SPECIAL PROBLEMS IN EVICTING HUD TENANTS

By Dorcy Bolton, Esq.

In California a landlord who wants to recover possession of his premises can serve the tenant a 30-day notice to vacate unless the property is rent controlled.  However, the landlord cannot both accept the rent for a period after the 30 days of the 30-Day Notice has run and also evict the tenant.  This causes problems for landlords when they receive a combined HUD check for all their tenants.

THE SAVETT CASE

Bruce Savett v. Marcellus Davis, 29 Cal. App. 4th Supp. 13

Mr. Davis liked to repair his car on the landlord's property contrary to the terms of his lease.  After Davis ignored numerous notices to cease this offensive behavior, Bruce Savett, his landlord, served him a 30-Day Notice to Quit.  At the end of the 30 days, the tenant was still occupying the landlord's property, so the landlord commenced an Unlawful Detainer action.

The landlord had several HUD tenants and every month a check would arrive for the sum of the HUD payments for all the tenants attached to a stub listing the individual payments.  To get the rent for the remaining tenants the landlord had to deposit the check for all of them, including Davis.  At trial, the tenant argued that the landlord had accepted rent from HUD for a period after the 30 day notice had expired, and therefore, by a long line of California cases, the 30-Day Notice was void and the landlord's suit should be dismissed.

The landlord admitted that he had received the HUD payments, but pointed out that HUD does not pay rent.  By the terms of the United States Code and the HUD lease, HUD contributes "assistance payments" on behalf of the tenant.  The landlord argued that the payments are what HUD says they are, which is assistance payments and not rent..

The Municipal Court ruled that HUD payments are not rent and rendered judgment in favor of the landlord.  The tenant immediately filed a motion for a new trial and a motion to vacate the judgment.  Both were denied.  The tenant appealed.  The Appellate Court concurred with the Municipal Court and ruled that HUD contributions are not rent, and accepting them after the 30-day notice expired did not waive the landlord's right to terminate the lease.

The Appellate Court applied a more objective test based upon the intentions of the parties.  The court noted that "rent" is paid by a tenant for use, possession and enjoyment of the leased premises.  There is no evidence that HUD ever intended to move into the premises, to possess the premises, or to enjoy the premises.  Therefore they concluded, HUD payments are not rent.  This decision is very good news for landlords because they can cash the HUD checks while evicting a tenant.

In this case, this particular HUD lease referred to the HUD payments as "assistance payments".  Readers are cautioned that not all HUD leases are the same.  Readers should review the particular HUD lease at issue in their case to be sure the word rent is not found in the lease or in any of the HUD attachments or amendments.  They should also review  their own correspondence to HUD, and to the tenant, to be sure they weren't using the word rent to characterize the HUD payments.

In 1997 the Appellate Court revisited the issue of what is rent in Smith v. State Board of Equalization, 53 Cal.App 4th 331.  In a footnote on page 336 the court said that " ... the fact that periodic payments are denominated 'rent' does not preclude the court from evaluating the true nature and legal status of the payer ...".  In this case the court affirmed that even if HUD and the tenant call the payments rent, the court would decide whether or not the payments are rent.

CONCLUSION

Based upon the ruling in the Savett case, a landlord is free to accept HUD assistance payments after the 30 days of a 30-day notice has expired, and the landlord preserves his right to evict the tenant.

EFFECT OF APPELLATE COURT RULING ON 3-DAY NOTICE

Evicting a tenant based on a 30-Day Notice when the rent is paid is an exceptional case.  The more common basis for Unlawful Detainer actions are those cases where the rent is not paid.

In those cases where HUD has discontinued rent assistance payments the landlord can demand the whole rent from the tenant.  If the tenants fail to pay the whole amount, the landlord can file ands unlawful detainer action and have the tenant evicted.The courts have consistently ruled that the obligation to pay the whole, contract rent is entirely the burden of the occupying tenant.  If HUD fails to pay, the tenant has to come forward and pay the whole "contract rent" or be evicted.

More often HUD pays their portion, but the tenant fails to pay his portion.  The landlord can only demand the exact amount of rent owed in a 3-Day Notice.  If he demands the wrong amount, his suit for Unlawful Detainer will be dismissed.  He can't demand late fees, parking charges or claims for property damage.  If he does, his suit will be dismissed.

The question that remains unresolved is what should be demanded as the "monthly  rent" in a 3-day Notice.   Should he demand the whole "contract rent," or only the portion that the tenant pays?

If the 3-Day Notice shows the whole contract rent as the "monthly rent", the tenant can argue that the HUD portion is not rent, and therefore the 3-Day Notice is void.  If the landlord's 3-Day Notice shows the monthly rent as just the tenant's portion, the tenant can argue that the monthly rent is the HUD "contract rent" and the 3- Day Notice is void because the monthly rent shown is incorrect.  The tenant also can argue that the landlord has already been paid more than he is demanding by HUD so he has no basis to evict.

Unfortunately, in the Savett case, neither the lower court nor the Appellate Court specifically ruled on the issue of whether HUD payments constitute rent when the landlord is suing for non-payment of rent.  The issue is an important one because the landlord is left in the dark when serving a 3-Day Notice to Pay Rent or Quit.  The landlord is left without any clear guidance from the California Courts as to what demand in a 3-Day Notice is acceptable.

By extension of the ruling in the Savett case, the HUD payments are not rent and the landlord should be free to receive the HUD payments and evict anyway.  However, landlords are cautioned that extensions of court rulings into other sets of circumstances not specifically adjudicated are a hazardous business.

Bolton is a successful landlord with many rental properties and 35 years experience in real estate matters.  His practice is in real estate and financial matters, collections and defense of suits.  He has been successful in actions for investment fraud, and broker's failure to disclose.  He will consider cases based upon real estate titles, land contract disputes and mechanic's liens.  He can be reached at 714-641-3736.

This article contains general information about a selected case and is not intended as guidance for any legal action.  Readers are cautioned that it may be inaccurate, omit pertinent legal information and not be current at the time the reader sees it.  Readers are encouraged to consult an attorney about the facts of their specific case before taking any legal action.