Contrary to what some people believe, few rental property owners are in a financial position to forgo rent payments for months on end. They rely on this monthly income to pay mortgages and expenses. For some investors, rent payments constitute their primary source of income.
So, where’s the relief for landlords when the government limits their ability to make money from their investments? Airlines, hotels and other industries received federal funding to compensate for some of their losses because of the coronavirus pandemic and related restrictions.
On June 13, Colorado Gov. Jared Polis issued an executive order with the stated purpose of helping prevent evictions of tenants economically harmed by COVID-19. Under the order, landlords must provide tenants with 30 days notice of any default for nonpayment before initiating eviction proceedings. Colorado law previously required three days’ notice, and that was changed not too long ago to 10 days notice. Under the executive order, landlords and lenders are prohibited from charging any late fees or penalties for any breach of the terms of a lease or rental agreement due to nonpayment that were incurred from May 1 until June 13. Federal law still bans evictions at certain properties with federally backed mortgages until late July.
On June 15, the Colorado Senate passed a measure for individuals facing a housing-related hardship due to the pandemic and transferring money received from the federal government pursuant to the eviction legal defense fund and housing development grant fund. The way I read this, there’s now a pool of money tenants can access to pay a lawyer to sue their landlords if their landlords try to evict them for nonpayment.
California has attempted to prevent commercial landlords from evicting tenants for nonpayment as the Legislature works through a proposed measure. The measure would make it unlawful to terminate a tenancy, serve notice to terminate a tenancy, use lockout or utility shutoff actions to terminate a tenancy or otherwise endeavor to evict a tenant of commercial real property, including a business or nonprofit organization, during the pendency of the state of emergency proclaimed by the governor related to COVID-19 unless the tenant has been found to pose a threat to the property, other tenants or person, business or other entity. If enacted, the measure would void any action taken by landlords to evict commercial tenants and allow certain commercial tenants to walk away from their lease obligations, which could have a significant effect on commercial leases. According to the International Council of Shopping Centers, the measure would upend real estate leases across California.
Similar laws have been proposed throughout the country and will exert great effects on landlords as these measures usually include no provisions to help landlords while they remain responsible for paying their mortgages, real estate taxes, insurance and maintenance on their properties.
I understand the need to keep everyone in their residences and protect certain businesses affected by the pandemic to avoid bankruptcy and permanent closures. But it seems unfair — and potentially unconstitutional — for government entities to negate contracts between private parties. The burden then falls on landlords to absorb some or all of these losses.
To be fair, landlords have collected some of their missing rents from residential tenants who received housing assistance from various organizations and commercial tenants that have received government assistance in the form of federal loans.
I know this might sound like a pity party for landlords, but the real impact will be on tenants if investors decide the risk and burden of owning rental property is too great and decide to sell to users. If this happens, there will be fewer rental units available in the market, and rents will go up.