In a continued effort to take aggressive steps to protect the health and welfare of its citizens from COVID-19, the City of San Diego (“City”) enacted a temporary moratorium on evictions to provide relief to residential and commercial tenants facing financial hardship related to the pandemic (the “Ordinance”) and established a Small Business Relief Fund (“SBRF”) to provide grants and forgivable or low-to zero-interest-rate loans to eligible small businesses for working capital.

Here is what you need to know about the Ordinance and the SBRF Program.

 

Temporary Eviction Moratorium[1]

The Ordinance, which went into effect immediately following its emergency adoption by the City Council late last week, will continue in effect until May 31, 2020 unless extended at the City Council’s discretion.  According to San Diego Mayor Kevin Faulconer, the Ordinance is necessary to prevent homelessness, maintain public health, and bring housing and business stability during the COVID-19 pandemic.  The Ordinance seeks to strike a balance between the interests of tenants, landlords and lenders.

The emergency Ordinance protects tenants against evictions if they can document a substantial reduction in income due to the COVID-19 pandemic, or if they are experiencing medical bills as a result of illness related to the coronavirus.[2]

The key points of the Ordinance – as it relates to both commercial and residential tenants – are as follows:

  • A landlord may not evict a tenant if the tenant is unable to pay rent because of financial impacts[3] related to COVID19.
  • On or before rental due date, a tenant must notify their landlord in writing[4] that they are not able to pay their rent in a timely manner because of COVID-19.[5] Email and text communication are valid forms of written notice.
  • Within one week of providing this notice to the landlord, the tenant must provide the 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 acceptable documentation include, but are not limited to, a note or letter from employer regarding tenant’s loss of, 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 prior to the onset of the COVID-19 pandemic.  A tenant may also show substantial out-of-pocket medical expenses related to COVID-19.
  • If a tenant does not provide the required documents within one week, a landlord may pursue an enforcement action, including eviction, authorized by state or local laws.
  • If a tenant relocates while the Ordinance is in effect, all rent owed is due when the tenant moves out, unless otherwise provided by the lease.
  • Tenants who are covered under the Ordinance have up to six months from the date the Ordinance is effective – September 25, 2020 – or the date Governor Newsom’s Executive Order N-33-20 is withdrawn, whichever occurs first, to pay their landlords all unpaid rent.
  • The Ordinance will not relieve a tenant of their requirement to pay rent or restrict a landlord from recovering rent at a future time.
  • The Ordinance directs City staff to develop a strategy to work with banks and lenders to halt mortgage payments or foreclosures for individuals and landlords who have suffered severe loss of wages and income due to the health crisis.
  • The Ordinance adopted by the City Council states that the protections the Ordinance provides may be used as an affirmative defense in any unlawful detainer action through which a landlord may try to evict a tenant.

SBRF Program

The goal of the SBRF is to help ensure the resiliency of local businesses, assist in employee retention, address the unforeseen reduction in production and consumer demand and sustain operations impacted by federal, state, City, county and local emergency declarations regarding COVID-19.

The key points of the SBRF are as follows:

  • Approximately $6.1 million is available in the SBRF, which is being administered by the City of San Diego Economic Development Department.
  • Financial assistance, in the form of grants and loans, will range from $10,000 to $20,000 and will be allocated to eligible, qualified small businesses based on the availability of funds, program guidelines and the submission of all required information and supporting documentation.
  • To be eligible, businesses must meet the following requirements:
    • Employ 100 or fewer Full-Time Equivalent employees as of February 28, 2020;
    • Have a City of San Diego Business Tax Certificate;
    • Provide documentation that shows the business has been operational for at least six months;
    • Provide proof of economic hardship due to COVID-19; and
    • Not have engaged in any illegal activity per local, state or federal regulations.
  • Businesses that are noteligible to request or receive SBRF financial assistance include, but are not limited to:
    • Lending and investment institutions and insurance companies;
    • Golf courses, race tracks or gambling facilities;
    • Nonprofit entities;
    • Businesses engaged in any illegal activity per local, state or federal regulations with federal regulations taking precedence over local or state regulations;
    • Home-based businesses;
    • Chain stores; and
    • Businesses with more than 100 Full-Time Equivalent (FTE) employees.
  • Within three business days, the City received more 6,500 applications. The City will continue to accept applications, but will be processing new applications when additional funding is identified.
  • Seed funding was provided by California Coast Credit Union, Qualcomm and San Diego Grantmakers. Companies or individuals interested in learning more about how to donate to the SBRF, please contact the Corporate Partnerships and Development Program at corporatepartnerships@sandiego.gov.

As you are aware, things are changing quickly and there is no clear-cut authority or bright line rules.  This is not an unequivocal statement of the law; instead, it represents our best interpretation of where things currently stand.  This article does not address the potential impacts of the numerous other local, state, and federal orders that have been issued in response to the COVID-19 pandemic.

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FOOTNOTES

[1]   In addition to the City of San Diego, the County of San Diego (unincorporated area) and the following incorporated cities within the County have implemented similar moratoriums: Encinitas, Oceanside, San Marcos and Vista.  The cities of Carlsbad, Del Mar, Escondido and Poway will be considering similar moratoriums next week.
[2]  “Related to” COVID means caused by the COVID-19 pandemic or any governmental response to the COVID-19 pandemic, including public health orders.
[3]  Financial impacts may include: (i) substantial decrease in household income (residential tenant) or business income (commercial tenant) due to a business closing; (ii) loss of work or hours of work; and/or (iii) substantial out-of-pocket medical expenses.  These effects may result from the tenant’s need to stay at home because of sickness or a family member’s sickness.
[4]  The San Diego Housing Commission provided the following sample letter.
[5]  We note there seems to be an inconsistency in the Ordinance that prevents a landlord from evicting a tenant for not timely paying rent that was due on or after March 12,2020 but requires notice to be provided on or before the rental due date, which could have occurred prior to the enactment of the Ordinance. We are seeking clarification of this point and will provide an update on noticing requirements when available.

*This alert is provided for information purposes only and does not constitute legal advice and is not intended to form an attorney client relationship.  Please contact your Sheppard Mullin attorney contact for additional information.*