What is music? Many people would say music is a series of sounds. But impressionist composer Claude Debussy took the opposite approach and said, "music is the silence between the notes."
Music actually is more than simply sound and silence. Musical sounds consist of varying pitches, rhythms, articulations, timbres, and loudness. Silence in music varies in duration and is affected by what comes before and after the silence. For instance, the silence that follows a gradual diminuendo into nothingness impacts the listener differently than a subito (sudden) silence after a jarringly loud chord.
It’s most accurate to say that music is a combination of many elements, each of which can be performed separately. For instance, pitches can be played without rhythm, and rhythm can be played without pitch. But together, those elements add up to a unique musical message.
Like music, real estate isn’t just one thing. It’s a combination of many rights. This article discusses the bundle of rights that comprise real estate, how the United States Supreme Court’s June 23, 2021 ruling Cedar Point Nursery v. Hassid (Cedar Point) examined that bundle of rights under the Fifth Amendment, and how Cedar Point might affect government eviction moratoriums.
What is Real Estate?
Lawyers define land as everything on the earth's surface, everything below the surface to the earth's center, and everything above the surface to the sky. Real estate, therefore, includes the land, any buildings, trees, or structures attached to the land, minerals, and water below the land, and the right to the sunlight and air above the land.
But wait – there’s more. Real estate is a bundle of rights. Some think of those rights as a bundle of sticks. Consider a bundle of popsicle sticks with a property right written on each one. The sticks include the right to remove minerals from the land, the right to build a structure, the right to use a building, the right to fly a drone over the land, the right to walk across the land, or the right to take water from the land. Someone could own all of those sticks. But each of those sticks could be independently transferred to another person.
Rarely does someone own all of the rights in that bundle of sticks. For instance, when you buy a house, it may be subject to easements that allow utility companies to put electric, water, or sewer lines on your property, both to bring services to your home and other homes. That easement limits your ability to occupy and use that part of your land.
The right to occupy land is only one of many real estate rights. A related right is the right to exclude others from using or occupying the land. The only reason that the utility companies can install utility lines on the property is that a previous owner gave them permission to do so. Absent that permission, the owner could exclude the utility companies from the land.
Another real estate right is the right to transfer those rights. The transfer might be temporary, such as a lease for a house, or it may be permanent, as with a sale. And what is transferred might be only part of the land. For instance, someone could transfer the right to extract natural gas from their land but retain all of their other rights to the land. The utility easement is another example of a partial transfer – the utility easement is a non-exclusive right to use a particular part of the land for a specified purpose.
Cedar Point Nursery v. Hassid
Cedar Point involved a California labor law that provided union organizers the right to enter onto agricultural property for up to 360 hours (three hours per day for up to 120 days) per year. Cedar Point Nursery (Nursery) filed a federal lawsuit against the State of California, claiming that the labor law violated the Takings Clause Fifth Amendment to the United States Constitution.
That's the part of the Constitution that prohibits the government from taking private land for public use “without just compensation.” Simply put, the government can’t take your property from you without paying a fair price for it.
Cedar Point eventually made its way to the United States Supreme Court. And, although Cedar Point is a labor law case, the Supreme Court looked to real estate law in its decision. Looking at the bundle of rights, the Supreme Court quoted its previous decision in Kaiser Aetna v. United States, saying that the right to exclude is "one of the most essential sticks in the bundle of rights that are commonly characterized as property."
The Supreme Court held that the California labor law had “appropriated a right of access to the growers’ property, allowing union organizers to traverse it at will for three hours a day, 120 days a year.” And that that appropriation was a “taking” under the Fifth Amendment.
The Ninth Circuit had held that the law wasn’t unconstitutional because it was only a temporary appropriation. But relying on the idea that real estate rights can be temporary or permanent, the Supreme Court held that even a temporary “taking” (in this case for up to 360 hours per year) still violates the Fifth Amendment and entitled Cedar Point and the other growers to “just compensation.”
Cedar Point and the CDC Eviction Moratorium
Going back to our bundle of sticks, landlords give tenants the right to occupy part of their land temporarily. The terms and conditions of the tenants' occupancy are in their leases. And those leases condition the tenants’ occupancy on payment of rent. So, when a tenant doesn’t pay rent, they no longer have the right to occupy the land.
To protect tenants from landlord abuse, state law creates a process for orderly eviction of tenants who don’t pay their rent. However, the landlord's right to evict tenants who don't pay rent still arises out of the landlord's right to occupy its land and to exclude others from occupying it.
On September 4, 2020, the Center for Disease Control and Prevention (CDC) issued an order declaring a national eviction moratorium (CDC Moratorium), which was extended several times. The CDD Moratorium remained in effect until August 26, 2021, when, after a series of court rulings and appeals, the United States Supreme Court issued an order that ended the moratorium (Supreme Court Order). The CDC Moratorium prohibited residential landlords from evicting tenants for nonpayment of rent if the tenants met specific requirements.
