A controversial proposal to allow California businesses to terminate their leases faces a critical hearing tomorrow, prompting restaurateurs across the state to rally for it to succeed.
As previously reported by Eater LA, California State Bill 939 (you can read it in full here) was proposed by San Francisco-based Senator Scott Wiener and SoCal Senator Lena Gonzalez, last month. It was prompted by (per tweets by Wiener) fears of mass closures by restaurants, bars, and cafes, all of which stand to generate less revenue than expected due to social-distancing guidelines necessary to slow the spread of the new coronavirus (COVID-19).
Here’s the thinking: When a bar, restaurant, or other business agrees to a rent amount, it does so with the expectation that it will have a certain level of income. All those expectations were upended with the coronavirus crisis, as bars have been forced to fully close for months and restaurants have been relegated to takeout-only. Even though those venues are starting to reopen for drinking and dining once more, their capacity for patrons — and, therefore, for revenue — will remain diminished rent renegotiation is necessary if these restaurants are to remain.
The proposal quickly gained the support of restaurateurs — and the ire of real estate groups. Some threatened lawsuits If the bill moved forward, while others said that its passage would “cause a financial collapse” for the state’s commercial real estate industry. That threat of collapse incited a snort from Gwyneth Borden, a politically-connected consultant on the founding Steering Committee of the Bay Area Hospitality Coalition, a recently-formed lobbying group intended to help local restaurants through the COVID-19 crisis. “All we’re asking is for landlords to come to the table” to discuss rent reductions, she says, “how can that make the entire economy collapse?”
The concern, it appears, is the aspect of the bill that would — arguably — force landlords to take a seat at that hypothetical table. That’s because, Wiener says, the bill would allow businesses that “aren’t able to renegotiate rent to reflect mandated reduced capacity” would be able to terminate their lease, even if they’ve agreed to a years-long lease term.
Speaking to Eater SF, Borden says that advocates for SB 939 aren’t saying that restaurants should be able to break a lease without any consequences. If the bill moves forward, language in it would involve a payout of multiple months (three, six, or even 12 months were presented as possibilities during the conversation with Eater SF, though Borden said that she believed that most restaurants wouldn’t be able to pay a full year of rent just to break a lease early).
It’s not like every restaurateur in California wants to leave their landlord in the dust. Speaking with Eater SF, Lien Ta, the co-owner of LA restaurants All Day Baby and Here’s Looking At You, says that she — and most other restaurant owners she knows — are trying to save their businesses, not close up shop. “The current reality means that our leases require some edits,” she says.
Without those edits, many restaurant owners say they’ll have to close, as their pre-COVID rents are unaffordable — and, in doing so, they’ll declare Chapter 11 bankruptcy and end up breaking their leases anyway, taking landlords, vendors, and creditors down with them as they go out of business. It’s an ugly prospect, the “nuclear option,” as Borden puts it. But it’s the only option if a business can’t afford rent in this new, challenging landscape.
Widespread bankruptcies could also cause a financial collapse (consider, for a moment, the mortgage meltdown of the previous decade), one that reverberates beyond cafes and restaurants into every other aspect of the economy. But for now, Borden says, landlords refuse to budge, so this emergency legislation seems like the only way forward.
The bill’s next stop is California’s Senate Appropriations Committee, which will hear it at 9 a.m. At that hearing, the committee could vote to kill the bill, which means the conversation ends there. Restaurant owners hope, however, that members will instead vote to send the bill to the Senate Suspense file, which is where bills with a fiscal impact to the state are filed for an upcoming hearing. Those with thoughts on the bill are urged to weigh in via email or phone,
“It really comes down to [Tuesday],” Borden tells Eater SF, as “the real estate community isn’t interested in working with” restaurants. SB 939 “gives us the only leverage there is” to negotiate some form of rent relief. “The choice is to negotiate rent or no rent at all,” Borden says. “Why would a landlord want to drive someone out of business, or have to find a new tenant in the midst of a pandemic? It seems like it’s in everyone’s best interests to work together, especially now.”