California Bill Would Impose Eviction Moratoriums and Allow Commercial Tenants Impacted by COVID-19 to Renegotiate Leases

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May 29, 2020

A new bill in California looks to provide relief to commercial tenants during the Coronavirus (COVID-19) pandemic.  Senate Bill (SB) 939 would impose a moratorium on evictions for certain commercial tenants while emergency COVID-19 orders are in effect.  Tenants would also have 12 months following the date the state of emergency ends to pay any unpaid rent, unless they come to another agreement with the landlord.  Nonpayment of rent during the state of emergency could not be used as grounds for eviction, and landlords could not impose late fees for the rent due during that time.  A landlord who harassed, mistreated, or retaliated against a commercial tenant to force the tenant to terminate the lease would be subject to a $2,000 fine per violation.

To qualify for relief under SB 939, a commercial tenant must be a small business, nonprofit, an eating or drinking establishment, place of entertainment, or performance venue who has experienced at least a 40% decline in monthly revenue (either as compared to two months before the COVID-19 emergency order or other local government shelter-in-place order took effect, or as compared to the same month in 2019).  Eating and drinking establishments, places of entertainment, and performance venues must also show at least a 25% decrease in capacity due to social distancing orders or safety concerns.  Commercial tenants must also show that they are subject to regulations to prevent the spread of COVID-19 that will financially impair the business when compared to the period before the COVID-19 emergency order or other local shelter-in-place order took effect.  Publicly traded companies or companies owned by or affiliated with a publicly traded company do not qualify for relief.

Notably, SB 939 would also allow the specified commercial tenants to renegotiate current leases, and to terminate those leases if negotiations fail.  Tenants would be able to engage in good faith negotiations to modify any rent or economic requirement, regardless of the term remaining on the lease, after serving the landlord with a notice certifying they meet the required criteria, as well as the desired lease changes.  If the landlord and tenant cannot reach a mutually satisfactory agreement within 30 days, then the tenant could terminate the lease without any liability for future rent, fees, or costs that otherwise may have been due under the lease by providing a written termination notice to the landlord within 10 days from that time.

Tenants would still have to pay past-due rent within 12 months, in an amount no greater than the sum of the following: 1) a maximum of three months’ worth of the past due rent incurred during the COVID-19 emergency order (or a lesser sum as may be actually unpaid), and 2) all rent incurred and unpaid during a time unrelated to COVID-19 through the date of the termination notice.  Tenants would have to vacate within 14 days of the landlord’s receipt of the termination notice. Importantly, if the landlord and tenant did reach an agreement to modify the lease, the tenant would not be allowed to later terminate the lease under this law.

The law would be in effect until the end of 2021, or two months after the state of emergency ends, whichever is later.

Many property owners, landlords, and business owners oppose the bill, and have stated they would bring constitutional challenges to it if passed.

SB 939 was recently passed by the California Senate Judiciary Committee.  It is now being re-referred to the Committee on Appropriations.  If and/or when it passes the legislature by a two-thirds vote and is signed by Governor Newsom, the law would become effective immediately.

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This article is based on the law as of the date posted at the top of the article.  This article does not constitute the provision of legal advice, and does not by itself create an attorney-client relationship with Eskridge Law.