California Senate Bill No. 939
California Senate Bill No. 939 (“SB-939”) proposes to add Section 1951.9 to the Civil Code (“Section 1951.9”). If SB-939 is passed as currently proposed, it would become effective immediately and have a HUGE impact on existing leases and the rights of commercial property developers and landlords. SB-939 Would provide two categories of rights to certain tenants:
(1) Eviction protections and rent deferral privileges (Section 1 of Section 1951.9), and
(2) Lease renegotiation and termination rights (Section 2 of Section 1951.9.
SB-939 is available here.
Eviction Protections
Section 1 of Section 1951.9 (“Section 1”) makes it unlawful for a landlord to (1) terminate a tenancy, (2) serve notice to terminate a tenancy, (3) use lockout or utility shutoff actions to terminate a tenancy, or (4) otherwise endeavor to evict a tenant of commercial real property, while the COVID-19-related state of emergency proclaimed by Governor Newsom on March 4, 2020 (the “State of Emergency”) remains in effect.
An eviction that happens after March 4, 2020, but before the effective date of SB-939, is deemed to violate Section 1. But, an eviction during that period is not prohibited IF the tenant has been found to pose a threat to the property, other tenants, or a person, business, or other entity, or if a landlord continues an “eviction process that was lawfully begun” prior to 3/4/2020.
Penalties for Violating Eviction Protections
An eviction that violates Section 1 is deemed void, against public policy and unenforceable, and Further, it is deemed to be an unlawful business practice and act of unfair competition under Section 17200 of the Business and Professions Code (“Section 17200”). Landlords that engage in any harassment, mistreatment or retaliation against a tenant to force such tenant to break or abandon the lease may also be subject to a $2,000 fine. The remedies provided under Section 1, Section 17200 and any other remedies and penalties provided under all of the other laws of the State of California are cumulative to each other.
Rent Deferral Rights
Any tenant that does not pay the rent due under its lease During the COVID State of Emergency is protected in that it will not be a basis for an unlawful detainer proceeding to evict the tenant. Instead, If passed, the law would provide that the cumulative total of such unpaid rent will be due 12 months after the State of Emergency ends. The landlord cannot charge late fees or interest on rent that became due during the State of Emergency.
Written Notice Required
Also, written notice of the protections afforded by Section 1 must be provided to tenants of Any commercial real property within 30 days of the effective date of Section 1.
SECTION 2 OF SECTION 1951.9
Renegotiation Right
Section 2 provides that a commercial tenant is entitled to have good faith negotiations with its landlord to modify the rent and economic requirements of its lease. This right applies regardless of the length of the term remaining on the lease.
To begin the renegotiation process, the commercial tenant must provide a “negotiation notice” to the landlord. The “negotiation notice” must (1) affirm under the penalty of perjury that the commercial tenant meets the financial criteria, (2) state the desired lease modifications, and (3) be provided to the landlord in accordance with the notice provisions of the lease.
Termination Right
If the commercial tenant and landlord do not reach a mutually satisfactory agreement within 30 days after the date the landlord receives the negotiation notice, then the commercial tenant has the one-time right to terminate the lease (“termination option”) by providing written notice to the landlord (“termination notice”) within 10 days after the expiration of such 30-day negotiation period.
While the commercial tenant is entitled to exercise the termination option without any liability for future rent, fees, or costs that otherwise may have been due under the lease, the commercial tenant is nevertheless responsible for payment of previously due rent in an amount no greater than the following: (1) a maximum of three months’ worth of the past due rent incurred while the civil authority and regulations related to COVID-19 were in effect (or a lesser sum as may be actually unpaid), plus (2) all rent incurred and unpaid during a time unrelated to COVID-19 through the date of the termination notice. The foregoing payment must be made to the landlord within 12 months of the termination notice.
The tenant’s termination notice must be sent in accordance with the notice provisions of the lease. The commercial tenant is required to vacate the leased premises within 14 days after the landlord receives the termination notice. Upon service of the termination notice, the lease and any third-party guaranties associated with the lease are deemed terminated and no longer enforceable.
“Commercial Tenant”
The Proposed protections and provisions contained in Section 2 apply to a specifically defined “commercial tenant.” Any publicly traded company or company that is owned by or is affiliated with a publicly traded company does not qualify as a “commercial tenant” under Section 2.
Section 2 defines “commercial tenant” as (1) a small business, eating or drinking establishment, place of entertainment or performance venue (those terms are not defined in SB-939), (2) that operates primarily in California, (3) has experienced a decline of 40% or more of monthly revenue as compared to (i) two months before a state or local government shelter-in-place order took effect or (ii) the same month in 2019, and (4) is subject to regulations to prevent the spread of COVID-19 that will financially impair the business as compared to the period before the Emergency Executive Orders shuttering businesses took effect.
In addition, an additional qualifying tenant requirement for an eating or drinking establishment, place of entertainment or performance venue to constitute a “commercial tenant,” the tenant must also have had a documented decline of 25% or more in capacity due to the Executive Orders, the social or physical distancing order for safety concerns.
Section 2 End Date
The later of (i) two months after the State of Emergency ends or (ii) December 31, 2021.
For more information contact Dawn Coulson at dcoulson@eppscoulson.com
Epps & Coulson, LLP
Attorneys Admitted to practice in
California, New York, Colorado,
Texas, Oregon and Hawaii
Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney. While intended as information and educational, it is considered advertising under applicable various laws of some states.