the Secretary of Health and Human Services and the Director of the CDC to evaluate whether halting evictions is “reasonably necessary to prevent the further spread of COVID-19.” The Order also instructs the Secretaries of the Treasury and Housing and Urban Development departments to identify all federal funds that can be used to provide temporary financial assistance to renters that are struggling to pay rent. The Secretaries of Treasury and Housing and Urban Development are further required to “promote the ability of renters and homeowners to avoid eviction.”

The Order does little to effectuate an instant protection to millions of Americans—and Californians—that are struggling to pay rent. Rather, the Order requires that other federal agencies investigate the problem and determine if it necessary to halt evictions and provide financial relief to renters. Looking ahead, all renters across the U.S., including California renters, must look to their state legislatures and local municipalities for assistance.

Conclusion & Recommendations

Commercial and residential landlords and tenants are facing an incredibly unique and unparalleled set of circumstances. The temporary eviction moratoriums at both the state and local levels have been enacted to try and combat not only the financial and economic stresses caused by the COVID-19 pandemic, but also the consequences of such stresses, such as losing one’s home or possession of a business. It is important to be cognizant of the fact that there are sure to be situations and instances that remain unaddressed, subject to dispute or simply fall within the inevitable grey areas. Additionally, the landscape will continue to shift and landlords and tenants should continue to look for the most recent updates.

With that in mind, landlords and tenants should try to be patient with each other and remain organized. Document as much of the interactions with your tenant or landlord as you can, and preserve all letters, notices, correspondence (e-mails and text messages included) exchanged with your landlord or tenant. Additionally, both landlords and tenants should understand that tenants will still be responsible for the rent that they are unable to pay on time. The eviction moratoriums do not forgive tenant’s missed rent payment. Finally, the requirements in the Orders and Ordinance speaking to notice and documentation are the minimum requirements. There is nothing from preventing a landlord or a tenant from engaging further with one another to try and come to mutual understandings, payment plans, lease addendums or the like and such options should almost always be considered.

Should you have questions or concerns about your rights or obligations, whether from a landlord or tenant’s perspective, an experienced real estate attorney can help you navigate these issues and the uncertainty that comes along with them.

The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this web site or any of the e-mail links contained within the site do not create an attorney-client relationship. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.

Insolvency and Corporate Responsibilities To Creditors

February 15, 2019/in All Blog Posts, Corporate Litigation/by Chris Evans

The moment a corporation becomes insolvent, a lot can change, and fast. If the officers and directors of the company are unaware of how insolvency can transform the landscape of corporate responsibilities and duties, they run the risk of exposing themselves to liability for the corporation’s debts, even if there was no personal guaranty. For purposes of this blog article, we look at how insolvency changes (or doesn’t change) the scope of a director’s fiduciary duties to creditors.

The Business Judgment Rule

First, a little background information. The decisions of a company’s Board are scrutinized under what is known as the business judgment rule (the “BJR”). The BJR provides broad latitude to the decision makers of a business, and courts will not review (i.e. second guess) directors’ business decisions or hold directors liable for errors or mistakes in judgment, so long as they satisfy the following:

Disinterested and independent;
Acting in good faith; and
Reasonably diligent in informing themselves of the facts.

When a company becomes insolvent the protections of the BJR remain largely intact. However, the duties owed by the directors of the company become slightly larger.

Fiduciary Responsibilities

It is well established that corporate directors owe a fiduciary duty to the corporation and its shareholders and must serve in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders. Corporations Code § 309. Notably, this fiduciary duty is not owed to a corporations’ creditors.

In California, only upon a company becoming insolvent does any such duty become owed to creditors. Even with such duty, however, the duty is limited in scope and is not synonymous with the fiduciary duty directors owe to the corporation and its shareholders. Unlike the fiduciary duty owed to the corporation and its shareholders (above), there is no statutory authority in California establishing that, upon a corporation’s insolvency, or otherwise, directors also owe a duty to the corporation’s creditors. In fact, under current California law, there is no broad, paramount fiduciary duty of due care or loyalty that directors of an insolvent corporation owe the corporation’s creditors solely because of a state of insolvency. Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1041.

Rather, the duty owed by directors to creditors is an extension of the contractual relationship that already exists between the creditor and the company in question, and stems from what is known as the “trust fund doctrine.

The Trust Fund Doctrine

The trust fund doctrine dictates that all of the assets of a corporation, immediately upon becoming insolvent, become a trust fund for the benefit of all creditors in order to satisfy their claims. Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1040. The scope of violations of the trust fund doctrine are limited to instances where directors or officers have “diverted, dissipated, or unduly risked the insolvent corporation’s assets.” Id. As such, by relying on the trust fund doctrine, California courts hold that the scope of the duty owed by corporate directors to the insolvent corporation’s creditors is limited in California only to the avoidance of actions that divert, dissipate, or unduly risk corporate assetsthat might otherwise be used to pay creditors claims. This would include acts that involve self-dealing or the preferential treatment of creditors (i.e. directors diverting assets of the corporation for benefit of insiders or preferred creditors).

Defining Insolvency

With the existence of such a duty owed to creditors upon “insolvency,” the next question, naturally, becomes, “What is the definition of insolvency?” Unfortunately, there are multiple definitions and, ultimately, will be an issue of fact. California Corporations Code section 501 provides, for example, that a corporation is insolvent, if, as a result of a prohibited distribution, it would “likely be unable to meet its liabilities … as they mature.” In the Ninth Circuit Court of Appeals, a finding of insolvency by the standard of a debtor not paying debts when they become due requires more than merely establishing the existence of a few unpaid debts. See In re Dill, 731 F.2d 629, 632 (9th Cir.1984). There is also insolvency in the balance sheet sense in which the value of liabilities exceeds the value of assets. See In re Kallmeyer, 242 B.R. 492, 496–497 (9th Cir.BAP1999).

Fortunately, because the trust-fund doctrine only deals with entities that are actually insolvent, California courts hold that there is no fiduciary duty that is owed to creditors by directors of a corporation solely by virtue of its operating in the “zone” or “vicinity” of insolvency. Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1041. While insolvency is a grey area in and of itself (above), the existence of a zone or vicinity of insolvency is even less objectively determinable than actual insolvency, which is further reason why California courts do not prescribe a duty owed to creditors when an entity operates in the “zone of insolvency.” Accordingly, when a solvent corporation is navigating in the zone of insolvency, the focus for directors does not change: directors must discharge their duty to the corporation and its shareholders by exercising their business judgment in the best interests of the corporation for the benefit of the shareholder owners.

Based on the foregoing, and in conjunction wit the BJR, it follows that in order for a creditor to hold a director liable for operational decisions of the business based on allegations of breach of fiduciary duty, the creditor would need to establish the following: (1) the company was insolvent; (2) the conduct in which the director engaged amounted to self-dealing, preferential treatment of creditors, and diversion, dissipation or undue risk of corporate assets; and (3) directors were not personally disinterested and their acts were not performed in good faith and without following reasonable investigation (i.e. a rebut of the presumption afforded by the BJR).

The challenge for a director is that the definition of insolvency is not clear under California law, as described above. As a result, when a corporation approaches a point where it cannot pay its creditors or when a dissolution is reasonably foreseeable, it is important to understand the potential obligations to the corporation’s creditors. The failure to recognize such obligations will expose you personally for liabilities that were once held exclusively by the corporation. Such personal liability can come in the form of fraud or breach of fiduciary duty, which also may become non-dischargeable in a bankruptcy under 11 USC 523(a). As such, at a minimum, you should consult with counsel to make sure your bases are covered.

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Author: Chris Evans