“No State shall … pass any … law impairing the Obligation of Contracts” (Article 1, Section10, US Constitution)…” Nor shall private property be taken for public use, without just compensation” and…Violations of Substantive Due Process (5th Amendment US Constitution).
On May 8, 2020, Attorney Doug Michie of Ventura filed a complaint with the 3rd District of the U.S. Court in California against Gov. Newsom’s Executive Orders banning landlord rent collections and evictions of tenants in rental properties in California due to the speculative possibility in December 2019 of an epidemic of coronavirus. Michie cited as the legal basis of his complaint the above-cited provisions of the United States Constitution.
Michie filed the complaint on behalf of his wife, Oksana Michie, who owns residential income properties in Cambria, Cayucos and Morro Bay in San Luis Obispo County, which have suffered rent loss and plausible total loss in value since Newsom’s Order. Michie also filed his suit as a class action matter on behalf of all affected landlords in California.
The 3rd District Court of Appeal forwarded Michie’s complaint to the California Judicial Council, which Gov. Newsom delegated to handle any lawsuits arising from the coronavirus emergency orders. The Judicial Council is chaired by the Chief Justice of the California Supreme Court Tani G. Cantil-Sakauye.
In an email to California Globe, Michie wrote:
“I am happy to report that, coincidently after service of the lawsuit on the Chief Justice of our Supreme Court, the California Judicial Council is voting to sunset its Emergency Rule 1 (as well as Emergency Rule 2). Before the attached voting circular was sent out yesterday, I emailed our State Senator Hanna-Beth Jackson (D-Santa Barbara) to request that she vote to rescind this rule. The sunsetting of this additional 90-day free rent period is a great step forward for landlords”.
In his memo to State Senator Hannah Beth Jackson, Michie said that Order N-28-20 “in essence suspended the ability of Mom and Pop landlords to evict tenants that fail to pay rent for 2-1/2 months.” On May 29, Order N-66-20 extended the delay an additional 60 days to July 28, amounting to 4-1/2 months lost rent plus eviction costs of about $1,000.
According to the U.S. Census Bureau, the median housing rent in San Luis Obispo County is $1,385 per month. Four and one-half month’s rent and eviction costs would thus be about $7,232 total loss from each delinquent renter on average. Two more months of rent loss would have increased the total loss to $10,002 per unit.
Michie’s lawsuit puts a stop to extending this an another 60-days. So, Newsom’s Order is expected to expire on July 29.
Rule 1 of Order N-28-20 deals with delaying the filing of eviction actions against non-paying tenants and Rule 2 deals with delaying all pending judicial foreclosure actions against property owners. But very few foreclosures in California are handled in the courts but are handled by title companies. Thus, Rule 2 is mostly meaningless and unhelpful to landlords that may be facing foreclosures on their loans due to non-payment of rents as a result of non-payment of rents.
Michie stated in a phone interview that when he contacted the State Attorney General’s Office he was told that his suit was the only one filed against Executive Order N-28-20 holding evictions in abeyance to August 3, 2020. So, a single pending lawsuit has brought about an end to the ban on evictions and accompanying loss of rent until the tenant can be evicted.
Michie says many landlords do not have 401 (K) retirement plans, but have rental properties on which they depend for their retirement income.
The order to let Newsom’s Executive Orders expire is still pending as of this writing.
But the expiration of Newsom’s orders still leave open the issue whether property owners could seek a property takings class action lawsuit for recovery of compensable losses in the courts.
There are 6,356,336 rental units in California with an average monthly rent of $1,429 according to the U.S. Census. If just 25 percent of the tenants did not pay rent for the 4-1/2-month period plus $1,000 eviction cost, the potential loss could be in the magnitude of $1 billion to property owners. Even if the state gave landlords a tax write off, this would cut tax revenues to the state, which has a $54 billion deficit due to the governor’s lockdown order and self-imposed virus crisis.
Michie is a former deputy district attorney for the County of Los Angeles who established his law firm in Ventura in 1988 and holds degrees in biochemistry, an MBA and a PhD in Planning. He served in the National Guard for 20 years. He mainly deals in real estate matters, specializing in the division of real estate assets and commercial real estate. He can be contacted here.
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