The CDC Moratorium and other government moratoriums haven’t permanently prohibited landlords from evicting tenants. The CDC Moratorium only applied to qualified tenants who were behind in their rent. Landlords still could evict tenants who breached their leases. In many places, landlords also could file eviction cases and obtain eviction orders against tenants who were behind in their rent. But under moratoriums, landlords couldn’t remove those tenants from their property, even when they had an eviction order.
Similar to the Ninth Circuit’s holding in Cedar Point, some might say that the moratorium only delayed the evictions and that since the CDC Moratorium doesn’t permanently prevent landlords from evicting tenants, it isn’t a “taking” under the Fifth Amendment. Yet, in Cedar Point, the Supreme Court held that a temporary removal of the right to exclude is a “taking.” Unless those claiming the CDC Moratorium wasn’t a taking can distinguish it from the facts in Cedar Point, a court may well rule that the CDC Moratorium also was a taking.
National Apartment Association v. United States
In July, the National Apartment Association (NAA), a membership organization with over 93,000 members, filed a complaint (NAA Complaint) against the United States government in the Federal Court of Claims. Although previous cases challenging the CDC moratorium have been filed in federal district court, the NAA probably selected the Court of Claims because it has national jurisdiction and hears money claims against the government based upon the Constitution.
The NAA Complaint asks the Court of Claims to find that the CDC Moratorium was a taking of landlords’ property for public use without just compensation in violation of the Fifth Amendment. The Court of Claims also asks that the government be required to pay landlords damages equal to the rental income they would have received if the CDC Moratorium hadn’t existed.
The Supreme Court’s holding in Cedar Point appears to put the NAA on solid ground in claiming the CDC Moratorium was a taking. However, collecting damages from the government may be more difficult.
To prove damages, landlords will need to show either that tenants withheld rent intentionally because of the CDC Moratorium or that had landlords been able to evict nonpayment tenants and rent their apartments to tenants who could pay. In lawsuits, it’s always difficult to prove “what might have been,” and courts don’t award speculative damages.
The CDC Moratorium’s terms also may make it difficult for landlords to prove damages. To qualify for the moratorium, a tenant both had to be unable to pay part or all of their rent and had to make best efforts to make timely partial payments of as much rent as they could afford. Although there likely were tenants who didn’t pay rent as they could afford, most tenants who qualified for the CDC Moratorium probably made a good faith effort to pay as they were able.
The CDC Moratorium didn’t change tenants’ financial circumstances. If they couldn’t afford their rent, they wouldn’t have paid it even without the CDC Moratorium. Yes, but for the CDC Moratorium, landlords could have evicted those nonpaying tenants. But to show that the CDC Moratorium cost them money, landlords will need to show that after the eviction, the landlord could have placed a paying tenant in the apartment. Unless a landlord has a waiting list with vetted tenants able to pay rent, it may be difficult to prove that a new tenant would pay more rent than the evicted one.
What’s Next with Eviction Moratoriums?
In August, the United States Supreme Court ended the nearly year-long eviction moratorium issued by the CDC. But the Supreme Court's order didn't end pending lawsuits concerning the CDC Moratorium.
On August 27, 2021, the Secretary of the Department of Housing and Urban Development, Secretary of the Treasury (Treasury), and Attorney General issued a Joint Letter (Joint Letter) addressed to “Governors, Mayors, County Executives, and Chief Justices/State Court Administrators” urging them to take action to prevent evictions. One step the Join Letter suggested state and local governments could take was to enact their own eviction moratoriums.
However, state and local moratoriums remain rare. Only New York has adopted a new, widespread moratorium. Other jurisdictions are allowing their moratoriums to end or are phasing them out by the end of 2021. California’s eviction moratorium and Washington’s eviction moratorium expire on September 30, 2021, and so far, hasn’t been extended. Illinois’ eviction moratorium expires September 18, 2021 (but there has been talk of extending it through October 3).
Some states are extending their moratoriums only for tenants who qualify for rental assistance to pay their rent. Minnesota is phasing out its eviction moratorium, with evictions for tenants that don’t qualify for rental assistance resuming on September 12. DC will resume evictions for tenants who don’t qualify for rental assistance on October 12. New Jersey will still protect some low-income tenants from eviction through December 31, 2021
The reasoning in the NAA Complaint could be driving states’ decisions not to impose or extend eviction moratoriums. If moratoriums are a taking in violation of the Fifth Amendment, states may want to avoid cases like the NAA Complaint in their courts of claims.
However, by limiting the moratorium to tenants who qualify for rental assistance that will pay their rent for them, state governments ensure that landlords are compensated for the “taking.” That makes it unlikely that any Constitutional challenge would succeed. So, it’s likely that any future moratoriums may apply only to tenants who are eligible and have applied for government rental assistance programs.
This series draws from Elizabeth Whitman’s background in and passion for classical music to illustrate creative solutions for legal challenges experienced by businesses and real estate investors.