Business and Legal Insights

Times are challenging for multifamily landlords with nonpaying tenants. Landlords depend on rent to pay taxes, insurance, maintenance, management fees, debt service, and other expenses related to the property. Government orders instituted as a result of COVID-19 upended the employment of many tenants in Florida as certain businesses were prohibited or restricted from operating. Unemployed tenants faced the possibility of eventual eviction for nonpayment of rent. In reaction to an anticipated increase in residential evictions, local measures to suspend evictions were adopted in March 2020 by some Florida counties, including Orange County and Miami-Dade County. On April 2, 2020, Florida’s governor entered an emergency order on a statewide basis, suspending residential evictions due to nonpayment of rent (the “Florida Order”).

The CDC Order

On September 4, 2020, the federal government’s Centers for Disease Control and Prevention (the “CDC”) issued an order titled “Temporary Halt in Residential Evictions to Prevent Further Spread of COVID-19” (the “CDC Order”). The CDC Order initially imposed a moratorium on residential evictions of “covered persons” through December 31, 2020, but the moratorium was subsequently extended through January 31, 2021 in connection with Congress’s second COVID-19 stimulus package. The CDC Order defines a “covered person” as a “tenant, lessee, or resident of a residential property who provides to their landlord, the owner of the residential property, or other person with a legal right to pursue eviction or a possessory action” a declaration under penalty in the form set forth in the CDC Order.

The CDC Order applies to any state or local area with a moratorium on residential evictions that provides fewer protections to residential tenants than the CDC Order. The Florida Order expired on October 1, 2020, meaning that the State of Florida provides fewer protections than the CDC Order. Accordingly, the CDC Order applies in Florida through at least January 31, 2021, and the CDC Order may be further extended or modified.

Federal Cases Construing CDC Order

Frustrated by their inability to collect rent from tenants as well as their inability to enforce the terms of their leases through eviction due to the myriad of local, state, and federal moratoria on evictions, landlords have filed lawsuits in various federal courts to challenge the constitutionality of the CDC Order and prevent its enforcement. Such suits have been filed in Georgia (Brown v. Azar, N.D. Ga., case no. 1:20-cv-03702-JPB), Ohio (KBW Investment Properties, LLC v. Azar, S.D. Ohio, case no. 2:20-cv-4852-JLG), and Tennessee (Tiger Lilly LLC v. HUD, W.D. Tenn., case no. 2:220-cv-02692-MSN-atc). Although these lawsuits are at various procedural stages, the landlords have been largely unsuccessful in their efforts to challenge the CDC Order. The trial courts have concluded that the CDC was authorized to issue the CDC Order to control the spread of COVID-19 from one state or possession into another (Brown). The trial courts have also denied the landlords’ request for preliminary injunctive relief on the basis that money damages do not constitute irreparable harm (Tiger Lilly and KBW Investment Properties) or that injunctive relief will not be granted to protect against future nonpayment of rent absent evidence that a future judgment against the tenant would not be collectible (Brown). The Brown landlords have filed an appeal with the U.S. Court of Appeals for the Eleventh Circuit.

Comments on the Federal Cases

The federal cases provide insight to landlords as to how federal courts evaluate the interests of the government, tenants, and landlords during a pandemic. For example, the Brown court concluded that the CDC has broad emergency powers; the CDC Order is “temporary”; the ability of landlords to evict their tenants is “only merely delayed until [the CDC Order] expires”; and the CDC Order has “protections” for landlords, specifically that “landlords are not precluded from charging or collecting fees, penalties or interest [set forth in their leases] as a result of the failure to pay rent on a timely basis.” The Tiger Lilly court concluded that, absent evidence of a landlord’s deprivation of the exclusive use of their property (such as a landlord who desires to move into an occupied rental unit), the “temporary interference with [the landlords’] real property imposed by the [CDC Order] does not constitute irreparable harm.” The KBW Investment Properties court dismissed a perjury claim by the landlord against the tenant due to alleged lying, misleading and omitting information on the CDC declaration on the basis that the relevant federal statute does not provide a private cause of action for perjury.

Based on the foregoing, the federal government’s powers during the pandemic are exceptionally broad: tenants who are “covered persons” cannot be forcibly removed from the property while the CDC Order is in effect, and landlords cannot recover possession of property from “covered person” while the CDC Order is in effect (although landlords may commence evictions proceedings). Since the criminal penalties may be assessed against a landlord who violates the COVID-19 Order are draconian, it is clear that the interests of landlords are subsidiary to those of the federal government and tenants.

