California SB 939 amended to focus more on hospitality tenants

by Kasi Johnston03 Jun 2020

Pushback from the landlord community over California senate bill 939 continues, triggering threats of legal action should the bill be passed. The bill was introduced in effort to aid small business tenants who are struggling through the pandemic and would enact a moratorium on commercial eviction during the COVID-19 state of emergency.

Rob Lapsley, president of the business lobbying group California Business Roundtable (CBR) told the California Globe the CBR would sue the state in court to block SB 939 should it pass and be signed into law. Other landlord advocacy groups like the like the California Business Properties Association (CBPA), are calling the bill unconstitutional, especially considering no relief of equal benefit is being provided to the landlord community.

The section of the bill that garnered the most attention is the lease termination provision, where tenants who have lost a certain amount of revenue throughout the pandemic can enter negotiations with their landlords to modify their leases; if they are unable to come to an agreement, tenants would then have the ability to walk out of the agreement without penalty.

Most recently, the provision was amended and narrowed to only restaurants, bars and entertainment venues that were prevented from opening or suffered a decline of 25% of more in capacity due to the pandemic.

The protection this bill would offer to hospitality tenants specifically is welcome by many, as this sector has been most heavily impacted by the pandemic. “It really boils down to how to keep food and beverage establishments, restaurants, viable and open,” Tony Natsis, chair of Allen Matkins’ Global Real Estate Group, told GlobeSt.com. “This is the most affected class of tenants, and frankly, the other classes of tenants are more viable once the economy reopens and are more replaceable by similar or compatible uses. In that regard, legislators should follow the structural lead of the current state and local shelter orders and apply SB 939 to restaurants.”

While the lease termination provision has been narrowed to hospitality businesses, the bill also includes some other impactful provisions like the rent deferral and eviction restrictions, which still apply to all impacted small businesses. Usman Mohammed, managing partner at Consensus Legal, a boutique law firm specializing in real estate transactions in California, says some of these provisions have been sliding under the radar. The rent deferral provision, for example, would allow any small business or non-profit impacted by COVID-19 to defer rent for up to 12 months after the state of emergency ends. While the relief for tenants is welcome, landlords continue to have obligations some may struggle to meet if SB 939 is passed.

“Office and industrial owners across California breathed a huge sigh of relief [with news of the most recent amendment]. However, they should be aware that they could still wait 12 months to receive rent from coronavirus-impacted tenants while the state of emergency is ongoing,” he said. “SB 939 is attempting to avoid widespread closures of businesses and restaurants, however, it places a large burden on property owners, without providing any way for owners to deal with their obligations to pay property taxes, mortgages, and other expenses.”

The Senate Appropriation Committee will vote on SB 939 this month.