Governor Newsom allows locales to extend commercial eviction moratoriums
Fearing an extinction of small and medium-sized businesses forced to shutter during the pandemic, Governor Newsom has signed an executive order that allows local jurisdictions to continue prohibiting evictions of commercial tenants impacted by the pandemic until the end of March 2021.
In San Francisco, Mayor London Breed was initially exuberant after the announcement, but the details would have to be worked out.
Thank you @GavinNewsom for this executive order allowing us to extend our local commercial eviction moratorium through March 2021. Losing these protections would have been devastating for struggling small businesses. pic.twitter.com/vWc2CVwm2x
— London Breed (@LondonBreed) September 24, 2020
On September 29, Mayor London Breed authorized a 60-day extension of the city’s commercial eviction moratorium through at least November 30 of this year (2020). This moratorium applies to rents due from March 17, 2020, through November 30, 2020, and only to businesses with up to $25 million in pro-rated gross receipts last year.
Landlords of buildings with less than 25,000 square feet of rentable space, however, can seek a waiver from the moratorium if it can be demonstrated that the inability to evict would create a significant financial hardship such as a default on debt or similar enforceable obligation.
The eviction moratorium does not apply to establishments designated as "formula retail," commonly known as chain stores, and defined in Section 303.1 of the San Francisco Planning Code. So, what we are talking about is small and medium-sized businesses that enjoy the protections.
The need is great
Using data from Yelp as of July 10, the San Francisco Chronicle reports that over 2,000 businesses in San Francisco and the East Bay have shut their doors for good, with another 3,000 businesses having to temporarily close.
Many inventive restaurant and bar owners have kept their heads above water by adapting to takeout and outdoor dining. They’ve also leaned on an overlooked partner in the longevity of their business - the landlord. The restructuring of leases or seeking rent deferments or abatements have become commonplace.
Comparisons and contrasts with Assembly Bill 3088
As Daniel Bornstein pointed out in this town hall online meeting, AB-3088 only addresses residential evictions and does not meddle with relationships between commercial landlords and tenants. For any guidance on commercial evictions during COVID-19, we have to turn to Governor Newsom’s executive order issued in March and later extended in June.
When it comes to commercial evictions, there is a similarity with AB-3088 in that the business can furnish proof of a financial impact related to COVID-19, and this is a low bar to prove.
Assuming documentation is provided that substantiates a hardship related to COVID, the commercial tenant can buy some time, but if they continue not to pay, proof of ongoing distress must be submitted to the landlord. Nothing prohibits landlords from drawing from an existing security deposit to deduct rent owed.
Assuming documentation is provided that substantiates a hardship related to COVID, the commercial tenant can buy some time, but if they continue not to pay, proof of ongoing distress must be submitted to the landlord. Nothing prohibits landlords from drawing from an existing security deposit to deduct rent from the security deposit.
This is an oversimplified version of San Francisco's new rules. The cerebral types can read the entire order here, or better yet, contact our offices for informed advice.
For residential tenants, rent that has accrued during the pandemic will be converted into consumer debt and cannot be used as grounds for eviction, with several caveats we discuss here. This is different from businesses that are presumed to be sophisticated and savvy about the law and do not enjoy the same rigorous protections as residential tenants. Commercial tenants can in fact be evicted for nonpayment of rent with little questions asked and without the need to comply with any extra, onerous set of rules.
Another parallel we can draw with AB-3088 is that compromise is the order of the day. Although developers have sued large retailers, there is a vast stock of other establishments who just need a little breathing room and are willing to work with their landlord until we come out safely and prosperously on the other side of the pandemic. Better to engage in these heart-to-heart conversations and arrive at a win-win, than to have a boarded-up storefront for months or years.