New measure would provide rent relief for struggling small businesses

June 9, 2021 • Source: SF Examiner • Posted in: Market News

Many of San Francisco’s shuttered small businesses have racked up hefty rent charges during the pandemic. Now, one city supervisor is proposing a law that would require landlords to forgive those rents altogether.

Under legislation announced Tuesday by Supervisor Dean Preston, businesses forced to close due to state and local health orders may gain a legal right to no longer pay their back rent.

If they don’t get this kind of help, Preston worries the businesses could close down. As a result, vacancies in San Francisco’s commercial corridors would increase significantly — something The City was already struggling to address pre-pandemic.

“There are a lot of neighborhood businesses that are not sure if they are going to survive,” Preston told the Examiner. “The ones I’ve talked to in my district, the biggest factor is what happens to the $50-$100-$150,000 dollars of rent debt. We don’t want businesses to close and get vacant storefronts because they don’t see a path out because of rent debt.”

For Christin Evans, owner of independent Haight-Ashbury bookstore Booksmith and a board member of the Haight-Ashbury Merchants Association, Preston’s proposal is the right response for the times.

She said a number of businesses on Haight Street were forced to close or are at risk of closing due to owed back rent. Small businesses, she said, generally pay about $10,000 to $20,000 per month in rent along the iconic street.

Out of 150 storefronts, Evans said, there were only six empty spaces in 2015. The number jumped to 21 in early 2020 and currently stands at 32.

“We rely on a robust vibrant commercial corridor,” she said. “We don’t want to see these corridors get to like 50% vacancy. We all suffer when that happens, because the vacancies can create blight.”

Preston’s proposal, on the other hand, drew criticism from the commercial real estate industry.

David Blatteis, of Blatteis Realty, which manages dozens of commercial buildings in San Francisco, said it was unfair since landlords have also suffered pandemic losses.

“To deprive them even more of what they need to pay their mortgages and insurance on the building and upgrades, roof repairs, is going to kill these landlords,” Blatteis said.

Preston, however, argued that landlords can weather the loses—at least better than commercial tenants.

“As a class, landlords are in a better situation generally to withstand these kinds of losses than small businesses,” Preston said. “At the same time, my door is open, and we are looking forward to hearing from the landlords.”

The legislation, according to Preston, is based on a state contractual law known as “frustration of purpose,” when obligations are waived if unexpected circumstances make it impossible to fulfill them. Preston argues the provisions apply in this case and his legislation establishes a “rebuttable presumption that the shutdown frustrated the purpose of the lease.”

The proposal applies to small businesses closed by the pandemic with gross receipts of $25 million or less, such as bars, hair salons, massage therapists, and gyms. It doesn’t include those in office space unless they are registered as nonprofits. It would require at least six votes to pass, and as of Tuesday afternoon, Preston picked up the support of Supervisor Aaron Peskin and Supervisor Hillary Ronen.

While the law may face legal challenges, Preston said, “I think we are on very firm ground with this.”

The measure comes as many businesses are struggling to come to some resolution with their landlords about what to do with the back rent they owe. A March budget analyst report found businesses have accumulated up to $44.9 million per month in unpaid rent between April 2020 and December 2020.

“This will provide a level of clarity that will make many of those disputes go away and certainly will give some additional leverage to small businesses that are negotiating on this issue,” Preston said.

In her neighborhood, Evans explained that some merchants have been able to negotiate arrangements to pay back rent over time or as a percentage of sales. In other cases, though, landlords have stopped talking to their tenants altogether.

“Those of us that were able to negotiate with our landlords a reasonable accommodation,” Evans said, “have been very fortunate.”


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