California Advances Bill Allowing Some Restaurants, Bars to Terminate Leases Amid Coronavirus

May 22, 2020

California Advances Bill Allowing Some Restaurants, Bars to Terminate Leases Amid Coronavirus - (SF Chronicle - May 22)

The California Senate advanced on Friday a bill that would allow some hospitality tenants to terminate leases if negotiations with landlords to modify terms aren’t successful during coronavirus.

The Senate Judiciary Committee voted 5-1 to advance SB939, which authorizes lease renegotiations for restaurants, bars, cafes and entertainment businesses who have lost at least 40% of monthly revenue or will be required to reduce capacity by 25% or more when they reopen.

State Sens. Scott Wiener, D-San Francisco, and Lena Gonzalez, D-Long Beach, are sponsoring the bill, which they say is an emergency measure meant to save struggling small businesses who can’t pay full rent.

Wiener said in Senate testimony that coronavirus is “a mass extinction event” for commercial tenants, who are facing plunging revenue in the face of unchanged lease obligations.

The bill would also ban commercial evictions during the coronavirus state of emergency and allow back rent to be paid within 12 months. San Francisco has already banned commercial evictions of small businesses, along with residential evictions.

Real estate groups said the bill is too sweeping and would send shockwaves through the state, harming landlords who would be unable to pay mortgages.

AIR CRE, a Southern California real estate group, said it violates the state’s unfair business practices laws and benefits tenants at the expense of landlords. It is calling for aid for both groups.

Rob Lapsley, president of California Business Roundtable, said during Friday’s Senate hearing that the group is prepared to sue to block the bill.

Wiener said he is continuing to talk to opponents and will introduce more amendments. He said the goal of the bill was to mandate good faith negotiations, rather than companies breaking leases.

“Overwhelmingly, these businesses don’t want to close down,” Wiener said. “This is their life’s work.”

Tenants must be based in California to qualify and have fewer than 500 employees, which is the federal definition of small business, though Wiener said he was open to a lower level. Public companies cannot qualify.

The bill requires approval from additional subcommittees and full votes at the Senate and Assembly. It could potentially go into effect by September. The protections would be in effect until at least the end of 2021, or two months after the state of emergency ends, whichever is later.