Delinquent rent and the 3-day notice

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This article discusses the requirements and consequences for the use of the 3-day notice to pay rent or quit in residential and nonresidential income properties.

Forfeit possession in three days

A tenant, residential or nonresidential, fails to pay the agreed rents on the due date and prior to expiration of the grace period. The rent is now delinquent. The property manager serves the tenant with a 3-day notice to pay rent or quit the premises.

The 3-day notice states the exact amount of delinquent rent and any other amounts owed the landlord that are delinquent, the monetary aspect of the rental or lease agreement entered into by the tenant.

Further, the notice contains a lease forfeiture clause stating the landlord had elected to forfeit the lease, the tenant’s possessory interest in the property granted by the rental or lease agreement held by the tenant. In the event the tenant fails to pay the delinquent rent before the notice expires, the landlord is entitled to recover possession of the property.

After the 3-day notice expires, the tenant remains in possession and tenders payment of the delinquent rent to the landlord, attempting to cure the default in the lease agreement. The landlord refuses to accept the payment. The tenant refuses to voluntarily vacate.

The landlord files an unlawful detainer (UD) action seeking to evict the tenant and regain possession of the premises. The landlord claims the tenant’s possessory right to the property was terminated by the expiration of the 3-day notice and election to forfeit the tenant’s right to occupy the property and, as a result, the lease cannot now be reinstated by the tenant’s tender of delinquent rent.

Can the landlord evict the tenant even though the tenant tendered the delinquent rent in full after expiration of the 3-day notice and before the UD trial?

Yes! The tenant’s right to possession was terminated by expiration of the 3-day notice since the notice contained a declaration of the landlord’s election to forfeit the lease (that’s the occupancy, not the lease agreement). Thus, the tenant’s occupancy became unlawful on expiration of the 3-day notice containing the declaration of forfeiture. [Calif. Code of Civil Procedure § 1174(a)]

On expiration, the landlord is no longer obligated to accept delinquent rent payments and allow the occupancy and the rental or lease agreement to be reinstated when:

  • the landlord does not actually receive payment before the notice expires; and
  • the landlord declares in the 3-day notice his election to forfeit the tenant’s right to possession on expiration of the notice. [CCP §§ 1161(2), 1174(a)]

Default, notice, cure or vacate

A tenant defaults on his rental or lease agreement by failing to:

  • pay rent and any other amounts due called for in the rental or lease agreement; or
  • perform nonmonetary obligations called for in the rental or lease agreement.

On a tenant’s default, the landlord may make a demand on the tenant to cure the default or quit (vacate) the premises.

However, only a material breach allows for the landlord to forfeit of the tenancy.

Failure to pay rent or perform other significant obligations called for in the rental or lease agreement is a material breach. Conversely, the tenant’s failure to pay late charges, interest penalties, bad check charges or security deposits are minor breaches,which alone do not justify a demand to cure or quit under a 3-day notice. [Keating v. Preston (1940) 42 CA2d 110]

A failure to increase the security deposit by paying an additional sum as agreed is not a failure to pay rent. Rent must be delinquent before a 3-day notice can be served to collect all other dollar amounts due and unpaid which are minor breaches. A security deposit is security for the payment of rent. A security deposit is not rent. Thus, failure to make a security deposit payment is not a basis for a 3-day notice since it is not rent.

Some nonmonetary defaults by a tenant cannot be cured, such as waste to the premises, alienation of the leasehold or significant criminal activity which has occurred on the property, called incurable breaches. The landlord’s remedy for an incurable breach is to serve notice on the tenant to quit the premises within three days after service, leaving no alternative but to vacate. Here, a lease forfeiture clause accompanying the 3- day notice is unnecessary and ineffective since the failure cannot be cured and the tenancy cannot be reinstated. [CCP §1161(4)]

Three days between notice and UD

When a tenant does not timely pay rent, the landlord may serve the tenant with a written notice demanding the tenant pay all amounts due or vacate the premises within three days, called a 3-day notice to pay rent or quit.

A tenant has three calendar days, day one being the day after service of the notice, in which he may pay the delinquent rental amounts and avoid forfeiture of his possession and eventual eviction. [Calif. Civil Code §10]

The tenant cures the default, retaining his right to possession by paying the amount stated before the 3-day notice expires. [CCP §1161.5]

During the three-day notice period, the tenant may tender payment of the rent and cure the default in the same manner the tenant made past rental payments — by personal or company check, money order, cashier’s check, cash or electronic transfer. [Strom v. Union Oil Co. (1948) 88 CA2d 78]

A tenant’s rent that is paid by check and received on time by the landlord sometimes becomes delinquent when the check is returned to the landlord due to the tenant’s lack of sufficient funds with his bank. Since the rent is delinquent, the landlord can now serve a 3-day notice to pay or quit. However, he cannot now limit his demand for payment to cash or a money order in the 3-day notice since the tenant has been paying rent by check.

