CA Bill Allowing Commercial Tenants to Renegotiate, Break Lease Advances

On Friday, a bill that prohibits commercial landlords from evicting businesses and non-profits during the COVID-19 State of Emergency passed out of committee.

The bill moved through the Senate Judiciary Committee in a 5-1 vote with Senator Brian Jones (R-Santee) being the dissenting vote. Senators Maria Durazo (D-Los Angeles), Lena Gonzalez (D-Long Beach), Hannah-Beth Jackson (D-Santa Barbara), Bill Monning (D-Carmel), and Bob Wieckowski (D-Fremont) all supported the bill.

As amended, SB 939 places a moratorium on commercial evictions of small businesses and nonprofits for the duration of the COVID-19 health emergency.

The new amendments give businesses like bars, restaurants, and cafes the ability to renegotiate a lease if they have lost over 40% of their revenue due to COVID-19 restrictions and if they will operate at reduced capacity due to social distancing requirements. If the landlord and tenant cannot come to a new lease agreement within a period of 30-days, the tenant may terminate the lease with no penalty.

SB 939 will allow small business and commercial landlords to modify leases to recognize the new economic reality created by COVID-19. With businesses able to terminate their economically non-viable leases — rather than abandoning the lease, getting sued, and the owner being forced into bankruptcy — landlords will have greater incentive to negotiate an amicable resolution.

According to the bill, SB 939’s lease renegotiation provisions will not apply to publicly owned companies, or businesses owned by publicly owned entities. Instead, these amendments are designed to help small businesses and nonprofits in need of immediate relief.

SB 939, if passed, would — by statute — protect all California businesses and nonprofits from eviction, even if a city has not or is not able to take action.

According to the bill, it would be in effect until the end of 2021, or two months after the state of emergency ends, whichever is later. This bill was introduced by Senator Scott Wiener and Lena Gonzalez.

According to the Legislative Digest (as amended)

SB 939, as amended, Wiener. Emergencies: COVID-19: commercial tenancies: evictions.

Existing law permits the Governor to proclaim a state of emergency during conditions of disaster or of extreme peril to the safety of persons and property, including epidemics. Existing law provides that the proclamation takes effect immediately, affords specified powers to the Governor, and terminates upon further proclamation by the Governor. Existing law prohibits the eviction of residential tenants during the pendency of a state of emergency, except as specified.

This bill would prohibit the eviction of a person, business, or other entity from evicting tenants of commercial real property, including businesses and non-profit nonprofit organizations, and from taking specified other actions relating to the eviction of tenants of commercial real property, during the pendency of the state of emergency proclaimed by the Governor on March 4, 2020, related to COVID-19. The bill would make an eviction in violation of those provisions void, against public policy, and unenforceable, and would make harassment or mistreatment of or retaliation against a tenant punishable by a fine not to exceed $2,000 for each violation. The bill would make it a misdemeanor, an act of unfair competition, competition and an unfair business practice to violate the foregoing prohibition. The bill would require written notice of protections afforded by the bill to be provided to commercial property tenants within 30 days of the effective date of the bill. The bill would render void and unenforceable evictions that occurred after the proclamation of the state of emergency but before the effective date of this bill. The bill would not prohibit the continuation of evictions that lawfully began prior to the proclamation of the state of emergency, and would not preempt local ordinances prohibiting or imposing more severe penalties for the same conduct.

By adding a new crime, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The bill would also authorize a commercial tenant that is a small business or is an eating or drinking establishment, place of entertainment, or performance venue that meets specified financial criteria, including experiencing a specified decline in revenue after a shelter-in-place order took effect, to engage in negotiations with its landlord to modify rent or other economic requirements. The bill, with exceptions, would specify the notice and other requirements for engaging in negotiations to modify the lease, including that the tenant affirm, under the penalty of perjury, that the tenant meets the required financial criteria. By creating a new crime, the bill would impose a state-mandated local program. The bill would also authorize a tenant to terminate the lease, as provided. The bill would exclude publicly traded companies and affiliated companies from those provisions. The bill would make those provisions inoperative on December 31, 2021, or 2 months after the declared state of emergency ends, whichever is later.

This bill would provide that no reimbursement is required by this act for a specified reason.

This bill would declare that it is to take effect immediately as an urgency statute.

To review the bill, click here.

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