Establishing the “Baseline” Value: Defining Landlord Property Interests Before and After Covid Rent Moratorium

The Fundamental Question: What Was Taken?

Before any court can calculate compensation in a takings case, it must first answer a deceptively simple question: What property right did the government take? To answer this question, courts must establish the “baseline”—the value and scope of the landlord’s property interest before the moratorium took effect. Without a clear baseline, there is no way to measure what was lost.^1^3

This article examines the critical framework courts use to establish baseline property interests in eviction moratorium takings cases.^2^4^6

Part 1: Understanding the “Bundle of Sticks” Metaphor

Property as a Collection of Rights:

The Supreme Court has repeatedly described property not as a single, monolithic right, but as a **”bundle of sticks”**—a collection of distinct, separable rights and interests.^3^1

The metaphor recognizes that property consists of multiple sticks, each of which is independently protectable:^1

• The right to possess the property
• The right to use the property
• The right to exclude others from the property
• The right to transfer or sell the property
• The right to lease the property
• The right to collect rent from leased property
• The right to evict when lease terms are breached
• The right to receive interest on late payments^4^3

Supreme Court Precedent:

The Court has emphasized repeatedly that individual sticks can be taken independently. In Cedar Point Nursery v. Hassid, the Court held that government can effect a per se taking by appropriating one stick from the bundle—the right to exclude.^6

As the Court stated:

“The right to exclude is an essential stick in the bundle of property rights.”^2

In Horne v. Department of Agriculture, the Court further clarified:

“Leaving property owners with one stick out of the bundle is not sufficient to avoid a taking. Whether the government may avoid the categorical duty to pay just compensation by reserving to the property owner a contingent interest in a portion of the value of the property, set at the government’s discretion, the answer is no.”^4

Part 2: Establishing the Landlord’s Pre-Moratorium Baseline

The Critical Moment: March 4, 2020

For eviction moratoriums, the relevant baseline date is the date the moratorium became effective.^5^6

CDC Moratorium baseline: September 4, 2020^3^6

Los Angeles Moratorium baseline: March 4, 2020^6

What Rights Existed At Baseline:

Before the moratorium took effect, landlords possessed the following distinct, legal, and constitutionally-protected property interests:^5^6

1. The Right to Exclude Non-Paying Tenants

This is the most fundamental. Under pre-moratorium law, landlords had the legal power to evict tenants who breached material lease terms, particularly by failing to pay rent.^3^6

As landlords alleged in Darby Development:

“A landlord buys land burdened by lease-holds in order to acquire a stream of income from rents and the possibility of increased rents or resale value in the future.”^3

The lease itself is evidence of this property interest. When a landlord signed a lease requiring monthly rent payment, both parties understood that failure to pay triggered eviction rights.^5^3

2. The Right to Collect Rent

Landlords had a legal right to receive monthly rent payments per the lease terms.^4^5

This right was protected by California’s well-established unlawful detainer statute (Cal. Code Civ. Proc. § 1161), which provided a speedy judicial procedure for landlords to recover possession and back rent.^5

3. The Right to Charge Late Fees and Interest

Leases typically specified:

• Late fees ($50-$200 per day for missed rent)^6
• Interest on unpaid rent (typically 5-10% annually)^6

These contractual provisions represented distinct property rights that are protected by the Takings Clause.^7^5

4. Investment-Backed Expectations

Landlords made their rental property investments with reasonable, objectively-grounded expectations based on the legal framework existing at that time:^3^6

• California law provided well-established eviction procedures
• Courts had been enforcing eviction rights for over a century
• No reasonable landlord would have anticipated a categorical prohibition on eviction for nonpayment lasting years^5^3

As the court in GHP Management‘s state court case noted:

“The scope and nature of the COVID-19 pandemic, and of the public health measures necessary to combat it, have no precedent in the modern era, and no amount of prior regulation could have led landlords to expect anything like the blanket Moratorium.”^6

Part 3: The Government’s Argument—Defining Away the Right

The Government’s Counter-Argument:

The government (primarily through the Ninth Circuit) argued that landlords’ pre-moratorium property interest was limited because:^4^6

1. Landlords voluntarily rented their properties to tenants
2. By doing so, they accepted government regulation of the landlord-tenant relationship
3. Therefore, their property interest never included absolute eviction rights^4^6

This argument relies on Yee v. City of Escondido, where the Supreme Court held that a tenant invited to lease at one rent could remain at a lower regulated rent without that constituting a taking.^4

The Problem with This Argument:

The Federal Circuit in Darby Development rejected this reasoning:^8

“An invitation is conditional. A landlord invites a tenant only if rent is paid and lease terms are honored. Once the tenant stops paying, the invitation effectively terminates, and the tenant becomes an interloper with a government license.”^8

All invitations carry implicit conditions and a right of rescission:^3^4

• If you invite guests to dinner, they must leave when dinner ends
• If a homeowner invites a guest to stay overnight, the guest must eventually leave
• If a landlord leases property to a tenant, the tenant must pay rent and abide by lease terms^6^4

Without the ability to enforce these conditions, the invitation becomes meaningless.^3

Part 4: Measuring the Baseline—Evidence and Methodologies

How Do Courts Establish Pre-Moratorium Value?

