Pursuing COVID-19 Rental Debt in Small Claims Court Is it Worth it?

During the coronavirus pandemic, landlords found themselves unable to evict tenants for non-payment of rent because of statewide and local emergency ordinances that prohibited all evictions. During this early period in the pandemic, landlords considered other ways to collect unpaid rental debt, such as filing a small claims or regular civil action against their tenant. Just when some landlords started filing such actions, in August 2020, California lawmakers enacted the COVID-19 Tenant Relief Act (AB 3088 – sometimes referred to as CTRA), which imposed significant eviction protections and temporarily prohibited rental property owners from filing of small claims and ordinary civil actions to collect COVID-19 rental debt.

In 2021, the California Legislature enacted (through SB91 and later AB 832) the state’s rental assistance program and changed unlawful detainer procedures to require that landlords who seek to evict for non-payment of rent first apply for rental assistance. The law also extended the prohibition for filing of small claims and ordinary civil actions to collect COVID-19 rental debt (which is defined as debt that became due March 1, 2020 through September 30, 2021) until November 1, 2021. (Code Civ. Proc. § 116.223.) This new statute expanded the small claims court’s jurisdiction to hear actions to collect COVID-19 rental debt after November 2021, by increasing the $5,000 upper limit for business entities and $10,000 upper limit for individuals by permitting them to file a claim seeking COVID-19 rental debt regardless of the amount sought. The statute also allows a person to file a claim to collect COVID-19 rental debt even if the landlord previously brought two cases seeking more than $2,500 in the past year. (Code Civ. Proc. §116.223.)

A mandatory Judicial Council Form, SC-500, was created specifically for the purpose of recovering COVID-19 rental debt from a tenant. SC-500 requires landlords to make specific allegations regarding rental assistance in the complaint. Prior to entry of a money judgment in the landlord’s favor, the landlord is required to verify both of the following under penalty of perjury: (1) the landlord has not received rental assistance or other financial compensation from any other source corresponding to the amount claimed; and (2) the landlord does not have any pending application for rental assistance or other financial compensation from any other source corresponding to the amount claimed. If the landlord did not cooperate with the rental assistance program, the small claims court is authorized to reduce damages if the following conditions are met: (1) the landlord refused to obtain rental assistance from the state rental assistance program; (2) the tenant met the eligibility requirements for rental assistance; and (3) funding was available. (Code Civ. Proc. § 871.10.)

Whether this expanded small claims procedure offers a practical alternative to landlords seeking to recover COVID-19 rental debt remains to be seen. There are some pros to using small claims court. In Contra Costa County, the commissioners who hear small claims cases also hear unlawful detainer cases, so they are familiar with these actions. The proceedings will also move at a faster pace than in the limited and unlimited civil divisions. However, the landlord still needs to provide evidence about rental relief efforts. Unfortunately for some landlords, the state rental assistance program was plagued with glitches, complications and inefficiencies that resulted in stalled applications, tenants unable or unwilling to participate, and applications that simply “fell through the cracks” for one reason or another. Other landlords who managed to receive some rental assistance, were subsequently denied if their tenants had already received the maximum available benefit. A landlord who wants to take advantage of the discovery allowed in limited and unlimited civil may choose to file a COVID-19 rental debt case there. However, Code Civ. Proc. § 871.11 caps recovery of attorney’s fees in typical cases at $500 for uncontested matters and $1,000 for contested matters, so a landlord may end up paying out of pocket for attorney’s fees.

Even with the expansion of small claims jurisdiction for COVID-19 rental debt, landlords often are unable to enforce a judgment. The same holds true for judgments for past due rent obtained in a regular unlawful detainer action. It is worth mentioning that AB 832 imposed a permanent prohibition, starting October 1, 2021, on the sale or assignment of any unpaid COVID-19 rental debt if the tenant or former tenant “would have qualified for rental assistance funding” and the “person’s household income is at or below 80 percent of the area median income for the 2020 or 2021 calendar year.” (Civ. Code §1788.66.) This prohibition applies irrespective of whether the tenant still lives at the property or provided a Declaration of COVID-19 Related Financial Distress. Also, on September 29, 2022 Governor Gavin Newsom signed SB 1477 into law that will limit the use of wage garnishment in the collection of unpaid rent and other debts. The law, which takes effect September 1, 2023, will further limit a landlord’s ability to enforce a small claims judgment for COVID-19 rental debt. SB 1477 modifies existing wage garnishment formulas to allow debtors to protect a larger amount of their paycheck from garnishment. Counsel who regularly advise landlords should discuss the foregoing considerations with their clients before filing a small claims court action for COVID-19 rental debt.