NAIOP members should be aware of recently proposed California legislation, SB 939 introduced by Senator Scott Wiener (SF), and its potential for having a significant impact on existing commercial leases. If passed, SB 939 would place small property owners into foreclosure by forcing them to float rent for all tenants and gives restaurants the right to walk away from a lease without squaring up for owed rent or paying for property improvements.
Your NAIOP San Francisco Bay Are Chapter has taken action by sending a letter to Senator Wiener and the Senate Judiciary Committee.
How You Can Help
We are encouraging members to send their own letters of opposition. Here is a link to a sample letter that you can use.
Read the SB 939 Bill Text
SB 939 (Wiener) – Negates all current commercial leases to the benefit of one business over another.
Impact on Commercial Real Estate
Our reading is that SB 939 clearly violates the Contracts Clause of the U.S. Constitution and fails the basics of the Blaisdell Test that any court will apply to this legislation.
This bill allows withholding of rent for more than a year, removes existing legal remedies, and rights from, and gives one party to a contract the right to walk away from a valid lease.
Additionally, SB 939 is too broad, poorly written and confusing, does not balance the needs of both parties, is not a reasonable solution, and would prolong the economic pain it purports to address.
SB 939 would bring great harm to the economy and your business:
- SB 939 makes it illegal to even serve notice to terminate a tenancy until a FULL YEAR AFTER the State’s COVID-19 Emergency Order expires.
- SB 939 gives one party the upper hand by making 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.
- SB 939 enables the confusing patchwork of local ordinances on the same topic making it even more complicated for any business that has buildings in multiple jurisdictions.
- SB 939 allows restaurants, bars, and entertainment venues with a decline in revenue of 40% as compared to before shelter in place and face an ongoing reduction of capacity of 25% or more, to engage in good faith negotiations with their landlord to modify any rent or economic requirement regardless of the term remaining on the lease.
- Under SB 939, should the tenant and landlord not be able to reach a mutually satisfactory agreement, the tenant shall have the option to terminate the lease and not be liable for more than three months rent from the start of the SIP to cover the entire rest of the lease term.
- Under SB 939, any third party guarantees will expire with the lease termination.
- SB 939 will be in effect for at least 22 months from March 2020 until December 31, 2021, OR two months after the end of the state of emergency, WHICHEVER IS LATER.
- SB 939 does not apply to any publicly-traded company or a company that is owned by or is affiliated with a publicly-traded company (franchisee), creating even more unfair treatment of businesses.
Senate pro Tem Toni Atkins has unveiled a proposal that would help BOTH landlords and tenants and we think that is a much more reasonable approach.
The Governor is also working with the Economic Task Force to address this issue in a considerate, thoughtful, and collaborative manner.
These are both much better approaches for the state and for business.