As businesses across the state get ready to reopen, legislators are considering a controversial new bill that would give tenants the option of getting out of leases if they can’t negotiate terms with landlords.
While the intent of the bill, SB 939, is to help businesses with steep revenue losses due to COVID-19 stay-at-home orders, opponents say it would unduly shift virus-related financial strains onto property owners.
“This bill applies to all commercial leases in the State of California – not just restaurants. It would mandate delayed rent for more than a year, in addition to allowing restaurants, bars, and nightclubs to break a lease, regardless of how much money a property owner has invested in the property for that business,” Rex S. Hime, president and CEO of the California Business Properties Association (CBPA) told the Northern California Record by email.
The Senate Judiciary Committee on May 22 passed the bill by a vote of five, but three members abstained and one voted against it. It next goes to the Senate Appropriations Committee.
Bisnow reported that in a statement before the vote, Rob Lapsley, California Business Roundtable (CBRT) President, said, “While CBRT is working hard to help all business sectors recover during this economic crisis, we are opposed to legislation like SB 939 that conveniently shifts the burden from one business sector to another, creating equally devastating consequences without solving the core problem.”
SB 939 is built on a premise that property owners benefit from evicting tenants, when property owners are far more motivated to keep existing tenants, Hime said. While it would lower what’s owed by renters, it doesn’t cut the mortgage payment still owed by the property owner, many of them small businesses, potentially causing a commercial mortgage crisis.
“As the state reopens, property owners do not want empty spaces – the state inserting itself into private agreements will prolong the amount of time needed to recover and won’t help tenants as it will weaken the financial health of the properties where they are located,” Hime said.
SB 939 ultimately would replace what is a short-term business revenue problem caused by shelter-in-place orders with mortgage defaults that will be far more painful for renters and the state’s economy, Hime said.
The CBPA has offered a number of ideas “to approach this in a more positive and productive manner,” Hime said.
“They have been rejected in favor of a one-sided approach. Several other bills in the Legislature, including other proposals by Legislative Leadership, recognize that both business renters and property owners must both be helped,” Hime said.
Catie Stewart, a spokesperson for bill sponsor Scott Wiener, D-San Francisco, did not reply to a request for comment.
“The author has been polite and accessible and has listened to our concerns and the concerns of other legislators expressed in committee, but that input is not reflected in the language of the bill,” Hime said.