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Scott Wiener
Senator Scott Wiener. (Photo: Kevin Sanders for California Globe)

Small Businesses Could More Easily Leave Leases Under New Bill

SB 939 would also stop all commercial evictions during the state lockdown

By Evan Symon, May 16, 2020 7:37 am

If landlords and hospitality businesses aren’t able to renegotiate rent to reflect mandated reduced capacity, SB 939 allows the business to terminate the lease.

 

On Wednesday, a new California law was proposed in the Senate that would allow all small businesses financially hurt by the coronavirus pandemic to be able to renegotiate their lease and leave the lease more easily, as well as halting all small business evictions until the end of the state lockdown.

Rent negotiations and a halt of evictions

Senator Lena Gonzalez. (Photo: sd33.senate.ca.gov)

Senate Bill 939, written by Senators Scott Wiener (D-San Francisco) and Lena Gonzalez (D-Long Beach), would give tenants much greater power in rent renegotiations due to decreased business caused by the lockdown. If landlords and renters don’t agree to a new rent price based around how much the business is now taking in with only take-out and limited dining capacity customers, renters could end their lease without declaring bankruptcy or being sued by the property owner. The renter would not have to pay any future rents as well, but with the caveat that all back rents up to lease termination would still need to be paid.

Publicly traded companies would not be covered under SB 939.

A halt of commercial evictions for small businesses and non-profits affected by the lockdown would also be enacted as part of the bill. These businesses cannot be evicted until either 2 months after the end of the statewide lockdown or by the end of 2021, whichever comes sooner.

Senator Wiener himself also noted that he wrote the bill primarily to save restaurants and small businesses from closing during the lockdown and to allow businesses to keep operating even though they will be making less under current restaurant reopening guidelines.

A ‘severe risk of mass closure of restaurants, bars and cafes’

“We’re at severe risk of mass closure of restaurants, bars and cafes due to social distancing requirements,” tweeted Senator Wiener on Thursday. “We can’t let that happen. These businesses play an essential role in our economy & our neighborhoods. I’m introducing legislation, SB 939, to avoid mass closures. In addition to creating a commercial eviction moratorium for businesses and nonprofits, it creates space for hospitality businesses to renegotiate rent where capacity has been slashed due to social distancing and the rent no longer corresponds to their mandated business model.

If landlords and hospitality businesses aren’t able to renegotiate rent to reflect mandated reduced capacity, SB 939 allows the business to terminate the lease. Otherwise, it’ll be stuck in an unsustainable lease or close down, be sued and the owner driven into personal bankruptcy.

SB 939’s goal is to encourage, and create strong space and incentives for, renegotiated rents to reflect the reality that restaurants, bars, and cafes will have mandated reduced capacity. We want these business to survive. It’s in all of our interest, including the landlords. Covid-19 is an emergency for so many in our community. It’s an emergency for our small businesses. We need to support them & create space for them to survive. SB 939 will help.”

Possible fallout of SB 939

While SB 939 has gained some support among restaurant and small business owners, land and building owners have strongly come out against the bill.

“It doesn’t say how we’re supposed to pay off the mortgage on the building,” said John Caldwell, who co-owns two strip malls respectively in Los Angeles and Santa Ana. “I know a lot of people hate people like me for charging rents, but being forced to keep a tenant with them not paying full rent is ridiculous. We can’t evict them and we can’t bind them to their lease, so we essentially are forced to give them a cheaper rent and eat all costs not covered by the lower rent ourselves.”

Senator Wiener did point out that the bill incentivizes new, negotiated rents. He argues that the business would survive, the landlord wouldn’t be out a tenant during a trying time with few new leasers, and rents would go back to normal during the next leasing period. However, landlords say it isn’t that simple.

“That’s a naive way of looking at things, because it still doesn’t address how we still have to pay, in full, all utilities, all building upkeep, all unexpected costs, and, this is the big one – all mortgage payments. Do we get relief too? Because if we don’t we’ll start losing money. There are some owners out here who are close to folding anyway, and if they can’t pay, the entire complex becomes the banks’.”

“This bill just assumes everyone past the point of tenants will be okay with less money, but the truth of the matter is, for many of us, it won’t be ok. Can we just shut off all electricity and water and gas if they don’t pay? Or if they pay less, do we limit them there to make up for lost payments?”