Since March 2020, multifamily landlords in Florida have faced a groundswell of residential eviction moratoria from local, state, and federal governments. None of these eviction moratoria is accompanied by immediate and full compensation to landlords for unpaid rent; however, Congress’s second COVID-19 stimulus package provides limited funds to state and local governments to support rent and utilities of eligible households (although such funds may be insufficient). Instead, the moratoria are deemed “temporary,” even though the combined effect of the orders is approaching one year (the duration of many residential leases in Florida). Moreover, the moratoria merely “delay” landlords from recovering possession of leased property from nonpaying tenants until, presumably, the spread of COVID-19 halts. The “temporary” nature of the moratoria and the mere “delay” of a landlord’s right to recover possession of property, present significant obstacles to the landlord who desires to bring a takings claim against the government (i.e., “temporary” is not permanent; “delay” is not denial). For similar reasons, it is unlikely that takings jurisprudence would interpret these eviction moratoria as the commandeering or use of private property for a public purpose during an emergency, despite their practical effect.

Takings jurisprudence aside, something does not sit quite right about the residential eviction moratoria from the perspective of landlords. The ostensible purpose of the CDC Order is to prevent the interstate spread of COVID-19, but the federal government has continued to allow interstate travel through planes, trains, and vehicles, which contributes to the interstate spread of COVID-19. Similarly, the purpose of state and local moratoria is to prevent the spread of COVID-19 within their jurisdictions, but state and local governments in Florida have, with certain interruptions and limitations, allowed retail shopping, dining, hotels, and entertainment (such as theme parks) to operate as well as other forms of human interaction which contributes to the spread of COVID-19. Rather than focus on these inconsistencies, landlords would prefer to enforce the terms of their leases or receive immediate and full compensation from the government if government action interferes with their ability to collect rent or recover possession. Perhaps the best solution would be to: (1) require the government which imposes an eviction moratorium (or takes similar action) to fully compensate landlords for any unpaid rent for the duration of such moratorium, (2) allow tenants to remain in possession of property for the duration of such moratorium, (3) provide for the assignment to the government of any claims for unpaid rent against tenants. The government can later decide whether to pursue the assigned claims of unpaid rent, offer payment plans for such assigned claims, forgive the amount such assigned claims by raising taxes and/or reducing expenditures, or some combination thereof.

Checklist for Multifamily Landlord to Deal with Nonpaying Tenants

Until local, state, and federal governments develop a solution which better recognizes the property rights of landlords or the courts rule in favor of landlords with respect to their challenges to residential eviction moratoria, landlords will continue to incur taxes, insurance, maintenance, management fees, debt service, and other expenses related to the property without receiving full rent or possession of property. In order to minimize the period of time without receiving full rent or possession of property, landlords have a number of options:

1. Inform the tenant about the availability of governmental rent assistance programs.
2. Ask the tenant if the tenant’s employer, relative, or other person would provide rent assistance to the tenant, guaranty the tenant’s lease obligations, or execute a promissory note for past due rent.
3. Accept other forms of payment from the tenant for rent, such as payment by credit card, prepaid debit card, gift card, or other forms of payment.
4. Accept services from the tenant in exchange for unpaid rent, such as the tenant’s labor for maintenance and repairs to the property or other valuable services.
5. Reach an agreement with the tenant to apply any security deposits to unpaid rent.
6. Inquire whether the tenant would be willing to voluntarily relocate to one of the landlord’s other vacant properties with lower rent (such as moving from a three-bedroom unit to a two-bedroom unit or from a luxury apartment to a standard apartment).
7. Allow the lease to expire (including the landlord’s provision of any required notice), and do not renew the lease. In Florida, a tenant who remains in possession after expiration of the lease agreement without the permission of the landlord is considered a “holdover tenant” and is subject to eviction and double rent under Section 83.58, Florida Statutes. While the CDC Order may prevent eviction of the holdover tenant over his or her objection, the tenant may be more motivated to voluntarily vacate the property due to their liability for double rent.
8. Offer the tenant “cash for keys,” whereby the landlord pays the tenant to voluntarily surrender the premises to the landlord pursuant to a written agreement signed by the landlord and tenant.
9. Monitor the tenant’s compliance with nonmonetary terms of the lease. The CDC Order does not preclude evictions based on a tenant who:
   1. Engages in criminal activity while on the premises.
   2. Threatens the health or safety of other residents; 
   3. Damages or poses an immediate and significant risk of damage to property;
   4. Violates any applicable building code, health ordinance, or similar regulation relating to health and safety; or
   5. Violates any other contractual obligation, other than the timely payment of rent or similar housing-related payment (including non-payment or late payment of fees, penalties, or interest).

Conclusion

Although the CDC Order, as extended, is set to expire on January 31, 2021, the CDC Order will likely be further extended due to the change in presidential administration and to provide more time for the rollout of the COVID-19 vaccine. It is within the realm of possibility that, even after expiration of the CDC Order, some local governments in Florida may further suspend residential evictions. Given the foregoing, multifamily landlords should coalesce to make their voices better heard at all levels of government and demand immediate and full compensation in connection with any future extension, modification, or institution of residential eviction moratoria (or similar action). In the meanwhile, multifamily landlords should refer to the checklist above to deal with nonpaying tenants.

The law firm of Shutts & Bowen LLP is here to assist multifamily landlords with their legal needs in Florida.