Proposed California Senate Bill to Allow Retailers to Renegotiate Leases Due to Losses Amid Coronavirus Pandemic

A bill that aims to mitigate the economic repercussions of the COVID-19 pandemic on commercial real property tenants, including businesses and nonprofit organizations, is currently being considered in the Californa Legislature.

Senate Bill 939, a commercial tenant eviction moratorium bill, was sponsored by California Senators Scott Wiener (Democrat - San Francisco) and Lena Gonzales (Democrat - Long Beach). The proposed legislation was introduced in March 2020 and was last amended on May 13, 2020.

“One of the biggest determinations of restaurants’ survival is rent ... [J]ust 28% were offered discounted rent while 41% received no relief from landlords.” That’s why I’m authoring #SB939, to give these businesses much more leverage to renegotiate rent. https://t.co/qmmYowCOgM — Senator Scott Wiener (@Scott_Wiener) May 17, 2020

SB 939, proposes to make it illegal to evict a tenant of commercial property for the duration of the State of Emergency as proclaimed by the State Government last March 4, 2020.

If enacted, SB 939, by statute, will allow businesses and nonprofit organizations to be protected from eviction, whether or not a local government has its moratorium put in place.

SB 939 would also grant commercial real estate tenants who are economically impacted by the COVID-19 pandemic powers to negotiate in good faith with their landlord, including rent or other economic requirements.

Specifically, the proposed bill would allow commercial real estate tenants such as restaurants, entertainment venues, and bars to renegotiate their lease if their revenue fell to at least 40 percent, after the state or local shelter-in-place orders took effect or as compared to the same period in 2019, and capacity reduced to at least 25 percent as a result of the imposed measures.

However, if no mutually satisfactory agreement was reached, the commercial tenant will be allowed to terminate the lease without being liable to pay future rents, fees, or costs. Past-due rents, including the maximum of three months' worth past-due rent that were incurred at the time the coronavirus pandemic-related restrictions were in place, would still need to be paid but will have to be paid within 12 months of the notice of lease termination.

1/We’re at severe risk of mass closure of restaurants, bars & cafes due to social distancing requirements. We can’t let that happen. These businesses play an essential role in our economy & our neighborhoods.

I’m introducing legislation, #SB939, to avoid mass closures. Details: — Senator Scott Wiener (@Scott_Wiener) May 14, 2020

Publicly traded firms and their affiliated companies are excluded from those provisions provided under the bill. Lastly, provisions under the bill will cease to be operative come December 31, 2021, or two months after the health emergency is declared to have ended, whichever is later.

While the proposed bill will help struggling small businesses to continue to operate and generate revenue after the currently imposed restrictions have been lifted, businesses on the other end of the spectrum are crying foul.

Particularly, the International Council of Shopping Centers (ICSC), said that SB 939 would upend the existing real estate leases across the state of California and that it invalidates all existing commercial leases, benefiting one business over another.

While they acknowledge that the COVID-19 pandemic has put everyone's health and safety at serious risk, the pandemic has impacted all businesses, not just the commercial tenants. But the proposed bill, they said, shifts the economic burden caused by the pandemic to the commercial real estate lessors.

ICSC believes that the proposed bill violates the Contracts Clause of the United States Constitution and so they are urging legislators to oppose the bill.

SB 939 is slated to be heard during the state senate's Judiciary Committee to be held on May 22, 2020.