Two New Laws Benefiting Commercial Landlords in California Take Effect in January
Landlords of shopping centers and other commercial properties in California should take steps now to reap the benefits of two new laws—both effective starting January 1, 2019—governing abandoned premises and personal property.
Governor Jerry Brown signed Assembly Bills 2173 and 2847 in July. AB 2847 reduces the number of days a commercial landlord must wait before starting proceedings to terminate a lease for premises that appear abandoned. AB 2173 increases the threshold valuation amount of abandoned personal property a commercial landlord may dispose of without the need for a public sale. Landlords should prepare to revise their lease forms and notices before these laws kick in less than eight weeks from now.
Earlier Service Allowed for a Notice of Belief of Abandonment
Under California Civil Code § 1951.3, a Notice of Belief of Abandonment (NOBA) is designed to effect termination of a real property lease (without filing an unlawful detainer) after the tenant has failed to pay rent and appears to have abandoned the premises.
Currently, a commercial landlord is required to wait until rent is at least 14 days past due before serving a NOBA, and then wait at least an additional 15 days before the lease terminates (assuming the tenant does not respond to claim the premises are not abandoned).
As of January 1, 2019, a landlord may serve a NOBA after rent has been due and unpaid for at least the number of days for the landlord to declare a rent default under the terms of a lease, but not less than three days. Although the language of the new law is somewhat vague, we believe the plain meaning of the statute supports service of the NOBA as early as the fourth day of the month. For instance, if rent is due and owing on the first calendar day of each month but is not paid, the landlord is allowed to serve a NOBA on the fourth day of the month. The new law also authorizes service by overnight courier. Previously, a NOBA had to be served personally or by U.S. Mail. Service by U.S. mail adds three days to the 15-day waiting period.
As a result of the new law, the language of NOBAs should be revised as of January 1, 2019. Each NOBA should delete the language about rent being unpaid for 14 consecutive days, and in its place use the following language: “The rent on this property has been due and unpaid for the number of days necessary to declare a rent default under your lease and the lessor/landlord believes that you have abandoned the property.”
The new section relating to commercial NOBAs, including the language required for a NOBA, is California Civil Code § 1951.35.
Greater Flexibility in Disposing of Abandoned Personal Property
Under California Civil Code § 1993 (and several related code sections), a commercial landlord is required to serve a former tenant with a Notice of Right to Reclaim Abandoned Property (Notice) if any personal property remains in the premises after the tenant vacates. A tenant has 15 days after the Notice is personally served, or 18 days if served by U.S. Mail, to reclaim the abandoned personal property—and pay the landlord the reasonable cost of storage.
If the abandoned personal property is reasonably believed to be worth less than the lesser of $750 or $1 per square foot of the premises, the landlord may keep, sell, or destroy the abandoned personal property after the Notice expires, and without further notice. Above this threshold amount, the landlord is required to hold a public sale of the abandoned personal property—with competitive bidding after publication of the date, time, and place of the sale.
As of January 1, 2019, the threshold amount will be the greater of $2,500 or an amount equal to one month’s rent and charges for the premises. For instance, if the monthly rent for the premises is $10,000, and the abandoned personal property is reasonably believed to be worth less than $10,000, the landlord may dispose of the abandoned personal property without holding a public sale after the Notice expires, and without further notice.
Under the new law, this language must be included in Notices: “Because you were a commercial tenant and this property is believed to be worth less than either two thousand five hundred dollars ($2,500) or an amount equal to one month’s rent for the premises you occupied, whichever is greater, it may be kept, sold, or destroyed without further notice if you fail to reclaim it within the time indicated above.”
This new threshold amount will allow many landlords to avoid the expense and delay associated with the public sale process. However, the legislation does not change the service method as was done for NOBAs. As a result, a Notice must be served either personally or by U.S. Mail, and will expire either 15 days after personal service or 18 days after service by U.S. Mail.
Takeaways: Now Is the TimeWith the effective date fast approaching, landlords should begin educating personnel on the new laws, reviewing tenant leases, and revising forms for NOBAs and Notices to ensure compliance with and to take advantage of these new laws.
Copyright © 2018 by Ballard Spahr LLP.
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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.