SB 939 alters the terms of commercial leases. California’s Senate Judiciary Committee passed SB 939 following a 5-1 vote on May 22, 2020. Democratic State Senators Scott Wieners and Lena Gonzales introduced Senate Bill 939 (SB 939) in response to the stay-at-home orders and other regulations related to COVID-19 negatively affecting businesses operating under a commercial lease. SB 939 proposes to add §1951.9 to the Civil Code, with two different sections. Each section seeks to assist commercial lessees that have been impacted by COVID-19 restrictions. SB 939’s key features are:

 

  • It limits a commercial landlord’s right to evict certain defaulting commercial tenants during California’s State of Emergency until December 31, 2021 or 90 days after the State of Emergency ends (whichever is later), adds new penalties and puts a notice burden on the landlord;
  • It voids all evictions for non-payment attempted since March 4, 2020 but before the effective date of the bill;
  • For Section 1 Commercial Tenants (defined below) it requires commercial landlords to defer qualified commercial tenants’ rent and other economic obligations for at least one year and takes away commercial landlord’s ability to collect late fees or apply already collected security deposits as rent;
  • For Section 2 Commercial Tenants (defined below) it establishes a procedure for qualified commercial tenants to renegotiate the lease terms and if the lease negotiations fail, it provides a procedure for the qualified commercial tenant to terminate valid leases with a cap on the qualified commercial tenant’s liability regardless of the remaining duration of the qualified commercial tenant’s lease.

Who is a “Section 1 Commercial Tenant” under SB 939 (proposed CCC 1951.9)?

For the purposes of Section 1, an eligible Covid-19 impacted commercial tenant is a commercial tenant that operates primarily in California, occupies commercial real property pursuant to a lease, and meets one of the following:

  • Has experienced a decline of 20% or more in average monthly revenue over the two most recent calendar months when compared to one of the following:
    • Its average monthly revenue for the two calendar months before a state or local government shelter-in-place order took effect; or
    • its average monthly revenue for the same calendar months in 2019.
  • Was prevented from opening or required to delay opening its business because of the state of emergency. 
  • Has suffered a decline of 15% or more in capacity due to compliance with an official public health order or occupational health and safety guideline for preventing the spread of COVID-19. 

Section 1 requires landlords to send notice of the bill’s provisions to all tenants within 30 days of it going into effect. Commercial tenants then have the opportunity to send notice to their landlords, under penalty or perjury, that they are eligible COVID-19 impacted commercial tenants as defined by Section 1 of §1951.9 to be fully protected by the Section 1’s provisions, which are substantial.

Under the provisions of Section 1, during the state of emergency – landlords are prohibited from terminating the tenancy of an eligible COVID-19 impacted commercial tenant, serving notice of termination of tenancy, using lockout or utility shutoff actions to effectively terminate tenancy, or engaging in any other effort to evict these eligible tenants, if the tenant is being evicted for non-payment of rent, unless the eligible tenant poses a threat to the property, other tenants, or other persons, business, or entities.

Section 1 goes on to make any of the above actions, as well as harassment, mistreatment, or retaliation against an eligible tenant punishable by a fine between $250 and $2,000 per action/occurrence. Additionally, it makes it an act of unfair competition and unfair business practice with separate cumulative legal remedies and penalties under Section 17200 to violate any of its proposed provisions. Any eviction made in violation of the bill’s provisions that occurred since March 4, 2020 will be void, against public policy, and unenforceable.  Prevailing tenants in any litigation related to this provision will be awarded actual damages and reasonable attorney’s fees.

Finally, Section 1 of §1951.9 automatically defers the sum total of all non-paid rent due in any months occurring during the state of emergency twelve months after the state of emergency ends, unless the eligible commercial tenant and landlord agree for that sum total to be paid at an even later date. No late fees may be imposed on this rent, regardless of any lease provision to the contrary, and security deposits may not be applied to cover the balance of any outstanding rent.

Who is a Section 2 Commercial Tenant under SB 939 (proposed CCC 1951.9)?

Under the language of the SB 939 as of its  May 20th Senate Judiciary Committee hearing, an “eligible COVID-19 impacted commercial tenant” under Section 2 means a commercial tenant that operates primarily in California, that occupies commercial real property pursuant to a lease, and that meets one of the following criteria:

  • It is an eating or drinking establishment, a place of entertainment, or a performance venue that has experienced a decline of 40% or more of average monthly revenue over the two most recent calendar months when compared to one or both of the following:
    • Its average monthly revenue for the two calendar months before a state of local government shelter-in-place order took effect; or
    • Its average monthly revenue the same calendar months in 2019.
  • It is an eating or drinking establishment, a place of entertainment, or a performance venue that was prevented from opening or required to delay opening its business because of the state of emergency.
  • It is an eating or drinking establishment, a place of entertainment, or a performance venue that has suffered a decline of 25% or more in capacity due to compliance with an official public health order or occupational health and safety guideline for preventing the spread of COVID-19.