“If [SB 939] passes we are looking at a possible commercial property collapse later in the year. Or this whole thing might circle around. Businesses leave one tenancy then try to find another only to find all property owners are stonewalled on their rents, leaving them having to pay the same amount anyway, possibly more. It can really backfire that way if only a few owners decide to renegotiate. I hope whoever wrote this at least considered that possibility.”

SB 939 is scheduled be heard during the Senate Judiciary Committee hearing on May 22nd.

Evan Symon
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18 thoughts on “Small Businesses Could More Easily Leave Leases Under New Bill

  1. Great Article Mr. Symon,
    Your last sentiment is very wishful. It would take a empathetic legislation to follow the ill conceived logic of this bill. As long as they look like they are coming up with solutions for the problem they helped create with a prolonged SIP, they come off as problem solvers. Senator Wiener is one of the most progressive members there are in the State Senate.
    In the end who really ends up paying for this disaster?

    1. Right now small business owners are taking the entire hit.
      Any reason that landlords should be entirely excluded from this economic downturn?
      Sucks it has to be made a law, but some landlords are apparently living in a different reality.

      GODSPEED MR SCOTT

  2. The next step is for the government to swoop in, buy up all these distressed properties, pennies on the dollar and turn them into homeless shelters.

    1. …And then call the area blighted because of the devastation done to the neighborhood by the presence of the very same homeless/vagrants the city invited into the government-built shelters in the first place, then take the blighted property by eminent domain and sell it to wealthy investors and developers to build luxury condos and hotels, as will likely happen in Venice, one block from the beach, as outlined recently by Edward Ring in his article “Gathered for the Feast at the Hotel California,” which everyone should read if they haven’t already.

        1. I’m no real estate whiz. We know there will be market devastation from this “help,” and although we can’t predict EXACTLY what that will look like for owners and tenants, the one thing you and I can always be sure of is that Scott Wiener and his friends are bent on engineering what THEY will benefit from, not “the people,” as they say. Wiener is not out to help anyone but HIMSELF.

  3. This is out of control. The fall out would be devastating. Real estate would crumbled. No one would sell or buy. Jobs lost in the service industry. Values would plummet as reassessment would show loss of value and further loss of tax base. Banks would have billions in losses. Lenders would have record defaults as the cash flow would evaporate. Landlords and tenants are already working things out. This is not progressive ideology but rather malfeasance.

  4. If you individually do not adapt your end up a sorry mess. There are going to massive change not seen since after WW2. Example: my cousin saw all the waste piling up during WW2; he selectively hauled stuff to his unused farm, various scrap types, he got for free. In 1950’s he got rich selling these huge mounds of stuff. Finally, he started running out of cheaply acquired junk. He bought up bunch of long haul trucks, for builders and consumers needed lots of stuff too…again, he got rich. adapt.

  5. So a restaurant has lost 80 percent of their business yet they are supposed to still pay their rent? Banks will refinance commercial properties if they are pushed to do so. Over the last 5 years California businesses have had to contend with an escalating minimum wage and obscene rents. It’s no longer profitable! Just let us out of our leases and rent the spaces to other businesses if its so easy to fill the spaces!

  6. I am a small retail store paying 6000.00 a month for rent. I also own a building with retail space that I rent out here in San Francisco. I am working with our tenant to make sure they can make a living and that we can pay our mortgage. It’s only fair! If my tenant leaves then I now have an empty space that may not rent at all! Work with your tenants so they can make a decent living or pay the price for a lost tenant. Any landlord that will not lower the rent deserves to have an empty space! We are not asking for free rent, we are asking for a decrease to help us get through this crazy pandemic.
    Thank God Scott Wiener is helping small business!!!!

    1. Exactly. Smart landlords are already negotiating. This bill is aimed at those who don’t seem to get it that both the business and real estate landscapes are changing..

  7. Restaurants have borne the brunt of minimum wage increases, sick leaves, health care mandates and soaring rents for the past FIVE years. Meanwhile, Landlords have been gloating over their higher cap rates and property values. It’s about time they pay their share of the rising burden and come back down to earth!!

    GODSPEED Mr. Weiner.

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