Senate Bill 939, a COVID-19 commercial rent moratorium eviction bill sponsored by California State Senator Scott Wiener, was passed May 22nd. As an urgency statute, this bill will go into effect immediately. The bill mandates that it shall be unlawful for a person, business or other entity to terminate a tenancy, serve notice to terminate a tenancy, use lockout or utility shutoff actions to terminate a tenancy or otherwise endeavor to evict a tenant of commercial real estate property, during the pendency of the state of emergency proclaimed by the governor on March 4th, 2020, related to COVID-19.
SB-939 will shift the economic cost of the COVID-19 pandemic from commercial tenants to landlords. It overrides the current law and makes it unlawful to enforce existing lease terms and provides tenants with a new, complete affirmation defense in unlawful detainer proceedings. Statewide, this legislation will bring relief to struggling commercial real estate tenants by prohibiting evictions during and even after the COVID-19 pandemic. SB-939 will be in effect for at least 22 months from March 2020 to December 31st, 2021, or two months after the end of the state of emergency, whichever occurs later.
Over the past several weeks, tenants have negotiated rent deferrals, abatements, and other agreements with landlords. This new bill broadens tenant protections, but severely impairs the ability of commercial landlords to exercise their preexisting contractual rights by barring them from evicting tenants that have suffered financial losses. If tenant evictions are pursued, a landlord can face a fine up to $10,000 and a year in county jail. Any evictions prior to March 4th, 2020, will be allowed to proceed.
Those in opposition to SB-939 state that this legislature will deny commercial real estate lessors income, which may push many into foreclosure, force them to lay-off staff, and eat the costs of lost rent with no recourse. The International Council of Shopping Centers (ICSC) says that that SB-939 would upend existing real estate leases throughout the state as the legislation requires all lessors to defer lessee rent obligations for more than one year. This would also allow certain businesses to:
- Negate the existing lease contract
- Remove existing legal remedies and rights
- Gives the right to walk away from a valid lease
Key Issues Outlined by California Business Properties Association/CBPA:
- It makes it illegal to serve notice to terminate a tenancy until a year after the state’s emergency order expires.
- Makes the common act of serving a notice to terminate tenancy a violation of the state’s unfair business practices and creates a $2,000 penalty.
- It makes it even more complicated for any business that has buildings in multiple jurisdictions.
- Allows restaurants, bars, and entertainment venues with a decline in revenue of 40% and facing an ongoing reduction of 25% capacity, engage in good faith negotiations with their landlord to modify any rent or economic requirements.
- Should the tenant and landlord not reach a mutually satisfactory agreement, the tenant shall have the option to terminate the lease and not be liable for more than three months of rent.
- Any third-party guarantees will expire with the lease termination.
- It does not apply to any publicly-traded company or a company that is owned by or is affiliated with a publicly trade- company (franchisee).
Matthews™ is committed to keeping the commercial real estate community informed and continuing to offer our services during these market changes. With updates and challenges released daily, please contact a Matthews™ specialized agent for guidance during this uncertain time, and for more insights on COVID-19 and CRE, visit our dedicated coronavirus website.
The Centers for Disease Control and Prevention is offering information and updates on the novel coronavirus (COVID-19) outbreak, the World Health Organization is tracking the number and location of confirmed cases of the virus and Building Owners and Managers Association International has provided the following emergency preparedness guidelines for commercial and residential property managers and landlords.