A rent check received by the landlord during the 3-day notice period must be paid by the tenant’s bank to cure the delinquency. If it is returned for lack of sufficient funds (or otherwise), the delinquent rent has not been paid, the notice has expired and the tenant’s right to possession terminated by reason of the declaration of forfeiture.Thus, the landlord may file a UD action if the tenant remains in possession.

Editor’s note — Consider a tenant under a month-to- month rental agreement whose rent checks are returned due to insufficient funds. To modify the method of payment, the landlord must serve the tenant with a written 30-day notice advising the tenant he now is to pay rent by cash or cashier’s check. [CC §827]

One year rent limitation

Unpaid rents that became due more than one year before service of a 3-day notice may not be included in the 3-day notice. If delinquent rents due for more than one year are included in the 3-day notice, the notice is defective and will not terminate the right to possession. More rent has been demanded than will be awarded by a court in a UD action. Thus, any UD action based on a notice demanding rent for delinquencies more than one year on will fail. [Bevillv. Zoura (1994) 27 CA4th 694]

However, the landlord may recover those rents and other amounts delinquent for more than one year by pursuing collection in a separate civil action, but not in an eviction (UD) action. The time period for a landlord’s recovery of due and unpaid amounts in a separate money action from a UD action is four years, due to a statute of limitations. [CCP §337]

Before a landlord or his property manager serves a tenant with a 3-day notice to pay rent or quit, the following questions must be answered:

  • Is the rent delinquent?
  • What amounts are due and unpaid?
  • When can rent earned be estimated in the 3-day notice?
  • What is a reasonable estimate of delinquent rent?
  • When does the 3-day notice expire?
  • When does the tenant’s right to possession terminate? and
  • How are subtenants evicted?

When is the rent delinquent?

Rent must be delinquent before a 3-day notice to pay or quit may be served.

Rent becomes delinquent:

  • the day following the last calendar day of the grace period established in the rental or lease agreement; or
  • the day following the due date, when the rental or lease agreement does not provide for a grace period.

However, when the last day scheduled for payment of rent falls on a legal holiday, the payment may be tendered on the next business day. A legal holiday is every Saturday, Sunday and any other day designated by the state as a holiday, which includes federal holidays. [CCP §§10, 12a]

Likewise, if the last day of a grace period for payment of past due rent (which could be the due date) falls on a Saturday, the tenant’s rent payment is not delinquent if it is received by the landlord on the first business day following the legal holiday, which would be Monday unless it is designated a federal holiday. [CCP §13; Calif. Government Code §6706]

Thus, when the final day of the 3-day notice falls on a holiday such as a Saturday, Sunday or legal holiday, the 3-day notice expires on the next business day. [Lamanna v. Vognar (1993) 17 CA4th Supp. 4; CCP §12a]

Unlike the service of documents in civil actions, mailing of the 3-day notice for failure of attempts at personal service does not extend the three-day notice period an additional five days. [Losornio v. Motta (1998) 67 CA4th 110]

To initiate the rent collection process against a tenant who is in possession, the landlord serves the tenant with a 3-day notice to pay rent or quit. The notice may be served on any day after the grace period has expired without receipt of the rent, called a delinquency.

A grace period is stated in a rental or lease agreement as a set time period following the due date during which rent may be paid without incurring a late charge. While rent may be unpaid and past due, it is not delinquent until the grace period expires and a late charge may be demanded.

Consider a landlord and tenant who enter into a lease agreement that states rent is due on the first day of each month, the due date. The lease agreement also contains a late charge provision imposing an additional charge if rent payments are not received on or before the tenth of the month. A grace period is not mentioned in the lease agreement.

Each month, the tenant pays his rent after the date for incurring a late charge. The landlord accepts the tenant’s late rental payments every month, but makes no demand for payment of the late charge.

Finally, on receipt of yet another late payment, the landlord informs the tenant all future rent payments, including the next month’s rent which is due in a few days, must be received by the landlord prior to the date for incurring a late charge.

