Legislature(2005 - 2006)BELTZ 211

03/28/2006 01:30 PM LABOR & COMMERCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 241 JOINT INSURANCE ARRANGEMENTS TELECONFERENCED
Scheduled But Not Heard
*+ SB 309 CONSTR. TRAINING GRANT;UNEMPLOYMENT COMP. TELECONFERENCED
Heard & Held
+ Confirmation of Governor's Appointees: TELECONFERENCED
<Teleconference Listen Only>
Board of Barbers and Hairdressers -
Cody Downs,Charlette Lushin,Alice Massie
Real Estate Appraisers -
William Larick
Alaska Workers Compensation Board -
Robert Morigeau, Debra Norum,
Jeffrey Pruss, H. Bardie Scarbrough,
Damian Thomas, Robert Weel
Alaska Labor Relations Agency -
Dennis Niedermeyer
Board of Marine Pilots -
Les Cronk
Personnel Board -
Alfred Tamagni, Sr.
Bills Previously Heard/Scheduled
Including But Not Limited to:
+= SB 307 LANDLORD REMEDIES; LATE FEE TELECONFERENCED
Heard & Held
+= SB 300 MOTOR VEHICLE NEGATIVE EQUITY TELECONFERENCED
Moved CSSB 300(L&C) Out of Committee
               SB 307-LANDLORD REMEDIES; LATE FEE                                                                           
                                                                                                                              
CHAIR CON BUNDE  announced SB 307 to be up  for consideration. He                                                               
recapped that going  to a seven-day notice would  allow people to                                                               
be a  month late on  their rent. Going  to a 10-day  notice would                                                               
allow them to be  evicted if they were late more  than twice in a                                                               
year.                                                                                                                           
                                                                                                                                
ED SNIFFEN,  Division of Consumer  Protection, Department  of Law                                                               
(DOL), explained under  the current bill, if a tenant  is late on                                                               
his rent, the  landlord can issue a seven-day Notice  to Quit and                                                               
if the  tenant cures the problem,  he is not evicted.  But if the                                                               
tenant repeats that  offense within so many  months, the landlord                                                               
can give a shorter notice period before evicting the tenant.                                                                    
                                                                                                                                
CHAIR BUNDE  said the  goal of  the bill  was to  consolidate the                                                               
late fee  notice and the notice  for nonpayment of rent  to seven                                                               
days before  an eviction process  would start. His  question was,                                                               
though, why not go to 10 days  because he has been led to believe                                                               
that a tenant can violate a  late fee twice in a six-month period                                                               
before he is liable for the eviction process.                                                                                   
                                                                                                                                
CHAIR BUNDE asked Mr. Sniffen to relate general concerns.                                                                       
                                                                                                                                
MR. SNIFFEN  said the Department of  Law did not take  a position                                                               
on this bill,  but he explained that it would  allow landlords to                                                               
evict  tenants for  not  paying late  fees just  as  if they  had                                                               
failed to  pay rent.  Currently, a  different notice  is required                                                               
for failure to  pay late fees and other charges  and the standard                                                               
of review  applied by the  court in determining whether  to evict                                                               
someone for failing to pay those fees is different.                                                                             
                                                                                                                                
     The court  must decide  whether or  not the  failure to                                                                    
     pay  those fees  constitutes a  material breach  of the                                                                    
     rental agreement.  Whereas, if you have  tentative fail                                                                    
     to pay  rent - rent is  sort of separated out  from all                                                                    
     the other  fees and charges  and when a court  is faced                                                                    
     with a situation where a  tenant has failed to pay rent                                                                    
     and   is  deciding   whether  an   eviction  would   be                                                                    
     appropriate,  the  landlord   simply  needs  to  submit                                                                    
     evidence  that  rent  wasn't paid  and  there  were  no                                                                    
     defenses  and  then  eviction  can  follow.  There  are                                                                    
     different  standards of  review,  so to  speak, that  a                                                                    
     court engages in  when reviewing a failure  to pay rent                                                                    
     versus a failure to pay a late fee.                                                                                        
                                                                                                                                
     And what this legislation would  do is it would combine                                                                    
     those into  a streamlined  procedure as  the proponents                                                                    
     have advocated that would allow  the landlords to issue                                                                    
     one notice that  would include not only  the late rent,                                                                    
     but whatever  late fees could  be associated  with that                                                                    
     rent and  then a  court would  decide if  that combined                                                                    
     fee  wasn't  paid, whether  or  not  eviction would  be                                                                    
     appropriate. The court would not  need to engage in the                                                                    
     analysis  to  determine   whether  that  constitutes  a                                                                    
     material breach  of the rental agreement  - because the                                                                    
     late fees  would be essentially rolled  into the rental                                                                    
     amount.                                                                                                                    
                                                                                                                                
CHAIR  BUNDE asked  if nonpayment  of  late fees  was a  material                                                               
breach of the contract.                                                                                                         
                                                                                                                                
MR. SNIFFEN replied yes.                                                                                                        
                                                                                                                                