Section 2 does not apply to any publicly traded company or any company owned by or affiliated with a publicly traded company.

Section 2 permits good faith negotiations between eligible commercial tenants and landlords to modify any rent or economic requirements of the lease, regardless of the term remaining on the lease. In order to initiate these renegotiations, commercial tenants must serve written notice on the landlord, affirming under penalty of perjury, that the tenant is an eligible COVID-19 impacted commercial tenant under Section 2. The notice must also include the lease modifications the tenant seeks to obtain and be sent in accordance with the notice provisions of the lease, and if the lease contains no such provisions, through any other manner where actual receipt occurs to the landlord or the landlord’s designated agent.

The goal of Section 2 is for landlord and commercial tenants to come to new terms that are more appropriate in light of the pandemic and the changes it will impact of the economy. Ideally, landlords and commercial tenants come to a mutually satisfactory agreement and continue to go about business in accordance with those terms.

However, if a commercial tenant and landlord do not reach a mutually satisfactory agreement within 30 days of the date the Landlord received the negotiation notice then, within 10 days thereafter, the commercial tenant may terminate the lease without liability for future rents, fees, or costs that otherwise would have accrued under the lease. Instead, the law creates a new damage calculation. Lease termination by the commercial tenant only requires that the tenant send a termination notice under the same procedures followed to send a renegotiation notice. Upon the landlord’s receipt of the commercial notice, the tenant has 14 days to vacate. If the tenant vacates, then the lease, any liability for costs that shall accrue under the lease, and any third-party guaranties associated with the lease terminates and is no longer enforceable.

The tenant is not entirely off the hook though, and regardless of terminating vacancy, commercial tenants are still liable for past due rent in an amount no greater than the sum of the following:

  • A maximum of three months’ worth of past due rent incurred during the state of emergency and regulations related to COVID-19; and
  • All rent incurred and unpaid during a time unrelated to COVID-19 through the date of the termination notice.

Section 2 commercial tenants must make this payment to their landlords within 12 months of the date of the termination notice before becoming liable for its late payment.

As of this writing SB 939 is not law. It is possible that the draft will continue to change as it makes its way through the legislature. It is also possible that it may not become law.

If you are a landlord seeking help with your commercial properties, or a tenant seeking help with your commercial lease, call the expert real estate attorneys at Adishian Law Group. We can be reached at the phone numbers listed above.

Adishian Law Group, P.C. founder Chris Adishian answers why Adishian Law Group practices real estate law.

Transcript

Our firm practices real estate because I’ve always had an interest in real estate as a young adult and that interest just grew over time. Fortunately, along the way I had two great instructors, one was Marvin Starr, who was an attorney and actually the co-author of the main treatise on California law, governing real estate.
Another was Bill Coskran at Loyola Law School who was a fantastic real estate attorney, as well as a professor.

When I graduated from law school, I went to work at Arthur Andersen, and during my time there I worked on a number of large real estate companies tax matters. And then at Montgomery Securities, after Arthur Andersen, we did a lot of public market financing and M&A in the real estate space, mostly related to hotels and timeshare companies. After I started my law firm, I became a fully licensed California real estate broker. So through our affiliated company, Adishian Capital, our clients can get full brokerage services and full property management services. And taken together, they have a law firm and a property management firm, real estate brokerage, to have relationship continuity across all their real estate activities in California.

EL SEGUNDO, CA (May 11, 2018)—Adishian Law Group Advises Malaga Bank on Real Estate Purchase.

Adishian Law Group in El Segundo, California is pleased to announce that Malaga Bank, a wholly owned subsidiary of Malaga Financial Corporation, (OTC: MLGF) acquired its headquarter’s office building.  Malaga Bank is a full service community bank headquartered on the Palos Verdes Peninsula.  It has branch offices on the Peninsula, Torrance and San Pedro. Since 1985, Malaga Bank has been delivering competitive bank services to residents, businesses and community organizations of the South Bay.  The building, commonly known as 1 Malaga Cove Plaza, is part of the iconic Malaga Cove Plaza.

Every transaction has a story” said Adishian Law Group President, Chris Adishian.  “As we learned in the course of the transaction, the vision for Malaga Cove Plaza’s creation dates back to the very formation of Palos Verdes Estates, when the tract map was recorded by…..Bank of America, in late 1923!  That’s right Bank of America owned much of the land in this area of Palos Verdes Estates.  For perspective, in late 1923, WWI had been over by nearly 5 years, and the Great Depression was about 6 years away.   In between, the template was set for this section of Palos Verdes Estates.”

