As the co-owner of Shiba Ramen, a popular, quick-service ramen shop with locations in Oakland and Emeryville, Jake Freed is facing the same set of vexing questions as every other Bay Area restaurateur: Will customers come back when dining rooms finally reopen? Does it make sense to rehire employees now when the business’s short-term financial prospects seem so dire? Will this pandemic ever end?
Right now, however, Freed says one overwhelming concern trumps all others: his rent.
In a recent blog post, titled “Thanks to COVID, the Rent Is Unpayable,” Freed argues that for restaurants like his, “the biggest fixed cost — by far — is rent. Commercial rents were sky high relative to sales before the pandemic, particularly in the Bay Area and other coastal markets. For restaurants emerging from months of zero revenue into a world of 50 percent revenue, the pre-pandemic rents will be what put us out of business.”
Freed, who also has a day job as a litigation attorney, joins a chorus of restaurant industry advocates arguing that rent deferment — simply pushing the date rent payments are due back by a few months — won’t do anything to save restaurants, many of which won’t have the capacity to pay any rent until they start generating some revenue. Instead, he argues, rent abatement is needed — plus some significant reduction in the amount of rent restaurants have to pay in the initial months after reopening, when revenue is likely to be drastically reduced. Otherwise, he says, large numbers of restaurants will simply be forced to close permanently.
“Unless this issue is resolved, there is going to be a true mass extinction event,” Freed tells Eater SF.
According to Freed, the landlord for one of his restaurants — he did not want to specify which one — told tenants that, for the purposes of COVID-19-related relief, they would allow restaurants to have two months of deferred rent. Starting on June 1, however, all of those restaurants would have to start paying an even higher rent than they did before the pandemic — the idea being that they would immediately begin paying the landlord back for those missing April and May payments. To make things worse, Freed says, the landlord’s proposal stipulates that if Shiba Ramen defaults on its June rent payment — which it inevitably will, Freed says — the restaurant will be obligated to pay all of its deferred rent right away.
Freed calls this kind of proposal, at a time when many restaurants have no revenue and have already burned through all of their cash reserves, “dead on arrival.” Shiba Ramen’s Emeryville kiosk, for example, never even opened for takeout. The idea, Freed says, that a landlord would expect “100 cents on the dollar” on rent during this time strikes him as wildly unrealistic — and, ultimately, unfair.
There’s nothing particularly unique about Shiba Ramen’s situation, of course. While some sympathetic landlords have chosen not to charge rent at all during the coronavirus shutdown, many others are already beginning to demand full rent payments, even as health departments in San Francisco and the East Bay have yet to set a reopening date for restaurant dining rooms.
That quandary is what’s behind SB 939, the legislative bill that State Senators Scott Wiener and Lorena Gonzalez have sponsored — a bill that would allow restaurant tenants to renegotiate their leases accounting for the new COVID-19 reality and, should those negotiations with their landlords fail, to unilaterally terminate their lease. (That bill was set to be discussed by California’s Senate Judiciary Committee this morning.)
The idea behind the bill is that restaurants face a particularly perilous road to recovery because of state guidelines requiring social distancing inside dining rooms. “We’re now saying, you can reopen, and unlike a lot of other businesses, we’re going to just slash your capacity by 30, 40, 50, 60 percent,” Wiener said during a webinar for small business owners earlier this week. “And I’m deeply concerned that we’re going to see mass permanent closures if we don’t act.”
In the end, Freed argues that the only leverage restaurants like his have is to simply continue not paying their rent. And if landlords move to evict as a result, Freed suspects that the courts will be flooded with lawsuits, as restaurant owners make the case that they don’t, in fact, owe all those months of rent because of the unique circumstances around the COVID-19 crisis.
If that happens, Freed says, no one wins: “I do litigation for a living. People should avoid litigating whenever they can.”