SB 939 Is a One-Size-Fits-All Approach
The highly controversial bill has gone under further evaluation and will likely see amendments to better address concerns of stakeholders.
Commercial real estate owners have hotly contested SB 939. Introduced by Senators Scott Wiener and Lena Gonzalez, the bill imposes a moratorium on commercial evictions, extends repayment periods for unpaid rent and opens the door for tenants to renegotiate their lease term at any time. The bill passed the Senate Judiciary Committee at the end of May, but has now gone back under further review. Senator Wiener has also claimed he will amend the bill to better address the concerns of stakeholders. However, the CRE community is in stark opposition to the bill, which is viewed as a one-size-fits-all solution.
“This is a one-size-fits-all, overbroad approach, that becomes even more problematic because, as currently drafted, the end of the rent deferral period is tied to the end of the state of emergency, which has no firm end date, and those tenants have until 12 months after the state of emergency ends to make a balloon payment of the unpaid rent that accrued during the state of emergency,” Jonathan Zweig of Cox, Castle & Nicholson LLP, tells GlobeSt.com. “Government Code Section 8629 provides that the Governor must terminate a state of emergency ‘at the earliest possible date that conditions warrant.’ Given the unprecedented nature of COVID-19, the State of Emergency could conceivably be in effect until a vaccine is widely distributed.”
Not only is the solution a one-size-fits-all approach, contends Zweig, it also unfairly impacts property owners. “Instead of attempting to equitably share the economic burden caused by COVID-19, in its current form SB-939 will have a lopsided impact on commercial real property owners because, among other things, it ignores the fact that they rely on monthly revenue to meet their obligations,” he says.
The consequences could be grave. Commercial owners face loss of income that could restrict them from fulfilling their obligations, including making mortgage payments, paying taxes and fulfilling service contracts. “Landlords are at a heightened risk of losing their properties to foreclosure, which could depress property values and property tax revenues,” adds Zweig. “A bill that only helps one party at the expense of the other makes the erroneous and unfair assumption that all landlords are able to carry the burden caused by COVID-19. In its current iteration, SB-939 sets a dangerous precedent and unfairly shifts the burden to landlords to support these tenants during the entire state of emergency.”
While the bill is under review and will potentially look much different once amended, Zweig recommends that property owners oppose the bill in its current form and play an active role in the review. “At this time, the best practice for a commercial real property owner is to contest proposed SB-939 so that it does not pass or is amended such that it does not cause as much harm to owners and landlords as the current version of the bill will,” he says. “Since the next hearing on SB-939 is a Senate Appropriations Committee hearing, property owners may consider voicing their concerns and objections to members of that Committee or by submitting a position letter online.”