The next month, the late charge period runs and rent has not been paid. On the day the late charge is incurred, the 11th, the landlord serves the tenant with a 3-day notice to pay rent or quit that includes a declaration of forfeiture provision. The tenant does not pay rent before the 3-day notice expires. The landlord files a UD action.

As in the prior months, the tenant tenders the rent payment to the landlord after the late charge period has expired. However, unlike in prior months, the landlord refuses to accept the payment, claiming the tenant is now unlawfully occupying the premises.

Has the landlord established an unlawful detainer on expiration of the 3-day notice?

No! The 3-day notice is premature and useless. The tenant’s rent had not yet become delinquent. Rent is not delinquent until the grace period — including extensions authorized by the conduct of the landlord’s prior acceptance of late payments— has run.

When the lease agreement called for an additional charge after the tenth, a grace period was established since, by agreement, payments received after the tenth are delinquent. Further, the conduct of the landlord by consistently accepting rent payments after the grace period without demanding the late charge by notice, extended the grace period. [Baypoint Mortgage v. Crest Premium Real Estate Investments Retirement Trust (1985) 168 CA3d 818]

Thus, the tenant’s tender of rent after the written grace period ran, but on or before the extended date set by the landlord’s conduct, was timely.

For the landlord to re-establish his ability to enforce the grace period provision in the rental or lease agreement, the landlord must first give the tenant 30-days’ advance notice of the change in terms of payment to reinstate and enforce the written grace period.

The 30-day notice of a change in terms used to reinstate the grace period should state all rent payments due following the expiration of the 30 days must be received within the written grace period, prior to delinquency. If payment is not received, a 3-day notice will be served and the late charge imposed for the agreed-to amount.

Editor’s note — For payments made on loans secured by single-family, owner-occupied residential dwellings:

  • the borrower is given a statutory ten-day grace period; and
  • the amount of the late charge is limited to the greater of 6% of the installment due or $5. [CC §2954.4(a)]

No statutory grace period or late charge limitations exist for rent payments made by tenants. The legislature should provide residential tenants with similar statutory protection (and landlord guidance) to establish consistent expectations among residential tenants and their landlords in California.

Accurate residential rent demands

To be valid, the 3-day notice to pay rent or quit served on a residential tenant must state the exact amount of money due which has not been paid. Conversely, nonresidential rent may be estimated when the exact amount cannot be accurately ascertained.

A residential tenant is not required to pay more than the amount due and unpaid to retain his possessory right under his rental or lease agreement. Likewise for nonresidential tenants, even if the rent they pay is erroneously estimated at a higher amount than the amount due.

However, if the amount stated in a 3-day notice served on a residential tenant exceeds the amounts actually due and unpaid at the time of the UD trial, the notice is invalid. [Jayasinghe v. Lee (1993) 13 CA4th Supp. 33]

For both residential and nonresidential tenants, if the amount stated in the 3-day notice is less than the actual amount due and unpaid,the tenant may pay the amount stated and avoid eviction. To collect any amounts omitted in a 3-day notice, the landlord must serve another 3-day notice to pay the balance or quit.

Estimated nonresidential rent

When the property leased is nonresidential, the 3-day notice may include an estimate of the amounts due if:

  • the notice states the amount due is an estimate; and
  • the amount estimated is reasonable. [CCP §1161.1(a)]

Failure to indicate in the 3-day notice that an estimate of the amount due is an estimate renders the 3-day notice invalid.

Further, if the landlord knows the exact amount of the delinquent rent and other monies owed, and then states a different amount as the amount due in the 3-day notice and declares it an estimate, the landlord will be unable to evict the tenant. The notice is defective for terminating the tenant’s right to possession since the exact amount of the delinquency is known to the landlord.

Also, including amounts in the 3-day notice that are not yet due, such as unbilled common area maintenance expenses (CAMs), is not a reasonable estimate of delinquent amounts. [WDT- Winchester v. Nilsson (1994) 27 CA4th 516]

An estimate of rent owed in a 3-day notice is considered reasonable if:

  • the actual amount owed is truly in question; and
  • the delinquent amount demanded is neither 20% more or less than the amount determined due at the UD hearing. [CCP §1161.1(e)]

Estimating known amounts

Consider a tenant who leases nonresidential property. The lease agreement states the tenant will pay his proportionate share of the property taxes and assessments to reimburse the landlord for his payment of the taxes.

Rent provisions in the lease agreement state the landlord will first pay all property taxes and assessments on the premises before making a written demand on the tenant for reimbursement of the tenant’s proportionate share.