On behalf of our client, Adishian Law Group led the legal work on the transaction from initial exercise of Malaga Bank’s option through Closing. Our services included negotiating, draft or reviewing the following documents: Operative lease with all amendments; Notice of Exercise of Right to Purchase; Purchase and Sale Agreement, along with associated Addendums, Reviewing Title reports, Tract Maps, Chain of Title Documents, Easement Grants and Purchaser’s Closing Instructions.

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law and Real Estate law. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco.

For more information about this transaction, contact Chris Adishian:

Telephone: 310.726.0888 | 650.646.4022 | 415.955.0888
Email: askalg@adishianlaw.com
Social Media: @adishianlaw |  LinkedIn | Facebook | YouTube

EL SEGUNDO, CA (December 31, 2017)—Adishian Law Group Advises Pioneer Magnetics on Sale of Business.

Adishian Law Group is pleased to announce the sale of Pioneer Magnetics’ power supply business to United States Technologies-Aldetec Holdings Company (“UST-Aldetec”).

“This transaction was an opportunity to represent a truly remarkable sixty year old, Santa Monica-based family business that designs, manufactures and sells mission-critical power supply products to a global customer base” says Attorney Chris Adishian.

On behalf of our client, Adishian Law Group led the legal work on the transaction from initial letter of intent (LOI) through Closing.  “Like many family business sales, this transaction involved many stakeholders, and we coordinated our representation with other attorney retained to advise the shareholder’s family on matters relating to the sale” stated Adishian.

The firm’s work included included negotiating, draft or reviewing the following documents: Letter of Intent, Deal Memo, Asset Purchase Agreement, Schedules, Escrow Agreement, Bill of Sale, IP Assignment and Assumption Agreement, Transition Services Agreement and a variety of post-Closing matters.

About Pioneer Magnetics

Founded in 1957 by Dr. Allen B. Rosenstein, over the course of 60 years Pioneer Magnetics built a global business designing and manufacturing the highest quality switching power supplies. PMI’s power supply business offers low voltage and high current products ranging from < 1,000 Watts to > 30KW per box. COTS, isolated and non-isolated, intelligence as well as “thousands” of combinations, such as racks/power shelves, are available in standard and unique sizes.

About UST-Aldetec

UST-Aldetec is a consolidation of companies brought together to provide superior services and products to our Defense and Commercial customers. Together they are expert at RF detection, Frequency Conversion, Broadband Amplification, Power management, and repair/re-engineering of subsystems for obsolescence mitigation and extending system lifetime. UST-Aldetec teams can design, manufacture and support products seamlessly and rapidly. Their design turn averages less than 6 months from receiving a specification. Our goal is to provide high quality subsystems to our customers at an affordable price, and to keep them running with an exceptional MTBF. UST-Aldetec is a certified small business, AS-9100 certified with over 40,000 Square feet of manufacturing space.

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law and Real Estate law. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco.

For more information about this transaction, contact Chris Adishian:

Telephone: 310.726.0888 | 650.646.4022 | 415.955.0888
Email: askalg@adishianlaw.com
Social Media: @adishianlaw |  LinkedIn | Facebook | YouTube

 

EL SEGUNDO, CA (September 30, 2017)—Adishian Law Group Advises Welcome Group on New Real Estate Construction and Sale to Moose Toys

Adishian Law Group in El Segundo, CA announces the Closing of a 22,607 gross square real estate construction and sale transaction between our client and Moose Toys.  Our client (“Seller”) built and delivered 2 free-standing shell office buildings with each building comprised of 2 condominium units.  In addition, Seller built and delivered a companion parking structure totaling approximately 345 parking spaces, some of which are licensed to Moose Toys. This project is located within Campus El Segundo development.  El Segundo remains a very attractive real estate destination for companies or investors around the world.

On behalf of our client, our firm led the legal work on the transaction from PSA through Closing. Our work included negotiating, drafting or reviewing the following documents: Purchase and Sale Agreement; Temporary Access Agreement;  Contracts for Construction; Assignment of Purchase Agreement; Short Form Deed of Trust; Escrow Instructions and Amendments; Parking License Agreement;  Reciprocal Access Agreement; Notice of Completion; Owner’s Affidavit; Grant Deeds; HOA deeds and 1031 Exchange related documents.

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law and Real Estate law. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco.

