As COVID-19 continues to shape our economic future, elected officials are weighing how to intervene in commercial evictions. Some municipalities have imposed temporary moratoria on evictions. Senate Bill 939 (“SB 939”), introduced on February 6, 2020 by Senators Scott Wiener and Lena Gonzalez, would go much further. The legislation would impose significant Statewide restrictions on commercial evictions of broadly defined “small businesses” for months after the COVID-19 state of emergency declared on March 4, 2020 is lifted.
SB 939 would prohibit a commercial landlord from serving a notice of eviction on a tenant until 90 days after the Governor lifts the state of emergency order. Eviction protection would apply to an eating or drinking establishment, place of entertainment, or performance venue that operates primarily in California and has experienced a specific decline in revenue due to COVID-19. Any eviction actions commenced after the date of the emergency COVID-19 order, but before the adoption of SB 939, would be void and unenforceable.
The Legislation would further provide tenants with additional time to pay unpaid rent accrued during the state of emergency. The balance of any unpaid rent accrued during the state of emergency would be due 12 months after it ends, unless otherwise negotiated with the landlord, and no interest or late fees would be due if paid within that 12 months.
Perhaps of most concern to commercial landlords, the legislation would provide qualifying tenants with the right to conduct negotiations with the landlord in order to modify any rent or economic requirements, and if unsuccessful, to terminate their lease. No additional rent would accrue, and the tenant would be required to pay only any rent accrued outside of the state of emergency plus three months’ worth of the past due rent incurred during the state of emergency. The right to lease termination would remain in effect until the earlier of two months after the state of emergency or December 31, 2021. Currently, this provision would be limited to businesses with fewer than 500 employees.
Not surprisingly, the Bill is generally supported by tenant groups and restaurant trade associations and opposed by landlords and business associations. Among other concerns, opponents point out that most commercial properties are owned by families or small landlords. In addition to questions about the fairness of the bill, there is concern that the law could cause ripple effects throughout the economy, including widespread mortgage default by owners of commercial property. Proponents argue that there are no Statewide protections for small businesses, and that many restaurants simply cannot keep paying the rent due, either now or in the uncertain future of social distancing and a battered economy.
As urgency legislation, SB 939 would take effect immediately if passed by a 2/3 vote in each house of the Legislature and signed by the Governor. The bill has been amended several times since introduction. Additional amendments are anticipated, but have not yet been released. The Legislation was passed by the Senate Judiciary Committee on May 22. It was then considered by the Senate Appropriations Committee on June 9 and will be heard by Appropriations again on June 18.
If the bill is not passed out of the Appropriations Committee by June 19, it will not move forward in this legislative session. If the bill does pass, litigation is almost certain. We will continue to follow this legislation and the debate over commercial evictions during the COVID-19 era.
Authored by Reuben, Junius & Rose, LLP Attorney Jody Knight.
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.
