In March 2020, the pandemic began rapidly picking up steam, causing millions of schools, businesses, and workplaces across the country to shut down—many for the final time. In an effort to contain the unintended economic consequences of the COVID-19 lockdown, Congress passed the CARES Act.
The $2.2 trillion emergency assistance and economic stimulus package—then the largest economic rescue package in U.S. history—contained sweeping and generous aid measures that ranged from $300 billion in stimulus checks to the nearly trillion-dollar Paycheck Protection Program (PPP).
But loans and economic assistance weren’t the only notable relief measures contained within the CARES Act. The legislation also imposed an eviction moratorium on rental properties that were either financed by government-backed mortgages or received federal aid.
In short, the provision banned landlords from removing a covered tenant due to nonpayment of rent until July 31st, 2020. Later, the Centers for Disease Control and Prevention (CDC) extended the eviction moratorium multiple times, and the ban did not fully expire until it was struck down by the Supreme Court in August 2021.
Reactions to the eviction moratorium were mixed. Some states, like California and New York, were quick to embrace the provision and passed laws banning evictions through their state legislators and local city councils. California, for example, extended its state eviction moratorium until March 2022, and continues to maintain rental assistance programs to help tenants affected by the pandemic.
On the other hand, states like Alabama and Tennessee only enacted brief pauses on evictions. For instance, in Alabama, Governor Kay Ivey signed a proclamation that banned tenant evictions until June 1st, 2020—an expiration date that was more than a year and a half in advance of California’s.
In places like the Golden State, the extended eviction ban provided a tremendous safety net for renters. On the flip side, it dealt a major blow to landlords and property owners—many of whom had to dig into personal savings to keep up with mortgage payments because their properties no longer generated adequate cash flow.
This and other factors have unsurprisingly motivated investors to do business in Sun Belt states like Alabama and Tennessee, where the law supports their interests. But what policies, in particular, make these states good for landlords?
What makes Alabama and Tennessee landlord-friendly?
American housing policy is complex, and each state in the union features a different set of rules and regulations regarding rental property. As an investor, these differences matter, since issues surrounding landlord/tenant law are almost always determined according to local ordinances or state legislation.
For instance, even during the pandemic-related eviction moratorium, states gave vastly different orders on how landlords could initiate or enforce an eviction. Meanwhile, court processes, short-term support for landlords or tenants, and tenancy preservation measures also varied widely among states.
Let’s drill down into the specific provisions that make Alabama and Tennessee landlord-friendly places to be.
Initiating eviction proceedings
After Alabama’s brief eviction moratorium expired on June 1st, 2020, property owners in Alabama could once again issue eviction notices. As was standard practice, landlords could evict tenants for non-payment of rent and other non-emergency reasons with just 7 days’ notice. Unlike other states, however, landlords in Alabama could also evict tenants even if they faced pandemic-related financial challenges.
Additionally, landlords in the state had no obligation to certify that a dwelling wasn’t subject to the CARES Act-related federal eviction moratorium before initiating eviction proceedings. (However, this was a requirement in Tennessee.)
Court process and eviction enforcement
In Alabama, eviction orders weren’t delayed to give the tenant more time to leave the property.
The state also didn’t suspend eviction hearings. Instead, the decision to hold a hearing rested with local officials and places like Mobile and Jefferson counties began enforcing thousands of evictions soon after the statewide moratorium was lifted.
In Tennessee, law enforcement officers resumed enforcing evictions as early as April 2021 after a judge in Memphis ruled that the CDC’s extended eviction moratorium was unconstitutional. While this was almost a year after Alabama’s stay on evictions was lifted, it still put Tennessee well ahead of states like New York and California.
On top of that, eviction cases weren’t (and aren’t) sealed by courts in either Alabama or Tennessee. It’s also difficult for tenants in either state to get evictions expunged from their records. Together, these circumstances make it easier for landlords to identify potential credit risks when screening and interviewing prospective tenants.
Short-term support for tenants and landlords
Tenants in Alabama had no special grace period to pay rent that accrued during the pandemic. Also, in the normal course of affairs, landlords aren’t legally required to provide a grace period for non-payment of rent. Additionally, in both states, landlords were allowed to report missing or late rent payments to credit agencies, even during the course of the COVID-19 pandemic.
Alabama also had generous rental assistance measures for tenants—benefits that were ultimately paid to landlords to stave off eviction. For example, Alabama received nearly $500 million in emergency rental assistance under the Consolidated Appropriations Act of 2021, while Tennessee received a $150 million allocation of CARES Act funds for similar purposes.