For more information about this transaction, contact Chris Adishian:

Telephone: 310.726.0888 | 650.646.4022 | 415.955.0888
Email: askalg@adishianlaw.com
Social Media: @adishianlaw |  LinkedIn | Facebook | YouTube

California Attorney and Real Estate Broker Chris Adishian answers the question, “How do attorney’s fees work in contract?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

Touching on the attorney’s fees part, I’ll do a little plug for our blog on our website. We have a great article about attorney’s fees in real estate contracts, and attorney’s fees and contracts in general. One of the special provisions of California law is that there are no one-way attorney’s fees. It’s always mutual. The article’s pretty comprehensive, but attorney’s fees aren’t always the blessing you think they might be. Sometimes they’re a curse. So you have to think tactically with each contract as to whether or not you want to agree to attorney’s fees, put a cap on attorney’s fees, or eliminate attorney’s fees.

Property management is a necessity for every property owner.  Property management may be done by the owner or by a professional third party property management company.  California Attorney and Real Estate Broker Chris Adishian answers the question, “Is it a good idea for a property owner to to self-manage their properties?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

The question of “Can the owner self-manage?” I would say if you buy a new building, and it’s empty, you could go down that road. Put up “for lease” and try to save commissions, but I don’t recommend it. Get a good agent on your team. Someone who knows the neighborhood, knows the product type, knows the type of tenant you’re striving to get, and let him and her or that firm go out and present options to you.

It’s worth the money, especially if you’re not in the real estate business as the owner except for owning the property. You don’t have the databases, the networks, the marketing power, or the skillset to properly tenant your building.

What you should be doing is building your team and then reviewing the potential tenants with your team before saying yes or no.

Security deposits in real estate transactions are often overlooked until the last minute.  On larger buildings however, security deposits in real estate transactions can often be tens of thousands or hundreds of thousands of dollars.

Here, California Attorney and Real Estate Broker Chris Adishian answers the question, “When buying a multi-unit property do the security deposits transfer from Seller to Buyer?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

This is one of those issues. It’s not a big issue, but it’s a frequent issue. And it’s one of those issues at the margin in a transaction.

Say you’re going to buy a nine or ten unit building, you’ve negotiated all the deal points, you’re into escrow, and all of a sudden you’re like, “All the tenants paid security deposits, where are those?” It might swing 30 to 100,000 to one side of the table or the other.

So, I think the answer to the question is, it’s a negotiating point, but make sure that you do negotiate it and you factor it into your offer of your purchase price. And again, depending on the dollar amount, depending on the nature of the parties, once the transaction closes, even if you were supposed to get the security deposits but you didn’t focus on it and make sure they crossed the table – well now you have a claim. Okay, well then what’s it going to take to enforce that claim?

Probably not a huge percentage of the deal, but then again you’d rather have the money than not have the money. And you don’t want to get into a situation where you’ve made an offer presuming you’re going to get the security deposits, only to find that the seller’s going to keep them. So it’s sort of a fine point in negotiating a sale.

What happens at the end of the lease?  At the end of the does the tenant move out automatically?  What if the tenant does not move out at the end of the lease?  California Attorney and Real Estate Broker Chris Adishian answers the question, “If the lease ends, doesn’t the tenant have to move out?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

One, the gentleman back there said, “Well, what if the term of the lease has ended?” And, that’s sort of the distinction in our society and our system of justice between your contractual right and what you need to do to actually enforce this contract. There’s the contract, and then there’s enforcement. So that’s one distinction I wanted to call your attention to. You may have all the rights in the world, but you still need to enforce them – and that enforcement involves costs and time and risk.

California Attorney and Real Estate Broker Chris Adishian answers the question, “What are some of the major deal points with transactions involving residential rent control building?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

If you’re going to go into a rent control transaction and you’re not well-versed in rent control, you could be opening up some liability for yourself as an agent.  This is me switching over to the litigation track and trying to give you some advice to protect yourselves.

You might get far along in the transaction and you might see that commission hanging out in the distance and the gentleman out there says “Well, the tenants are not going to sign it”.  What if my – it’s a disaster, right – it’s a disaster if the owner buys under those circumstances, but you as the agent might be thinking, “This is a disaster.  I’ve put five months into this.  The tenants aren’t signing – now what?”

Well, I think you have to swallow hard and see if you can work out the situation.  Get an acceptable estoppel, or for your client, get a disclosure specifically to the owner and say, “Hey look!  I’m telling you – we asked for the estoppels.  The tenants are not signing them.  If you want to go forward with this transaction that is your business judgment – your decision based on this knowledge.  But I told you that.”

That’s a much better place to be as an agent, versus hiding that fact or not being knowledgeable about the risk that you’re putting your client into.  That’s a point, as you cross over into some of these rent control transactions to be very aware of that, from an agent perspective as well.