Eviction Settlement Banned
The Court of Appeal has ruled that eviction settlements where the landlord agrees to waive all the unpaid rent if the tenant moves out by a specified agreed date, and the tenant agrees to a judgment against the tenant for the full amount of the unpaid rent if the tenant does not move out on time, are not enforceable. The Court explained that in order for such a settlement to be enforceable, the tenant must admit the amount of the unpaid rent and that it is owed. Tenants and eviction defense attorneys never want to admit that the unpaid rent is owed. If they want to settle, the Courts of Appeal have required this concession in four separate published precedents.
A stipulation or settlement is a contract. A contract provision which states a specific amount to be paid for breach of the contract is referred to as “liquidated damages.” By case precedent and by statute, a liquidated damages amount must reflect a reasonable attempt to estimate or guess the amount of damages the victim might suffer as a result of the other side breaching the contract.
When a tenant breaches the settlement agreement, that is not a breach of the lease. It is a breach of the settlement agreement only. What damages arise from breach of the settlement agreement? Not the unpaid rent from before the settlement. Lost rent until the premises are vacated and surrendered? Additional legal fees? Maybe damages owed to the next tenant when the premises are not available for the new tenant to move in. But not the rent from before the settlement was agreed to.
The four precedents point towards two solutions. One is for the tenant to admit that the unpaid rent is owed and the amount of the unpaid rent. In the case that allowed a “discount” for on-time payment involved only a 5% discount. That was a case between two businesses over a shortage of payments for merchandise, not a residential eviction. There is no precedent yet, which upholds a 100% discount for timely performance, and a judgment for 100% in the event of a breach, but that is one solution the Courts of Appeal have pointed to in two decisions.
It is customary and standard-operating-procedure for a settlement to say that it is a compromise of disputed claims, and that no one is admitting anything. That will not work, anymore. If the tenant will not admit, then the tenant could agree to move out by an agreed specific date, and if the tenant moved out by that date, the landlord would waive the unpaid rent. If the tenant did not move out, then the landlord would be entitled to a stipulated judgement for possession only, and both sides would reserve all their claims, defenses and counterclaims regarding the unpaid rent.
This is not an even trade. The landlord is agreeing to give up thousands of dollars of unpaid rent for timely performance, and the tenant is not making a reciprocal agreement to a judgment for the unpaid rent, if the tenant does not move out. You might use this inequality to try to get a stipulation for service of the new lawsuit for damages on the tenant’s lawyer or by mail to a specified address, so that the landlord does not have to search for the tenant.
Evictions are really technical. Now settlements are, too. Call on us for help.