Fees, late payments, and more
In both states, landlords could continue to charge late fees, both during and after the pandemic. In Alabama, late fees can begin to accrue on the first-day rent is late, so long as the fees are “reasonable” and are outlined in the contract.
In Tennessee, landlords are usually required to offer a five-day grace period but can begin to charge late fees after day five, so long as those fees are at or below 10% of the amount due.
Similarly, both states allow landlords to charge application fees. In addition, when performing background checks, property owners in certain cities in either state may factor a prospective tenant’s criminal history into consideration.
Other landlord-friendly measures
In both Alabama and Tennessee, property owners were allowed to raise rent rates when renewing leases during the pandemic, and there are no price controls or rent caps in either state.
Finally, the state of Alabama didn’t guarantee legal representation to tenants facing eviction during COVID-19, and attorneys who offered their services were allowed to bill their clients at regular rates. This makes it easier to evict tenants in both states, meaning landlords are less at risk of being stuck with renters who can’t come up with the money to pay.
What makes other states worse for landlords?
However, in stark contrast to Alabama and Tennessee, California offers tenants a robust set of rights that often give them the upper hand over landlords. For instance, Californian landlords couldn’t file to evict a tenant so long as renters filled out a form ascertaining that they had decreased income due to the pandemic, and some tenants who faced financial difficulties could use this provision to remain for extended periods of time without paying rent. Unfortunately, small-scale property owners were hit hardest by this measure, and those who had little in cash reserves to weather the storm struggled throughout the pandemic.
In addition, California courts sealed eviction case records, especially those that started during the pandemic—making it difficult for landlords to accurately gauge the creditworthiness of a prospective tenant.
Tenants were also granted a grace period to pay 75% of their rent if they could pay the first 25% of rent arrears that accrued during the pandemic. In other words, landlords would be forced to wait for an additional period of time to receive rents that should’ve been owed to them a year or more prior.
California governor Gavin Newsom also issued executive orders suspending utility disconnection. However, utility companies continued to send bills to landlords, and tenants who could not meet their payments left this burden to property owners.
What are the long-term effects of the eviction moratorium?
The eviction moratorium was a well-intentioned, temporary pause in legal proceedings that would allow people to get back on their feet when the pandemic subsided.
Unfortunately, it may have ultimately done more harm than good. In some places, landlords couldn’t collect rent for months or even years after their tenants left.
This outcome didn’t merely create serious economic problems for property owners—it also arguably (and more critically) disrupts renters’ lives as well. Here are some of the effects.
Declining property values
While mom-and-pop landlords suffered from the sudden lack of rental income, they struggled to keep up with their mortgages, operating expenses, and other rental costs. For instance, independently-owned properties of four or fewer units require annual operating expenses of about $4600–$4600 per unit on average. This amounts to around half of the property’s gross income—an amount that landlords simply couldn’t afford to pay for out-of-pocket.
For this reason, property owners predictably reduced spending and drastically axed capital expenditures. As a result, walls were left unpainted. Aging roofs remained in place. The electrical wiring wasn’t refurbished. Water heaters and light bulbs remained broken.
Worse, unsafe or hazardous accommodations continued to fall into disrepair, creating precarious situations for both the tenants who occupied the units and the landlord who owned them. This lack of money for maintenance and decline in investment reduced the value of both the rental properties in question and those in close proximity.
Reduced housing inventory
For the tenants who could live in a property rent-free, the eviction moratorium was a good deal. For everyone else—including prospective tenants—well, not so much. Due to the eviction ban, landlords couldn’t replace non-rent-paying tenants with rent-paying ones. In effect, this froze a lot of rental inventory
This also discouraged many small-scale landlords from continuing on in the business. Not willing to risk getting burned again, mom-and-pop landlords exited the rental property market in droves—deciding to sell their rentals to potential owner-occupants or convert them into personal residences instead. Needless to say, this reduces the supply of rental housing on the market, making it more difficult for tenants to find suitable places to live.
Rising rents
As a result of this decline in inventory, rents have increased. So has competition for high-quality rentals. Landlords who survived the pandemic have also put upward pressure on rents as many hope to regain what they lost in 2020.
As rental housing—which serves a critical segment of the market—becomes more and more unaffordable, current and prospective renters may be in for more pain. Renters who renew their leases may face escalating monthly rates beyond what their wages can afford, while renters-to-be may have difficulty finding safe, affordable, or well-located housing.