Keep state out of property lease contracts

Like a game of Jenga, the state government is pulling away the blocks that keep the economy standing and counting on the declining number of blocks in the stack to hang on and maintain stability.

At some point, a collapse ends the game.

Senate Bill 939 might be the final move. The bill by Sens. Scott Weiner, D-San Francisco, and Lena Gonzalez, D-Long Beach, sets aside commercial leases and makes new rules that allow businesses to stop paying the rent they owe to the owners of shopping centers and other commercial buildings.

Leases are contracts. There is a body of federal and state law on contracts, and there are constitutional provisions that protect the rights of the parties. If it’s possible for any state government to pass a law that changes the terms of contracts, then effectively there are no contracts. There are only temporary, non-binding agreements.

Try and get a loan for your business by showing that you have temporary, non-binding agreements that you’ll be paid what you’re owed.

For California’s commercial real estate sector, already hollowed out by the COVID-19 lockdown and facing a destabilizing tax increase from a November initiative that would revoke Proposition 13’s protection from nearly all business and industrial properties, SB939 would compound the agony.

Under the bill, eligible commercial tenants whose businesses were affected by COVID-19 could not be evicted for failure to pay rent for 12 months after the end of the state of emergency.

The bill also allows certain affected tenants to modify any rent or economic requirements under their leases and to terminate their leases if they are unable to reach a mutually satisfactory agreement within 30 days.

There’s no question that many businesses have been decimated by the lockdown, and now face crushing restrictions on their ability to operate even as the lockdown is eased. No one knows how long it will be before restaurants, bars, nightclubs and entertainment venues will be able to operate at full capacity. Many will not survive to find out.

However, this crisis is the result of the government’s decisions and is no fault of the commercial landlords, who now face their own hardships. They’re still on the hook to pay their bills, including loan payments, property taxes, security costs, payroll, utilities and all other costs of operation. SB939 would effectively force these landlords to float interest-free loans to their tenants for a year.

This proposed legislation threatens to upend existing negotiations that are occurring throughout the state between commercial tenants and their landlords as everyone tries to navigate the sudden and continuing disruption of commerce. There is no need for this bill, which puts the weight of the state on one side of a negotiation between two businesses.

In the short term, some businesses would benefit from this legislation and some would be hurt. In the long term, everyone is hurt by arbitrary laws that step in between parties and choose the winners and losers. Only politicians win in this legislative protection racket, which leads to business owners making campaign contributions to prevent dire consequences.

For too many businesses in California, that’s already the case. The need to track ruinous legislation and regulatory overreach keeps a phalanx of costly lobbyists and consultants employed year-round. Success in business should depend on excellence, not influence.

Senate Bill 939 is both unnecessary and destructive. It should be defeated.