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California Considers New Laws to Address COVID-19

by Scott Donald, Irvine, June 2020

 

The California State Legislature suspended its session effective March 16 through May 4 due to concerns over COVID-19. Lawmakers are now considering bills to help business property owners and tenants recover from the economic fallout triggered by the pandemic.

 

In addition to statewide measures, Los Angeles city officials are considering a $100 million rent relief program, billed as the largest in the nation, aimed at assisting apartment renters and landlords impacted by the coronavirus pandemic.

 

Los Angeles

 

The Los Angeles area is among the nation's hardest hit by the coronavirus with more than 2,000 deaths. Business shutdowns since mid-March have caused the area's unemployment rate to soar past 20% and put thousands of renters in danger of eviction.

 

The proposed relief package is designed to assist more than 70,000 renters who earn 80% or less of the L.A. region's median income and can document economic hardship or health effects stemming from the coronavirus pandemic. It is seen as a way to help both renters and landlords who face their own economic challenges.

 

Senate Bill 1410

 

A statewide rent relief measure similar to the one in Los Angeles is being proposed with Senate Bill 1410. This bill is supported by state and regional apartment industry groups.

 

Following a June 9 hearing, it was placed on the suspense file. This is a holding placing for bills with significant fiscal impacts. Bills are generally held on the suspense file before each fiscal deadline so that each legislative branch can evaluate the total impact to the state. Bills which are moved out of suspense then go to the floor for a vote; bills held in suspense die.

 

Senate Bill 939

 

The Senate Judiciary Committee advanced SB 939 to the Senate Appropriations Committee, where it was put on the suspense file.

 

SB 939 allows small businesses to renegotiate and modify their leases if they have been impacted by shelter-in-place orders related to the coronavirus. The legislation was originally introduced as a statewide moratorium that would prohibit landlords from evicting businesses that cannot pay rent during the shutdown. It was later amended to give small businesses the ability to renegotiate their lease if they have lost more than 40% of their revenue due to emergency government restrictions.

 

If parties do not reach a mutually satisfactory agreement within 30 days after the landlord receives the negotiation notice, then the tenant can break the lease without liability for future rent, fees, or costs that otherwise would have been due. The law would be in effect until the end of 2021, or two months after the state of emergency ends, whichever is later.

 

One of the bills authors, Senator Scott Wiener explained that many commercial landlords are working with renters, waiving back rent, and restructuring leases. “Sadly, on the other hand, all too many commercial landlords are refusing to renegotiate; are insisting that the pre-COVID unrealistic rent be paid; are invoking lease-rent escalators and are imposing late fees on back rent. That is happening all over the state.”

 

In opposition to the measure, the California Business Properties Association (CBPA) wrote a letter to the Senate Committee saying SB 939 “could cause a financial collapse.”

 

“The postponement of rents will cause…landlord’s financials to crumble and lead to lenders putting out cash calls to lower loan balances and foreclosures when landlords cannot pay, and cripple landlords’ abilities to keep their properties open and maintained,” the letter read.

 

The CBPA also argued it is unconstitutional for the state to pass a law impairing a contract obligation and warned it would “allow one party to unilaterally abrogate real estate leasing contracts.”

 

California Governor Gavin Newsom already gave local governments authority to halt commercial evictions. Some cities like San Francisco and Los Angeles have done so. But SB 939 would cover all businesses from eviction, whether their local jurisdictions have acted to do so or not.

 

Senate Bill 1431

 

SB 1431 expands the eligibility for disaster reassessment of certain properties affected directly or indirectly by the COVID-19 pandemic. By expanding the eligibility, the bill would allow temporary mid-year relief to taxpayers until their property recovers to its trended base year value.

 

For purposes of property that is damaged by a major misfortune in an area declared to be in a state of disaster, the bill specifies that COVID-19, constitutes “physical damage” as an environmental contaminant.

 

The bill makes these provisions retroactive to April 5, 2020 and authorizes a person to submit an application for reassessment in connection with the COVID-19 pandemic within the latter of 12 months of the bill’s effective date or the time specified in the county’s ordinance. SB 1431 was also placed on the suspense file.