Abandonment Issues? California is here to help

November 2018

Effective January 1, 2019, California will have two new laws on the books to benefit commercial landlords with abandoned premises and abandoned personal property. Assembly Bills 2847 and 2173 (“AB 2847” and “AB 2173”, respectively) modify existing laws regarding the abandonment of real property and personal property to the benefit of commercial landlords. Among other things, AB 2847 decreases the time commercial landlords must wait before terminating a lease after a tenant has abandoned the premises, while AB 2173 increases the amount abandoned personal property must be worth before landlords are required to conduct a public sale. Below is the current state of the law and a description of how it will change as a result of AB 2847 and AB 2173.

Abandoned Real Property

California Civil Code §1951.3 allows landlords to terminate real property leases without filing an unlawful detainer action upon notice where the tenant has failed to pay rent and the landlord believes the tenant has abandoned the premises. The form of the notice (known as the Notice of Belief of Abandonment) is dictated by statute. As the law currently stands, landlords must wait until the rent is at least 14 days late before they may serve the notice, and notices may only be served personally or by first-class mail. Further, the termination date set forth in the notice cannot be less than 15 days after the notice is served personally, or 18 days after the notice is served by first-class mail.

Under AB 2847, commercial landlords will be able to serve the abandonment notice after the rent on the property has been due and unpaid for the number of days required to declare a rent default under the lease, but in no event less than three days. For example, if a lease states that a tenant is in default if the rent is not paid within two days of the due date and the landlord believes the tenant has abandoned the premises, then the landlord will be able to serve the notice to the tenant after the third day that the rent is due and unpaid. If a lease gives the tenant a five-day grace period to pay rent before a default is declared and the landlord believes the tenant has abandoned the premises, then the landlord can serve the notice after the fifth day that the rent is due and unpaid. AB 2847 also allows commercial landlords to serve abandonment notices by recognized overnight carrier and removes the additional time period granted for service by mail, allowing landlords to set the termination date in the notice to 15 days after the date the notice was served, regardless of the method of service.

Come January 1, 2019, these changes, as well as the statutory notice form, will be codified under California Civil Code §1951.35.

Abandoned Personal Property

California Civil Code §1993.03 requires commercial landlords to serve former tenants with a notice if the tenants leave behind any personal property after vacating the premises. The form of the notice, known as the Notice of Right to Reclaim Abandoned Property, is dictated by statute and set forth in California Civil Code §1993.04. Tenants have no less than 15 days after a notice is served personally (or 18 days after a notice is served by first-class mail) to reclaim their personal property and pay the landlord the reasonable cost of storing said personal property.

If a tenant does not reclaim its personal property within the time period stated in the notice, the landlord may use or dispose of the personal property however it chooses (without any further notice) provided that the landlord reasonably believes the total value of the property is less than the statutory threshold amount. If the total value of the property is above the threshold amount, then the landlord is required to hold a public sale with competitive bidding in accordance with California Civil Code §1993.07. Currently the threshold amount is the lesser of (i) $750.00 or (ii) $1.00 per square foot of the premises. Under AB 2173, the threshold amount will be increased to be the greater of (i) $2,500.00 or (ii) one month’s rent for the premises previously occupied by the tenant. For example, if the rent for a vacated premises was $20,000.00 per month, and the landlord reasonably believes that the personal property left behind is worth less than $20,000.00, then, provided the tenant does not timely reclaim its personal property after the landlord serves the notice to reclaim the property, the landlord may use or dispose of all the personal property in any way, without any further notice and without the need for a public sale—and thus, without the cost and inconvenience associated with a public sale. It is important to note however, that AB 2173 does not modify the available service methods or timing for the notices described above.

AB 2173 also establishes new statutory language that must be included in the notice—after January 1, 2019, California commercial landlords serving these notices for personal property with a total value that is less than the threshold amount must add the following to their notice forms:

“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.”

Conclusion:

Commercial landlords who plan to utilize these two new California laws should revise and update their abandonment forms effective January 1, 2019, to conform to the new statutory requirements.