1:40:53 PM                                                                                                                    
SENATOR  SEEKINS   commented  that  he  liked   streamlining  the                                                               
process,  but he  had  a  problem with  nonpayment  of late  fees                                                               
constituting a material breach.                                                                                                 
                                                                                                                                
SENATOR JOHNNY ELLIS  asked if landlords wanted  to include other                                                               
fees were in one notice.                                                                                                        
                                                                                                                                
MR. SNIFFEN replied that AS  34.03.220(a)(2) doesn't actually use                                                               
the term "late  fee" when it discussed the 10-day  notice that is                                                               
required  to  evict somebody  for  failure  to  pay it.  It  says                                                               
essentially anything else  owed to the landlord that  is not rent                                                               
falls under the  10-day notice period and before  an eviction can                                                               
occur for  non-payment of any  of those other charges,  the court                                                               
needs  to determine  that constitutes  a material  breach of  the                                                               
rental agreement.                                                                                                               
                                                                                                                                
1:44:13 PM                                                                                                                    
SENATOR SEEKINS referenced  page 2 of Mr.  Sniffen's letter where                                                               
it said  the court is not  required to consider whether  the late                                                               
fee is reasonable and he asked if  any statute puts a cap on what                                                               
a late fee can be.                                                                                                              
                                                                                                                                
MR. SNIFFEN  replied that he didn't  know of such a  statute, but                                                               
perhaps some  common law or consumer  protection principles could                                                               
be applied  to some completely  outrageous and  unreasonable late                                                               
fees. Essentially the late fee  needs to be reasonably related to                                                               
the costs of having to pursue late rent.                                                                                        
                                                                                                                                
SENATOR SEEKINS  asked if that  would be  a different type  of an                                                               
action  from an  eviction  and  the court  would  be required  to                                                               
consider whether or not that late fee was reasonable.                                                                           
                                                                                                                                
MR.  SNIFFEN  replied that  was  correct.  He said  that  current                                                               
practice among the judiciary is uneven.                                                                                         
                                                                                                                                
CHAIR BUNDE  asked if  a tenant  were late  in paying  his $1,000                                                               
rent that  was due  on the first  of the month,  did it  accrue a                                                               
late fee  beginning at  the first  of the month  and he  then has                                                               
seven days in which to pay his  rent and three more days in which                                                               
to pay  the late fee -  or did the  late fee begin 10  days after                                                               
the seven-day period.                                                                                                           
                                                                                                                                
1:47:32 PM                                                                                                                    
BOB  MAIER,  Executive   Director,  Alaska  Manufactured  Housing                                                               
Association, replied that  generally rent is due on  the first of                                                               
the month and then there is  usually a 10-day grace period. After                                                               
the end of that grace period,  the late fee would be assessed. As                                                               
it stands  now, the landlord has  to hang a seven-day  notice for                                                               
the rent  and a  separate 10-day  notice for  the late  fee. This                                                               
requires two  separate court actions.  He said that  the question                                                               
had come up about putting both  on a 10-day notice, but rules are                                                               
different for a seven-day notice than  for a 10-day notice. A 10-                                                               
day  notice  has a  six-month  re-occursion  provision. In  other                                                               
words, if the tenant does not pay  a late fee two or three times,                                                               
he could be  evicted if one 10-day notice was  used for both rent                                                               
and  late  fees.  On  a   seven-day  notice,  this  re-occurrence                                                               
provision does not fall into  play. The tenant can re-offend each                                                               
and every  month. As long  as the  tenant cures within  the seven                                                               
days, he  is fine.  With SB  307, the question  has come  up that                                                               
including  the late  fee on  the  eviction notice  would allow  a                                                               
judge to  evict for both rent  and late fee, but  he claimed that                                                               
SB  307  simply  allows  the  communication  process  to  improve                                                               
between the landlord and the tenant.                                                                                            
                                                                                                                                
MR. MAIER said that many  businesses already follow this process.                                                               
Further, he said:                                                                                                               
                                                                                                                                
     If  the tenant  came  up after  that  period and  said,                                                                    
     'Hey, I've got the $500, but  I don't have the $50 late                                                                    
     fee,  no landlord  is  going to  go  through the  whole                                                                    
     process of having to turn  their apartment, go to court                                                                    
     - it's  $435 now for a  FED that the court  awards - it                                                                    
     costs the  landlord - take  the time to get  the tenant                                                                    
     out -  go in  and have  to clean  the apartment  up and                                                                    
     then  re-rent it.  Now, that's  where the  rubber meets                                                                    
     the road. The landlord will  not go through the process                                                                    
     just to collect the late fee. He'll wait for it.                                                                           
                                                                                                                                
