California landlords are breathing a sigh of relief. Proposed Senate Bill 939, which garnered immense attention amongst the commercial real estate community, was defeated by the senate appropriations committee.
The bill was created with the intention of providing respite for small businesses, particularly in the hospitality industry, that were battered by the COVID-19 pandemic. SB 939 would have allowed commercial tenants in the food and entertainment industry to trigger renegotiations with landlords to modify existing leases if they lost more than 40% of their revenue or if they were operating at 25% or less capacity due to shelter-in-place orders or social distancing rules. However, opponents said the bill was too broad and could have allowed businesses to withhold rent indefinitely, as businesses would be allowed to walk away from lease obligations altogether, transferring the debt to the property owner. Landlord advocates say SB 939 could have led to widespread commercial property foreclosures and job losses.
“The negative impacts of SB 939 would have been particularly bad for affordable housing projects that rely on the commercial portion to secure funding, and currently underserved communities where investment capital is already difficult to attract. Even though this bill is stalled out for now, we’ll be keeping watch to make sure the language doesn’t find its way back into another bill at some point,” Hime said in a statement.
Before the June 18 hearing, Senator Scott Weiner proposed changes that would limit the moratorium length and eliminated the provision that would allow tenants to walk away from their lease without penalty if negotiations weren’t agreed upon after 30 days. However, the softening of the bill was not enough to generate the support needed from the senate appropriations committee.
“The tenacious opposition of the commercial real estate industry was too much to overcome,” Usman Mohammed, managing partner at Consensus Legal, a boutique law firm specializing in real estate transactions in California told MPA. “The proponents of SB 939 made a key mistake. The termination right initially applied to all COVID-impacted tenants rather than just restaurants and hospitality. This broad termination right caused uproar throughout the commercial real estate industry and united opposition to SB 939.”
Senator Wiener’s communication director, Catie Stewart, said it is “very unlikely” that he will propose similar legislation, but if the economic recovery from COVID-19 is slow, Mohammed says California legislators could face increased pressure to take action.
“If a bill takes effect January 1, 2021, only majority support would be required, rather than a 2/3 vote of the California Senate and House, and this would provide an opening for proponents,” he said. “The commercial real estate industry is monitoring developments and remains on guard.”