Justice Delayed Is Justice Denied: Regaining Possession of Commercial Real Property in a Court System Impacted by the Great Recession and the Covid-19 Epidemic

• Jurisdiction: California,United States
• Author: Kyle Yaege
• Publication year: 2021
• Citation: Vol. 39 No. 3

Justice Delayed Is Justice Denied: Regaining Possession of Commercial Real Property in a Court System Impacted by the Great Recession and the COVID-19 Epidemic

Kyle Yaege

Kyle Yaege is a partner with Hickman Robinson Yaege, LLP in San Diego, where he focuses his practice on real estate and business matters. He has represented clients ranging from individual homeowners and tenants to Fortune 500 companies, and from public agencies to non-profit organizations. Kyle's work includes a broad spectrum of issues that relate to business and real property, including finance, acquisition, development, and management.

I. UNLAWFUL DETAINER PROCEEDINGS WERE SLOWED AS AUSTERITY MEASURES WERE TAKEN IN RESPONSE TO THE GREAT RECESSION AND WILL SLOW FURTHER AS COVID-19 EVICTION MORATORIA EXPIRE

Budget cuts after the "Great Recession" of 2007 to 2009 included a reduction in funding for the California judicial system totaling approximately 25% of its entire budget (approximately $1 billion).¹ These cuts forced California's courts to close fifty-two courthouses, reduce operating hours, reduce services (e.g., court reporters), and generally reduce the public's access to justice.²

Among the services that were cut back in that "temporary" moment of fiscal hardship were "specialty" courts, "small claims" courts, and in many cases unlawful detainer (aka "eviction") courts. Since those cuts were first enacted, the budget priorities identified by the trial courts in their annual statements to the California Judicial Council have emphasized the need to return services and reestablish closed departments, including reopening closed unlawful detainer departments.³ As an example, in San Diego County with a total population of 3.1 million,⁴ the number of unlawful detainer court departments before 2008 was four, but that number was decreased to two departments in the initial austerity measures taken after the Great Recession, and now there is only one unlawful detainer department for the entire county.⁵ In March 2020, the State of California was forced to temporarily shut down all court operations in response to the COVID-19 epidemic, and despite courts "reopening" more than a year ago, various State and local moratoria⁶ have suspended eviction proceedings and generally courts have not been able to impanel juries during the epidemic.⁷ Many of the restrictions that have prevented landlords from pursuing eviction proceedings for more than a year are expected to expire in the near future, and the courts have started to conduct jury trials again on a limited basis.⁸ The expected influx of new eviction filings as COVID-19 moratoria expire has resulted in a number of articles predicting an imminent wave of evictions and bankruptcies.⁹ In short, while California Code of Civil Procedure section 1179 provides that unlawful detainer proceedings are entitled to "precedence" over all other civil proceedings, that "precedence" will not prevent the landlord from experiencing months of delay waiting for trial in many jurisdictions in California, especially in those cases where the tenant demands a jury. In light of the above, this article will review some of the tools available to commercial landlords to expedite recovery of possession of their property and increase the odds of collecting unpaid rent obligations from defaulting tenants.

A. Landlords Should Consider Non-Litigation Options First

As with all eviction proceedings based on tenant default for non-payment of rent, the landlord must consider the cost and delay of litigation against the probability that the tenant (and the tenant's guarantors) will be able to pay the resulting judgment. This process begins with a request that the tenant share information about its financial condition. For those landlords with tenants who will volunteer information confirming that they do not have sufficient assets to pay, spending even more money to regain possession is often a poor choice. In circumstances where collection of money from the tenant after eviction is unlikely, but the tenant's business appears likely to return to profitable operation once COVID restrictions are lifted, the landlord is often best served by trying to negotiate a lease amendment that allows the tenant to make up for the default over a longer period of time. Examples of potential arrangements include:

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• allowing the tenant to pay some or all the past due rent obligation with a separate note that is personally guaranteed or secured against an asset with real value (e.g., a vehicle, the merchandise, or the furniture, fixtures, and equipment in the property);
• agreeing to forbear eviction or collections efforts for a fixed period of time if tenant can obtain new guarantors for the rent obligation, or;
• agreeing to restructure the delinquent rent obligation into a new lease that includes a longer lease term (brokers and property managers sometimes refer to this arrangement as a "blend and extend" lease amendment).

In disputes where collection from the tenant is unlikely and the tenant appears unlikely to return to profitable operation, the landlord's next best option is often a "cash for keys" agreement. Under this option, the landlord agrees to forgive some of the unpaid rent debt...