The coronavirus has left many commercial tenants struggling to pay their rent. To get by, many have turned to the government for help. One state that was poised to address the situation was California. 

 

In the Golden State, Senate Bill 939 was introduced, which would allow some commercial tenants to negotiate or break leases if they were suffering from economic hardship sustained during the COVID-19 crisis. The authors of the bill, Senator Scott Wiener and Senator Lena Gonzalez, drafted it with the intention of “preventing the potential for widespread closures of restaurants, cafes, bars, entertainment venues, and other businesses most affected by the economic shutdowns.”

 

Did the bill pass? What implications would it have? And, what’s next?

 

What You Need to Know about Senate Bill 939

Senate bill 939 was set to impose a moratorium on commercial evictions, extend repayment periods for unpaid rent, and open the door for tenants to renegotiate their lease terms at any time. At the end of May, the bill passed the Senate Judiciary Committee, but landlords remained concerned.

 

“[Bill 939] was causing a lot of blowback,” said Wiener. “Our goal, of course, [was] never for leases to be canceled, but rather to encourage renegotiation.”

 

In an effort to secure passage of the bill, Wiener and Gonzalez amended it to limit its scope and eliminate the lease termination provision. It was all for naught. Despite the amendments, the bill did not pass. It was unable to rise above criticism that financial liability during the economic downturn would fall solely upon the shoulders of landlords.

Negotiating Leases, Not Breaking Leases

With bills poised to allow tenants to easily break commercial leases being shot down, the alternative may be to work on your negotiation skills. Negotiations with your landlord are important and should take place before trying to breach a lease or abandon a property. After all, being taken to court over non-payment of rent, business interruption insurance, or force majeure clauses can cost a lot of time and money.

As we discussed in our blog, COVID-19: Changing the Landlord-Tenant Relationship, increasing cooperation between landlords and tenants is essential to get through these unusual times. Thankfully, many commercial landlords are working with their tenants—getting creative to offer help and support by providing various forms of lease restructuring, such as waiving base rent for a few months but asking tenants to pay it back later. 

 

A Plan of Action for Commercial Real Estate (CRE) Tenants

According to The Wall Street Journal, many big-name companies have been failing to pay all or some of their rent since the outbreak began. The report states that while many landlords are willing to work with smaller local businesses that have limited cash and have experienced a loss in revenue due to their customers being quarantined, they’re often less forgiving with large corporate tenants who they believe to have deep pockets. 

If you’re not wanting to liquidate and call it quits, or are averse to lease concessions or government relief programs such as the CARES Act or the SBA Assistance Program, you may want to consider tenant representation.

 

Avoiding a Lease Break Through Tenant Representation

While not all landlords are understanding or forgiving regardless of the situation, and no business is immune to legal action, negotiating leases can help both parties arrive at a mutually beneficial conclusion without having to involve judges and their courtrooms.

 

If you’re unable to afford your current space and are looking for either a way out or a new place for your business to call home, contact the CRE professionals at iOptimize Reality®. We can help you avoid lease breaks through subleasing, sale-leasebacks, and more.

 

COVID-19 has changed everything. Get an expert on your side to help navigate these muddy waters. Contact us today to talk about your CRE needs and to learn more about what we can do for you.

 

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