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Legal Issues

Federal Moratorium Effect for Residential Landlords and Property Managers - May 7, 2020

With contributions from Jodie Clark McDougal

As is by now well known, the United States Congress passed what is commonly referred to as the CARES Act (see pp 561-564 for relevant provisions) in response to the ongoing COVID-19 pandemic. As referenced in our prior blog post, part of the CARES Act institutes a moratorium (“Federal Moratorium”) of certain residential evictions in covered properties, until at least July 25, 2020. This post contains a more detailed analysis on the Federal Moratorium and other restrictions.

Does the CARES Act apply to my rental properties?

The Federal Moratorium and CARES Act applies only to federally backed properties. However, that definition covers a wide swath of properties, including any property with a federally backed mortgage loan. A federally backed mortgage loan, to which the Federal Moratorium applies, includes loans that are:

  1. “made in whole or in part, insured, guaranteed, supplemented, or assisted in any way,” by any HUD program, or
  2. “purchased or securitized,” by Fannie Mae or Freddie Mac.

As such, the prohibitions instituted by the CARES Act potentially impact a wide variety of multifamily properties.

This means landlords should check with their lenders, and property managers should inquire with their landlords, to determine whether each rental property (e.g., an apartment complex, manufactured home community, or other rental property) is in any way part of, assisted by, or insured by a HUD program, or has a loan that was backed by, or purchased (i.e., on the secondary market) by Fannie Mae or Freddie Mac. If so, the Federal Moratorium and CARES Act applies.

What types of evictions are suspended by the Federal Moratorium under the CARES Act?

Under Section 4024 of the CARES Act, during the 120-day moratorium period that expires on July 25, 2020, a landlord of a covered dwelling is prohibited from initiating any formal legal action for recovery of possession of the dwelling because of the tenant’s nonpayment of rent or other fees or charges.

Other types of eviction actions, including actions based upon a tenant’s noncompliance with the lease or rules, are not affected by the CARES Act. However, the Iowa Moratorium, which is still in place, has suspended evictions based upon noncompliance with the lease and other evictions, as described in our prior post.

Does the CARES Act affect a landlord’s ability to charge late fees on unpaid rent?

Yes. A landlord of a covered dwelling cannot charge “fees, penalties, or other charges to the tenant related to such nonpayment of rent” during the 120-day moratorium period. In short, the landlord of a covered dwelling may neither charge late fees nor evict a tenant for nonpayment of rent during the 120-day moratorium period.

Does the CARES Act impose restrictions on landlords once the Federal Moratorium is over?

Yes. The CARES Act adds what is effectively a 30-day tail on to the moratorium period. Once the moratorium period expires on July 25, a landlord may not “require a tenant to vacate the unit [due to nonpayment of rent]” until 30 days after the landlord has provided the tenant with notice to vacate, and such notice may not be provided any sooner than July 25, 2020. The result is residential landlords are essentially prohibited from evicting a tenant for nonpayment of rent until August 26, 2020.

This guidance is based on our interpretation of the general intent of the relevant portions of the CARES Act--specifically that Congress intended the 30-day tail (set forth in Section 4024(c)) to only apply to tenants being evicted due to nonpayment of rent (as set forth under Section 4024(b)). Any alternative reading would mean residential landlords could not require any tenant to vacate until August 26, no matter what the situation - such as an expired lease, clear and present danger, or any other eviction beyond nonpayment of rent. Such a result could not have reasonably been Congress’s intent. There may be a future update on this topic.

What limiting factors should landlords remember regarding the CARES Act?

Although the CARES Act provides for prolonged protection to tenants who are delinquent on rent payments, there are several mitigating or limiting factors that residential landlords should be aware of.

First, as noted above, the prohibitions in the CARES Act apply only to evictions for nonpayment of rent. Thus, if a tenant holds over after the expiration of the lease or is otherwise in material noncompliance with the lease agreement, the CARES Act is not a bar to initiation of an action for recovery of possession, even before July 25, 2020.

Second, the 30-day tail period is not a grace period or extension of opportunity to cure. After the expiration of the Federal Moratorium, a landlord may serve a notice of nonpayment of rent upon the tenant and provide the standard three-day cure period. If the tenant fails to cure within the three-day period, the landlord may terminate the lease after the cure period but importantly may not require the tenant to vacate the premises until 30 days of the cure notice. Accordingly, landlords will need to tailor their standard notices to comply with this portion of the CARES Act. There may be further updates from us in this regard.

Third, and perhaps most importantly, the federal legislation should not provide an affirmative defense to a tenant in state small claims court. Meaning, state small claims courts should not generally be dismissing eviction cases due to potential noncompliance by the landlord with the CARES Act, but certain small claims magistrates may still choose to allow this basis as a defense to an eviction. As such, landlords should be prepared to address this possible defense to be raised by tenants.

Accordingly, residential landlords and property managers should take care to determine whether their properties are covered by the CARES Act and, if covered, comply with the CARES Act. And, once the Federal Moratorium period has expired, it is important for residential landlords and property managers to pay attention to the various timing requirements in the statute, to ensure compliance with federal law.

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