New California bill could allow restaurants, bars to renegotiate rent or quit leases

California restaurants and nonprofits financially devastated by the coronavirus outbreak could gain a safeguard from eviction and rent relief in a proposal approved Friday by state senators.

Senate Bill 939 would prevent commercial landlords from evicting certain small businesses and nonprofits during the pandemic. The proposal would also allow bars, restaurants and entertainment venues to renegotiate rent prices with their landlords if they've experienced a 40-percent drop in revenue or have limited their capacity by at least 25 percent to safely reopen their doors.

Tenants and landlords would have the flexibility to cut their own rent deal, and should negotiations turn sour, a lease could be terminated with limited financial consequences. Tenants would have a year from the end of the state of emergency to pay back rent owed.

State Sen. Scott Wiener, D-San Francisco, said it's unreasonable to expect businesses to comply with new government mandates without facing financial repercussions from lost revenue.

“These landlords are not going to be able to collect the pre-COVID rents from the restaurants, bars and cafes. That is not reality,” Wiener said during a Senate Judiciary hearing Friday. “The choice isn't between full rent and reduced rent. The choice is between reduced rent and no rent.”

Proponents say the bill would offer a lifeline for businesses, ensuring there are jobs for employees during an economic recovery. Wiener said the bill additionally would help preserve neighborhood culture defined by storefronts and restaurants, and protect nonprofit social services.

The stay-at-home order issued in March forced most businesses, especially in the restaurant industry, to shut their doors and operate on a limited basis. Two months later, the state is slowly allowing these businesses to reopen under the promise that they implement public health guidelines that allow for social distancing.

Even with the loosening of restrictions, some businesses say the federal and state assistance has done little to save them from the brink of bankruptcy.

“Rent is the largest fixed cost for hospitality businesses, and for many it will be the determinant of whether they reopen or remain open,” said Gwyneth Borden of the Bay Area Hospitality Coalition in a statement. “With record unemployment in California, being led by the hospitality sector, SB939 is crucial in saving jobs.”

Wiener's measure faces strong opposition.

Dozens of business and building or real estate organizations, including the California Chamber of Commerce and the California Association of Realtors, say the bill would harm landlords.

The California Business Properties Association has marked SB 939 as a “misguided approach” that would swap one immediate problem for a long-term mortgage default crisis.

“All Californians - especially property owners - want businesses to thrive and be able to pay their rent,” said association President Rex Hime. “But SB 939 flies in the face of basic economics and would exacerbate the financial problems imposed on all residents and businesses by COVID-19's mandated business shut-down.”

Wiener will likely have to revise the bill in order to earn the two-thirds majority vote required for legislation that carries an urgency clause.

After an hour of debate, the bill passed the committee on a 5-1 vote.