Mandated Moratorium Rent Repayment Plans? A Solution in Search of a Problem!

The Tuesday afternoon city council meeting agenda includes an item dryly titled, ‘Consideration of Modifications to the City’s Urgency Ordinance 20-O–2808.’  Proposed for council consideration is a major change to the terms of the city’s residential eviction moratorium: A tenant who asks for rent forbearance could have to sign on to a rent repayment plan in order to receive it. Here’s why that is a solution in search of a problem!

Changing the terms of the moratorium to impose a mandatory rent repayment plan requirement as a condition of rent forbearance is a bad idea for several reasons:

  • The prospect of a mandatory rent repayment obligation may discourage a tenant who is substantial impacted by COVID–19 from asking for forbearance;
  • Requiring a tenant to commit to a scheduled repayment plan at a moment when the economy is in near-total lockdown is asking that tenant to assume an additional financial obligation when uncertainty is at its highest;
  • The mandatory scheduled rent repayment would be an obligation on top of the regular rent once the pandemic ends. Even if the tenant remains current on the regular rent, default on the repayment obligation could “trigger” (as the staff report says) an eviction no matter how small the repayment amount; and,
  • Under an option proposed for discussion in the staff report the tenant in default could also be hit with back late fees which would increase the amount of the back rent obligation subject to later recovery by the landlord.

The bottom line is that a mandatory rent repayment play would, in effect, transfer economic uncertainty surrounding the COVID–19 emergency from the landlord to the tenant. The landlord gains a measure of certainty from the repayment plan while the tenant who agrees to rent repayments does so without knowing about employment prospects as much as a year into the future.

If a mandatory mortgage repayment plan is not a condition for mortgage forbearance for the landlord under federal guidelines, then why should it be a condition for residential tenant forbearance?

Houston, Do We Even Have a Problem?

The presumption seems to be that some tenants will take advantage of the moratorium to delay rent that could otherwise be paid, or else beat the landlord on the rent before vacating the apartment before the 1-year repayment period expires.

However there is no evidence that such a problem exists because we have no report about the forbearance process from the rent stabilization office. We don’t even know what proportion of residential tenants in Beverly Hills has asked the landlord for rent forbearance!

The data must exist: the city requires tenants to apply for forbearance from landlords using a city-provided form and then a copy of that application goes to the city too. Our rent stabilization office could tally the number of tenants who have asked for forbearance and then quickly generate a percentage of rented dwelling units for which forbearance was asked. But the staff report includes no data concerning rent forbearance. (In fact the staff report includes no comment at all from the rent stabilization office.)

We do have some preliminary data about rent payments from the rental apartment industry, though, and it seems not to be as big a problem as landlords make it out to be.

The National Multifamily Housing Council in Washington has tracked rent payments by month for some time and that data provides a means of comparison with rent payment rates during the COVID–19 crisis. The top line finding is right there in the headline: ‘NMHC Rent Payment Tracker Finds 91.5 Percent of Apartment Households Made a Payment by April 26.

This time last year, the rate of full and partial rent payments made by tenants by the end of April was 96%. The difference is not even five percentage points. That belies landlord arguments that “tenants have stopped paying rent.”

The finding is generated by aggregating payment rates from a number of big payment processors for 11 million private rental apartments (not including subsidized housing or student housing). The data does come with caveats. It is not specific to our local housing market, of course, although the Council reports that the Los Angeles region is not as hard-hit as other areas. The data also show a lower rate of full or partial rent payment for older (Class C) rental buildings of which Beverly Hills has many.

Still we don’t know what proportion of the 8,700 Beverly Hills renting households have actually asked for forbearance. That means we don’t have any idea of the extent of the problem — or even if it is a problem at all.

Landlords however like the concept of a mandatory rent repayment plan. The landlord associations recommend them, in fact.

A Mandatory Repayment Plan is Not Necessary

The staff report tees up for discussion a number of alternatives for city council consideration and they progress from required repayment to downright punitive measures if a tenant misses a payment. But city council would do well to mind the potential impact on tenants at a time when nobody knows when, or even if, the economy will return to normal. We don’t know what a ‘new normal’ could look like. Or whether lost jobs or lost employment hours will return.

Beverly Hills would also be an outlier if it required tenants to commit to a rent repayment plan for forbearance. We don’t know of another city that has imposed such a requirement. Cities that mention it stipulate that any repayment plan is voluntary.

Do you have an opinion you would like to share with our city councilmembers?  Call in with a comment by dialing 310–285–1020 shortly after the tele-meeting begins at 2:30 p.m. You will have three minutes to comment. (Please refer to the staff report for agenda item A–2.)