A temporary ban on commercial evictions due to the Covid-19 pandemic met with little opposition at a California Senate committee hearing Friday, but plans to let failing businesses out of their leases could prove a challenge to pass.
SACRAMENTO, Calif. (CN) — Coming to the aid of businesses short on rent, California lawmakers on Friday advanced a statewide moratorium on commercial evictions and a path for those hit hardest by the pandemic to cancel their leases.
“California faces a very real prospect of a massive number of small businesses and nonprofits not just shutting down for the shelter-in-place, but permanently closing,” said state Sen. Scott Wiener, D-San Francisco. “A mass extinction event.”
Wiener and co-author state Sen. Lena Gonzalez, D-Long Beach, want to give nonprofits and businesses wiggle room as California’s economy slinks back to life in the coming months. Senate Bill 939 would create a moratorium on commercial evictions for rent missed during the statewide emergency — which began on March 4 — and give tenants one year to repay up to three months of late rent.
Additional pandemic relief would be offered to bars, restaurants and other hospitality businesses that have experienced a 40% drop in revenue and have been required to cut customer capacity 25%, by clearing a legal way for them to get out of their leases without penalty.
Several counties including Los Angeles and San Francisco have already enacted similar bans of commercial evictions but extending the relief statewide will be no easy feat for the Democratic senators.
To pass their measure the senators need to scrape together two-thirds approval in both chambers and overcome opposition from a formidable coalition of business groups, real estate agents and landlords. In addition, both supporters and critics on Friday questioned whether the bill squares with the Contract Clause of the U.S. Constitution.
Opponents testified SB 939 could prop struggling businesses but at the same time shift the financial burden to landlords and by extension banks. Instead of a sweeping moratorium, the California Business Roundtable said lawmakers should be looking to help businesses directly, not allow them to shirk rent.
“If the goal is to help restaurants, the state should prioritize financial resources to help restaurants, not unfairly shift the crisis to property owners,” said Rob Lapsley, president of the business roundtable. “It’s clear this bill has significant constitutional problems; we hope this should be clear and persuasive enough to vote no. If not, we will be pursuing this issue in the courts as needed.”
Other opponents include the California Chamber of Commerce, Commercial Real Estate Development Association and the California Association of Retailers.
After more than 75 minutes of debate, Democrats on the Senate Judiciary Committee approved the bill and advanced it to a fiscal committee. The two Republicans on the committee didn’t speak on the bill and one voted against it.
Several Democratic members were skeptical but ultimately voted yes to give the authors time to continue shaping the contentious bill.
State Sen. Bob Wieckowski, D-Fremont, acknowledged the bill is “constitutionally challenging” and asked whether the state could meet the reasonable and appropriate legal standard necessary to intervene and break contracts between private parties.
Wiener responded the moratorium clause was designed to be more encompassing and apply to businesses with less than 500 employees, while the contract relief is more restrictive and only extends to businesses that can prove severe financial harm.
The committee’s lawyers advised the courts could go either way if SB 939 is approved and challenged, but noted the government intervention should be legal as long as the emergency lasts.
“A reviewing court might well conclude that the bill results in a substantial impairment of the commercial leases in question, but it could very well also rule that the bill is an appropriate and reasonable way to advance the public interest in ensuring that California’s small businesses, restaurants, bars, and theaters have a realistic opportunity to adjust and recover now that their operations have been radically constrained,” states the 26-page committee analysis.
Responding to the threat of a lawsuit, the committee’s chair said she would be “delighted to open up the courts” if necessary; others encouraged the authors to continue working with the opposition to avoid legal fights.
“We can’t get this wrapped up in litigation and let the courts sort it out — that’s not actually going to deliver relief to anybody,” cautioned state Sen. Henry Stern, D-Calabasas.
Wiener courted the owner of a San Francisco restaurant to testify and demonstrate the harm on small businesses.
Nicole Fish said before the pandemic her restaurant Native Co. was generating $250,000 in monthly revenue, but the figure shrunk to just $25,000 in April. She said one of her two landlords has decided to charge her a 10% late fee despite the existing shelter-in-place order that has squashed the restaurant’s profitability.
“In a few short months our business along with so many others has crumbled,” Fish said. “As the state begins to rebuild we need legislative help to have a fair shot at coming back at all.”
Despite the bill’s flaws, chair Hannah-Beth Jackson said the urgency measure deserves to go before the Appropriations Committee.
“We are already radically altered in this reality upon which those contracts were based,” said Jackson, D-Santa Barbara. “Coronavirus is the one that interfered with these contracts and I just think we have to recognize that.”