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Senate Suspends Bill Allowing Commercial Property Tenants to Walk Away from Leases
California SB 939 was put on the Senate Appropriations “suspense” file on Tuesday. Opponents are urging the Senate Appropriations Committee to hold the bill on suspense when it comes up again for a vote on June 18/19, and keep it there indefinitely. Opponents of the bill say that instead of helping struggling businesses affected by the COVID-19 pandemic, SB 939 will make the problem much worse by potentially leading to widespread commercial property foreclosures and lost jobs.
Opponents say SB 939 would allow businesses large and small to withhold rent indefinitely regardless of how profitable they are and creates a new, special protected class of businesses that can walk away from lease obligations altogether, transferring the debt to the property owner. While the bill has been characterized as applying only to restaurants and select small businesses, opponents say it in fact applies to virtually all California commercial leases.
California Business Properties Association (CBPA)’s Rex S. Hime says, “This bill goes way too far. Property owners still have to pay their mortgages, utilities, property taxes and other expenses, and they’re doing it with vastly reduced rental income now. This bill will allow nearly all commercial tenants to walk away from their lease contracts and make an existing problem go from bad to worse. Bottom line, it will slow our state’s economic recovery.”
Usman Mohammed, managing partner of Consensus Legal, a real estate law firm in downtown Los Angeles, said of the bill, “SB 939 is attempting to avoid widespread closures of businesses and restaurants, however, it places a large burden on property owners, without providing any way for owners to deal with their obligations to pay property taxes, mortgages, and other expenses.”
He noted provisions of the bill may be sliding under the radar, such as a “lightning-rod” lease termination provision. That “unheard of” provision allows for a 12-month rent deferral.
Mohammed says, “All commercial real estate owners should be aware that they could wait over 12 months to receive rent from Covid-impacted tenants for the period of the state of emergency which is ongoing. Covid-impacted tenants cannot be evicted for rent unpaid during the state of emergency.”
For comments, questions or concerns, please contact Dennis Kaiser
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