The “COVID Rent Debt” Is A Looming Problem That Must Be Addressed Now

By David Campbell Smith

The federal government can rightly be criticized for a “head in the sand” approach to the coronavirus crisis, even after it was officially christened a pandemic.  To their credit, it did not take nearly as long for state and local officials, particularly in California, to recognize that renters, both residential and commercial, were going to need government protection to prevent mass evictions following the inevitable economic crash.  Unlike borrowers in the subprime mortgage crisis, who received little meaningful protection to avoid the loss of their homes, eviction moratoriums have been timely enacted and have prevented millions of renters from losing their homes and businesses at the onset of the economic collapse.  These protections, however laudable, are only a temporary solution and do not address a significant problem that will remain long after the “stay at home” orders are lifted and the economy begins its painful recovery.  Millions of those same renters who were able to stave off eviction and remain in their homes or salvage their businesses will be saddled with enormous deferred rent with little possibility of repaying it before the legislature’s grace period runs out.  Evictions that were temporarily averted will being begin at a massive scale.  Not only will renters lose their homes or business, but they will carry huge “rent debt” that will ruin their credit and drive many into bankruptcy. 

Consider this sobering statistic.  The average rent for an apartment in the Los Angeles area is $3,000.  If the eviction and rent forbearance protections remain in place until the end of 2020, a typical residential tenant will owe a staggering $30,000 in “rent debt” that accumulated over a ten-month period.  Most jurisdictions in Southern California allow that debt to be paid over six months (the cities of Los Angeles and West Hollywood are the current outliers, with a twelve-month repayment period).  For renters who may just be getting their jobs back, or remain unemployed even as eviction protections are lifted, repaying that debt is an impossibility. 

No coordinated state or local solutions seem to be forthcoming, despite the alarm having been raised at the outset of the crisis by housing advocates.  While we wait and hope for a legislative solution, some of the ideas being mooted by the grassroots organizations are worth considering and include:

• Recasting the “rent debt” as consumer debt, much like credit card debt.  Although renters will still owe the debt, landlords could not evict them for non-payment.  Although this is a creative solution to the eviction problem, it still saddles renters with massive debt they have no realistic prospect of repaying, and will force many into bankruptcy. 
• Lease extensions.  Under this scenario, the term of the lease would be extended commensurate with the amount of rent owed.  So ten months’ worth of rent debt would extend the lease by the same period.  The “rent debt” would be repaid in monthly installments and would act like a rent increase.  This may work for some.  For most, the rent increase would be prohibitive.
• Rent forgiveness.  This is the most drastic proposal, where the entire debt, or a significant portion would be forgiven.  This would be a huge benefit to renters but would be devastating to landlords without some form of relief to them.

The solution cannot be left to the well-meaning proposals of advocacy groups.  Instead, it requires proactive intervention by local and state elected officials.  Without a systemic solution to the problem, we will soon be seeing large scale evictions and renters forced into bankruptcy to seek relief from crushing debt.

David Campbell Smith is a civil litigation attorney in Los Angeles, specializing in real estate law with an emphasis on landlord and tenant issues.