Legislative Alert: Status Report on SB939 and Commercial Evictions

By Robert M. McCormick

In recent weeks, California Senate Bill 939 has garnered significant attention from the commercial real estate industry.  This controversial legislative proposal written by Senator Scott Wiener (D-San Francisco) and Lena Gonzalez (D-Long Beach) is designed to provide relief to small business commercial tenants during the state of emergency issued by the Governor on March 4, 2020 in response to the COVID-19 pandemic threat.  The bill has gone through several revisions in response to the significant opposition expressed by the commercial real estate industry and, in its most recent form, narrowly passed out of the Senate Judiciary Committee on May 22, 2020. 

If enacted as recently amended, SB 939 would prohibit commercial landlords from serving on an eligible COVID-19 impacted commercial tenant (as more specifically defined) a notice of eviction for the non-payment of rent or the failure to replenish a security deposit until 90 days after the state of emergency is lifted by the Governor.  SB 939 would also, among other things, provide means for stopping an eviction in progress, prohibit the non-payment of rent during the state of emergency from being grounds for an unlawful detainer action, limit late fees that can be imposed, prohibit landlord harassment and provide that any unpaid balance of rent accrued during the state of emergency shall not be due until 12 months after the end of the state of emergency.

SB 939, if enacted in its present form, would go even further with respect to certain COVID-19 impacted commercial tenants who fit specified criteria and authorize them to initiate “good faith” negotiations with their landlords regarding adjustments to rent and other economic aspects of their existing lease needed to address the financial impacts they are experiencing.  In the event these negotiations should fail to reach a mutually satisfactory agreement within 30 days of commencement, SB 939 would provide these tenants with the right to terminate the lease.  This termination right includes the release of the tenant from further liability for rents and costs under the lease and the termination of all third party guaranties.   In lieu of damages, the landlord is entitled to receive from the terminating tenant payment of up to 3 months past due rent,  to be paid by the tenant within 12 months after the date the premises were vacated. The criteria which define the scope of the application of this powerful and controversial negotiation/termination right have been narrowed in response to growing opposition.  In its current form, SB939 limits the application of this right to COVID-19 impacted commercial tenants who are small businesses operating primarily in California that are eating or drinking establishments, places of entertainment or performance venues and that can meet specified financial criteria.  Publicly traded companies and their affiliates are expressly excluded.

This is the form of SB 939 that was submitted to the Senate Appropriations Committee for review and approval and was voted upon on June 9, 2020.  The result of that vote was to put SB 939 on the Committee “suspense” file pending the next vote of the Committee scheduled for June 18/19. The bill remains a work in progress likely to undergo further modification if it avoids the fate recommended by its opponents that it remain suspended indefinitely.  It also faces a further major hurdle should it make it to a vote in the Senate, which is that its passage requires two thirds approval.

We will continue to follow and report on the fate of SB 939, but in the meantime for those readers who are interested in other COVID-19 related legislative proposals concerning leases, we recommend taking a look at the following bills currently being considered:

• AB 828 (Ting) which concerns a temporary moratorium on residential evictions;
• SB 915 (Leyva) which concerns mobile home park evictions;
• SB1410 (Caballero) which proposes the establishment of the COVID-19 Emergency Rental Assistance Program that would provide relief to residential landlords; and
• AB 3260 (Wicks) which proposes allowance for the payment of residential security deposit via monthly installments or by insurance.

Copies of the text of these bills and reports on their status and analysis can be obtained at http://leginfo.legislature.ca.gov/

Finally, there is a related development concerning the Judicial Counsel enacted emergency rules concerning the postponement of “non-urgent civil matters” due to shelter-in-place orders which effectively postponed evictions and foreclosures.  On June 11, 2020, Chief Justice Tani Cantil-Sakauye suspended, for the time being, a scheduled vote on proposed changes that would have ended the moratorium on evictions and foreclosures by August 3, 2020.  Regardless of what the Judicial Council eventually decides, ultimately it is up to the Governor and the Legislature to come up with a legislative solution to this situation.