Courts use multiple methodologies to establish the baseline value of landlord property interests:^7^6

Method 1: Lease Documentation

The lease itself is the primary evidence of the baseline property interest.^5^3

A lease specifying $2,500/month rent, with clauses requiring:

• Payment on the 1st of each month
• $100 late fee per day after 5-day grace period
• 30-day notice for lease termination
• Landlord’s right to evict for nonpayment

…documents the baseline bundle of sticks the landlord possessed.^5^3

Method 2: Pre-Moratorium History

Courts examine the landlord’s actual collection history before the moratorium.^6^5

Example (from court documents):⁹

• 2016-2019 average: The Addison in Seattle collected 97%+ of rent
• Lost rent 2016-2019 average: ~$54,000/year
• Bad debt rate: ~5% (reflecting normal market turnover and evictions)⁹

This historical data establishes the realistic value of the collection right pre-moratorium.⁹

Method 3: Comparative Market Analysis

Courts examine how other rental properties in the same market were valued pre-moratorium:^7^5

• Properties similar to the plaintiff’s property
• Same geographic area and condition
• Same rental rates and tenant demographics
• Sales prices or appraisals from that period^7

Method 4: Expert Appraisals

Real estate appraisers specializing in rental property provide professional valuations of the baseline property interest, considering:^7^5

• Fair market rent
• Collection rates
• Eviction rates
• Market conditions
• Economic conditions^7^5

Part 5: The Moratorium’s Effect—What Stick Was Taken?

The Takings Analysis:

Once the baseline is established, courts must analyze which stick was taken and what its value is.^3^6

Eviction Moratorium Removes:

1. The right to exclude non-paying tenants (the most fundamental stick)
2. The right to collect rent from non-paying tenants
3. The right to charge late fees and interest
4. The right to replace non-paying tenants with paying tenants
5. The right to make independent decisions about property use and occupancy^4^6

What Remains (But Is Diminished):

1. Title to the physical building (but with no ability to evict or control occupancy)
2. Theoretical future rights (after the moratorium ends and back rent might be repaid)
3. Some minimal regulatory rights (but not the practical ability to enforce them)^5^3

The Problem: A Stick Without Exercise Is Worthless

The government often argues: “Landlords still retain the right to evict; the moratorium just delays it.”^6

But this overlooks a fundamental economic truth: a right you cannot exercise is worth nothing.^4^6

As landlords argued in GHP Management:

“In what meaningful sense could Petitioners be said to actually own the properties in question during the emergency period? They were prohibited from physically occupying them and from renting those properties to another tenant who might actually pay their rent.”^3

Part 6: Permanent Diminution in Property Value

Beyond Lost Rent:

Even after a moratorium ends and rent collection theoretically resumes, landlords suffer permanent diminution in property value because:^10^7

1. Future Risk Premium

Investors know the government can and will impose moratoria again. They discount property values accordingly to account for this risk.^10^7

Pre-moratorium cap rate: 5% (indicating expected 5% annual return)

Post-moratorium cap rate: 5.5% or 6% (higher return required due to moratorium risk)^2^3

Property valued at $10 million pre-moratorium generates:

• Pre-moratorium value: $500,000 ÷ 0.05 = $10,000,000
• Post-moratorium value: $500,000 ÷ 0.055 = $9,090,909
• Permanent diminution: $909,091^2^3

2. Collection Risk

Back rent is often uncollectable. Tenants who lived rent-free for years may be judgment-proof or have fled.^7^6

Courts apply realistic collection rates when calculating property value post-moratorium, recognizing that much back rent will never be recovered.^7^6

3. Physical Deterioration

Many properties suffer deferred maintenance during moratoria because landlords lack cash flow to maintain habitable conditions.^11^3

Post-moratorium appraisals reflect this deterioration, reducing property value.^11^3

Part 7: The Temporal Dimension—When Is Compensation Owed?

The Taking Occurs At:

Courts debate when the taking is deemed to have occurred. This affects when compensation begins accruing:^5^3

Option A: Date Moratorium Takes Effect

Example: CDC Moratorium effective September 4, 2020^8^5

Compensation accrues daily from that date forward until the moratorium ends.^8^5

Option B: Date of Eviction Attempt Prevented

Example: A landlord attempts to evict in November 2020 but is prevented by the moratorium.^5

Compensation accrues from date of attempted eviction forward.^5

Option C: Date of Each Missed Rent Payment

Example: Tenant stops paying in February 2021; protection applies; compensation accrues from February 2021 forward for that unit.^5

Current Practice:

Most courts use Option A—compensation accrues from the moratorium’s effective date through its termination date.^8^5

Part 8: Establishing Comparability—What If There’s No Perfect Baseline?

The Unique Property Problem:

What if the plaintiff never collected rent from this specific property before? How can we establish a “baseline” of what was lost?^6^5

Solution: Fair Market Rent

Courts use comparable property analysis:

1. Identify properties in the same geographic market
2. With similar characteristics (unit count, location, condition, amenities)
3. Determine the fair market rent those properties command
4. Apply that FMR to the plaintiff’s property^7^5

Example from Los Angeles:^3

• Plaintiff owned 10-unit apartment building in downtown LA
• Similar 10-unit buildings in downtown LA (2019-2020) rented for $2,500/unit/month
• Moratorium period: 47 months
• Lost rent baseline: $2,500 × 10 units × 47 months = $1,175,000^7

Conclusion: Establishing Baseline as the Foundation for All Takings Analysis

The baseline is not just a legal nicety—it is the foundation upon which all takings damages rest.^6^5

Courts must carefully establish:

1. What property rights existed before the taking (the bundle of sticks)
2. The value of those rights (through leases, market data, appraisals)
3. Reasonable investment-backed expectations (what landlords could foresee)
4. What specifically the government took (which sticks)
5. The timeline (when the taking occurred and ended)

Only with a clear, well-established baseline can courts properly calculate just compensation for the taking. Without it, the analysis becomes speculative and unreliable.

As moratoria takings cases proceed to trial in coming years, expect fierce battles over baseline establishment. The party that successfully establishes the baseline—clearly, with evidence, and with clear expectations—will have won the first and perhaps most important battle in the takings litigation.

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This article is for informational purposes only and does not constitute legal advice. Property owners with questions about establishing baselines in takings claims should consult qualified legal counsel.