     The  question has  come up  now the  judge can  legally                                                                    
     evict for the late fee if  you go to a seven-day notice                                                                    
     - that  it would  be included as  rent. Well,  the same                                                                    
     thing happens, I think, as  Ed Sniffen referred to, the                                                                    
     District Court is  sort of the wild, wild,  west of the                                                                    
     judicial  system.  The  judges  have a  wide  array  of                                                                    
     decisions   that  they   can   make   and  they   don't                                                                    
     necessarily  always stick  to  the letter  of the  law.                                                                    
     I've been to two or three  hundreds of these FEDs and I                                                                    
     have never seen a judge ever evict for a late fee.                                                                         
                                                                                                                                
1:51:58 PM                                                                                                                    
CHAIR BUNDE  asked if the  landlord has to go  to court to  get a                                                               
legal document to "hang a notice to quit."                                                                                      
                                                                                                                                
MR. MAIER explained  that after a 10-day  grace period, landlords                                                               
can hang a  seven-day notice to quit. The clerk  of the court has                                                               
a standard  form to use.   Under current law, a  landlord hangs a                                                               
10-day notice  at the same  time as the  late fee. He  is dealing                                                               
with two different  pieces of paper - with  two different amounts                                                               
of money  with two  different dates  due - at  the same  time. He                                                               
said the Nakamoto decision was made  in 2002 and he wants the law                                                               
to go back to what it was before that decision.                                                                                 
                                                                                                                                
GORIUNE DUDUKGIAN,  Staff Attorney,  Alaska Legal  Services, said                                                               
he worked  on the Nakamoto  decision and agreed with  Mr. Sniffen                                                               
that SB  307 makes nonpayment of  late fees a material  breach by                                                               
definition. That means  that no matter how big or  small the late                                                               
fee is, if a tenant has paid all  the rents due, but not the late                                                               
fee,  the  landlord can  have  him  evicted  after 48  hours.  He                                                               
disagree  with  Mr.  Maier  that the  current  law  requires  two                                                               
separate  court actions.  That's simply  not the  case. There  is                                                               
nothing to keep  landlords from combining the two  notices into a                                                               
single action  and proceeding under  both of them in  an eviction                                                               
case. He explained that SB 307  gives landlords the right to take                                                               
a tenant  to court and  have them evicted  if he hasn't  paid his                                                               
late fees.                                                                                                                      
                                                                                                                                
1:56:58 PM                                                                                                                    
MR.  DUDUKGIAN also  said that  in streamlining  the process  for                                                               
landlords,  they might  create some  unintended consequences  for                                                               
both  landlords  and  the  court  system. Now  it's  easy  for  a                                                               
landlord to comply with  the law. If he ends up  in court and the                                                               
judge determines  the late  rent has not  been paid,  the judge's                                                               
hands are  tied and the person  has to be evicted.  If the notice                                                               
starts to include  late fees, then tenant  advocates like himself                                                               
will have only  one defense - to challenge  the reasonableness of                                                               
the late  fee. This would  convert a  five or ten  minute hearing                                                               
into a  half hour hearing  so the  court could determine  what is                                                               
reasonable.                                                                                                                     
                                                                                                                                
He  firmly  stood behind  the  Nakamoto  decision. The  principle                                                               
behind  it is  that eviction  is a  very harsh  remedy. It  makes                                                               
people  homeless and  families with  children have  to move.  The                                                               
Nakamoto decision  said because eviction  is so harsh,  it should                                                               
be limited to  the most major breaches - like  nonpayment of rent                                                               
or bothering other tenants. It  shouldn't be used for things like                                                               
late fees or parking fees or  fines. This law doesn't make it any                                                               
easier to evict a tenant. He  said that studies show that tenants                                                               
lose in court  about 90 percent of  the time even if  they have a                                                               
lawyer. The  whole reason behind  the Landlord Tenant Act  was to                                                               
make more of a level  playing field between landlords and tenants                                                               
and  the Legislature  doesn't  have  to make  it  any easier  for                                                               
landlords to evict their tenants with a statistic like that.                                                                    
                                                                                                                                
1:59:52 PM                                                                                                                    
CHAIR BUNDE asked  if this bill passes, all  the potential tenant                                                               
loses is three days.                                                                                                            
                                                                                                                                
MR.  DUDUKGIAN replied  that  more  than just  three  days is  at                                                               
stake.  The  seven-day notice  is  automatic  and with  a  10-day                                                               
notice you have to prove that  the breach was a material one that                                                               
should lead  to eviction. Now a  tenant can argue whether  a late                                                               
fee is material.                                                                                                                
                                                                                                                                
2:02:23 PM                                                                                                                    
SENATOR SEEKINS  said it seems  that low income folks  are really                                                               
the most  likely to be  late on a  rental payment and  a landlord                                                               
who has  no limit on  reasonableness of a  late fee can  count on                                                               
exponentially  increasing  his  rental   income  by  charging  an                                                               
exorbitant  late fee  with the  threat  of eviction.  He said  he                                                               
would like  to hold on to  the bill and examine  its consequences                                                               
further.                                                                                                                        
                                                                                                                                
2:04:20 PM                                                                                                                    
CHAIR BUNDE announced that he would hold SB 307 until Thursday.                                                                 

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