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Proposed Law Could Allow Ailing California Restaurants to Terminate Lease Agreements

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State Bill 939 would make it easier for businesses to get out of long term lease situations

US-HEALTH-VIRUS
View of a sign “For Lease” in front of a closed store amid the Covid 19 pandemic, May 4, 2020, in Glendale, California
Photo by VALERIE MACON/AFP via Getty Images

A new California law could allow businesses — especially independent restaurants, bars, and cafes — more easily get out of their leases, providing relief to restaurant owners weighed down by the loss of sales amid the coronavirus pandemic.

California State Bill 939 comes from state senators Scott Wiener (who also championed the 4 a.m. bar closure bill) and Lena Gonzalez. Wiener, who summarized the bill on Twitter, said the measures are designed with restaurants and cafes affected by expected capacity reductions in mind.

Not only would the bill put in place a commercial eviction moratorium for businesses and non-profits, it “creates space for hospitality businesses to renegotiate rent where capacity has been slashed due to social distancing,” according to Wiener.

Under the bill, if landlords and tenants can’t agree on a new rent that takes into account decreased sales due to the stay-at-home orders, tenants would be able to single-handedly terminate the lease — allowing operators to avoid lawsuits or bankruptcy. (Nuking the lease would take the tenant off the hook for future rent payments, though back rent would still be owed.)

The bill excludes publicly traded companies from terminating leases, which means many larger chain restaurants, like Cheesecake Factory — which didn’t pay its April rent — wouldn’t be able to back out of their lease agreements. (As currently worded, privately owned chains, like In-N-Out, could potentially take advantage of the bill’s provisions.)

This week, governor Gavin Newsom outlined specific guidelines for restaurants hoping to reopen their dining rooms to customers in the coming weeks and months, including disinfecting tables, ordering ahead, and separating tables by at least six feet. Despite the progress in guidelines, LA County has signaled that the stay-at-home orders could remain in place until at least the end of July, leaving many Los Angeles restaurants and bars to wonder when they’ll be able to reopen dining rooms.

The proposed bill would certainly give a lifeline to eating establishments for one of their largest expenses — rent — but it contains no provisions for landlords, who could still be on the hook for mortgage payments. Ultimately, Wiener tweeted, the point of the bill is to incentivize negotiated rents: “We want these business to survive. It’s in all of our interest, including the landlords.”

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