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Get The Facts on SB 939 (Wiener)

Senator Scott Wiener has introduced SB 939 that would take local temporary rent forbearance measures to another level by extending them indefinitely statewide and also allowing numerous businesses to walk away from their lease obligations altogether. While the bill has been characterized as applying only to restaurants and select small businesses, it in fact applies to virtually all California commercial leases.

SB 939 (Wiener) is the wrong solution to a legitimate problem. It will thwart the state’s economic recovery and result in more business closures, more lost jobs, lower property values and less local and state tax revenue.

FACT: As currently drafted SB 939 (Wiener)applies to every California-based commercial lease in the state regardless of the type of business, its size or documented lost business due to COVID-19.

There are two sections of the bill.

  • Section 1 eliminates the obligation of all California-based commercial renters to pay their rent retroactive from March 2020 for an indeterminate amount of time, tied to the state’s Emergency Order. And it does not require payment of rent until 12 months after the order is lifted. As an example, if the state’s emergency order is lifted at the end of the year, businesses could be operating and generating revenue for more than a year, but not be required to pay rent until January 2022.
  • Section 2 is the part of the bill supporters promote because it focusses only on bars, restaurants and places of entertainment. However, this section is equally problematic because it creates a new, special class of commercial renters and allows some to simply walk away from their leases regardless of contractual obligations or previous investments made by the property owner. This essentially transfers the debt of one business to another. This section also applies a new definition to “small business” – up to 500 employees – which is five times larger than the state’s current definition. According to the National Restaurant Association, 90% of restaurants employ fewer than fifty employees.

FACT: There is no end date or sunset on SB 939 (Wiener) – it is tied to the State’s Emergency Order.

The future of COVID-19 and the status of the State’s Emergency Order remain very uncertain and both could last well into 2021. As explained above, even if the Emergency Order is lifted at the end of this year, SB 939 would allow even sizable businesses that generate healthy profits in 2020 and 2021 to operate in their spaces without any obligation to pay rent until 2022. All businesses in California are suffering under the state’s shelter-in-place orders. And according to the Small Business Association, nearly 41,000 real estate companies in the California shopping center sector alone have fewer than 20 employees and are themselves “small businesses.” It is simply unrealistic to expect any company to cover the contractual debt obligation for another for an extended or undetermined amount of time. And, banks and mortgage holders will undoubtedly call loans into default.

FACT: Property owners are already incentivized to keep existing tenants:

Nobody wants an empty building. And trying to find new tenants is far more costly than finding creative ways to keep current tenants. Most property owners are working with their renters and tenants to provide relief while keeping them in their spaces.

FACT: Not true.

According to the Small Business Association, nearly 41,000 real estate companies in the California shopping center industry alone have fewer than 20 employees. And just that sector of the industry has already lost $3.5 billion in rent revenue, resulting in less tax revenues for communities. CalPERS and CalSTRS also own millions of dollars worth of commercial property; it is these investments providing retired California workers and educators an income and health care.

FACT: SB 939 (Wiener) tries to help some small businesses by shifting the financial burden onto others already struggling.

SB 939 (Wiener) tries to help some small businesses by shifting the financial burden onto others already struggling. The bill empowers some renters to walk from the leases or significantly reduce their financial contractual obligations but does nothing to reduce the mortgage payment or other financial obligations still owed by the property owner. Property owners, like businesses and restaurant owners, come in all shapes and sizes. But they all rely on rent from their tenants to pay their mortgage, property taxes, building maintenance and utilities.

FACT: SB 939 (Wiener) flies in the face of basic economics and will do the exact opposite.

It will trigger a commercial mortgage default crisis that will thwart economic growth for years and stall our recovery. Thousands of mortgages will go unpaid, property values and local and state property taxes will further plummet and millions of square feet of empty office and retail space will sit empty for an extended period of time.

There are better, and more balanced approaches to addressing this problem:

  • Amendments were offered: Shortly after SB 939 was introduced amendments were offered to the author mandating both parties negotiate in good faith. Any party found not to be acting in good faith would lose legal and financial remedies that are granted under current contract provisions. This approach would ensure collaboration and conversation by both sides and incentivize a solution, not foreclosure.
  • Both the Senate and Assembly leadership have recently acknowledged that the state has an important role to play in helping both tenants and property owners recover from the economic impacts of this pandemic: Senate leaders’ May 12th release of a “State Budget Approach, Proposal to Aid California’s Economic Recovery” included the suggestion that property owners and landlords provide rent relief and a commitment not to evict tenants in exchange for tax credits from the state equal to the value of the lost rents, spread equally over tax years 2024 through 2033.
  • AB 1410 (Caballero) attempts to address the same problem for residential property but is more balanced, recognizing the financial plight of both renters and property owners. Her bill provides state-funded relief to renters and tax credits for property owners. The same could be applied for commercial tenants and property owners.

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Business, ethnic and taxpayer groups OPPOSE SB 939

  • California Business Properties Association
  • California Retailers Association
  • California Downtown Association
  • Telacu
  • California Hotel & Lodging Association
  • California Taxpayers Association
  • California Black Chamber of Commerce
  • Family Business Association of California
  • California Hispanic Chamber of Commerce
  • Building Owners and Managers Association of CA
  • National Diversity Coalition
  • California Business Roundtable
  • California Builders Alliance
  • California Land Title Association
  • California Mortgage Bankers Association
  • California New Car Dealers Association
  • Commercial Real Estate Development Association, NAIOP
  • International Council of Shopping Centers
  • Hispanic 100
  • Latin Business Association
  • Associated General Contractors of California
  • National Asian American Coalition
  • California Asian Pacific Chamber of Commerce
  • Association of California Life and Health Insurance Companies
  • Nareit
  • Bay Area Council
  • L.A. County Business Federation (BizFed)
  • L.A. Chamber of Commerce
  • Orange County Business Council
  • Western Manufactured Housing Communities Association
  • Institute of Real Estate Management
  • Bay Area Builders Exchange
  • Central Coast Builders Association
  • Chico Builders Association
  • Placer County Contractors Association & Builders Exchange
  • Greater Sacramento Economic Council
  • Sacramento Regional Builders Exchange
  • Shasta Builders’ Exchange
  • United Chamber Advocacy Network
  • Valley Contractors Exchange
  • Ventura County Contractors Association