Before the landlord pays the property taxes, he makes a written demand on the tenant for payment of the tenant’s portion of the unpaid property taxes. The tenant does not pay his share of the taxes demanded by the landlord and also fails to make his regular monthly rental payment.

The landlord serves the tenant with a 3-day notice to pay rent or quit. The 3-day notice states the amount due includes unpaid rent and the tenant’s proportionate share of the property taxes. The total amount does not exceed 20% of the periodic rent payment, and the notice indicates the amount is an estimate.

The tenant neither pays the amount stated in the notice nor vacates the premises. The landlord files a UD action.

The tenant claims the 3-day notice is invalid and does not terminate his possessory interest and establish an unlawful detainer since he did not yet owe property taxes on the date the notice was served. The landlord claims the 3-day notice is valid since the estimated amount was within 20% of the actual amount due — the rent.

Is the 3-day notice valid?

No! The 3-day notice to pay rent or quit is invalid. It is not reasonable for the landlord to estimate rents when he knows the exact amount owed by the tenant. [WDT-Winchester, supra]

Further, the portion of taxes demanded from the tenant as additional rent was not yet due, much less delinquent. The landlord had not yet paid the property taxes and billed the tenant, an agreed-to requisite to a demand for reimbursement.

(Guess)timating unknown amounts

Now consider a nonresidential tenant who takes possession of property on entering into a percentage lease agreement.

The rent provisions in the lease agreement state:

  • the rent is payable annually on the anniversary of the commencement of the lease in an amount equal to 20% of the gross sales proceeds; and
  • the tenant is to provide the landlord with the amount of his gross sales proceeds.

The tenant fails to furnish the landlord with the amount of sales proceeds or make the annual rental payment. The landlord serves the tenant with a 3-day notice to pay rent or quit. The notice states:

  • the amount of rent which is due and unpaid in an amount equal to 20% of the tenant’s gross sales proceeds; and
  • only the tenant knows the amount of the sales proceeds.

The tenant does not pay the rent before the 3-day notice expires. The landlord files a UD action. The tenant claims the 3-day notice is invalid since the notice did not state the dollar amount of rent due.

Can the landlord evict the tenant even though the 3-day notice did not state the dollar amount of the unpaid and delinquent rent?

Yes! The tenant cannot prevent the landlord from enforcing his right to receive rent or recover possession by failing to provide the landlord with the means needed — the amount of his sales proceeds — to determine the rental amount and then claim the 3-day notice is defective.

The purpose of a 3-day notice is to give a tenant the opportunity to avoid forfeiture of his leasehold estate by paying the delinquent rent. [Valov v. Tank (1985) 168 CA3d 867]

Rent estimates by nonresidential tenants

On receiving a 3-day notice stating the rental amount due is an estimate, the nonresidential tenant may respond by tendering the amount of rent the tenant estimates is due. [CCP §1161.1(a)]

If the amount the tenant estimates and tenders is equal or greater than the rent due, the tenant will retain his right to possession in a UD action. Likewise, when the amount estimated and tendered by the tenant is less than the amount actually due and was a reasonable estimate, the tenant retains possession by paying the additional amount and other sums awarded the landlord within five days after entry of the UD judgment. [CCP §1161.1(a)]

Subtenant evictions by the owner

For an owner to regain possession when the (master) tenant defaults and a subtenant occupies the premises, the 3-day notice must also name the subtenant as a tenant in default and be served on the subtenant. [CCP §1161]

Serving a subtenant with a copy of the 3-day notice that only names the master tenant will result in the subtenant retaining his right to possession. [Briggs v. Electronic Memories & Magnetic Corporation (1975) 53 CA3d 900]

Conversely, an owner who wishes to evict a defaulting master tenant but retain the subtenant may do so. The owner is not required to serve the subtenant with a 3-day notice when only the master tenant is being evicted. [Chinese Hospital Foundation Fund v. Patterson(1969) 1 CA3d 627]

For example, an owner consents to a sublease which contains an attornment provision. Should the master tenant default and his right to possession be forfeited, the owner may enforce the sublease after his exercise of the attornment clause.

Under the sublease’s attornment provision, the subtenant has agreed to recognize the owner as his landlord in lieu of the master tenant if the owner elects to forfeit the master tenant’s leasehold and recognize the subtenant as the owner’s tenant.

However, a subtenant who takes possession of the premises after the master tenant has been served with a 3-day notice will be evicted on the owner’s successful completion of a UD action. [CCP §1164]

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