Legislature(2005 - 2006)BELTZ 211
03/28/2006 01:30 PM LABOR & COMMERCE
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* first hearing in first committee of referral
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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.