Originally posted to Unfamiliar Terrain
By Daniel Gershwin and Caitlin Connell
The COVID-19 pandemic continues to affect the commercial real estate market, and the San Francisco Board of Supervisors is pursuing relief for certain categories of commercial tenants, including adoption of an ordinance creating a rebuttable presumption that a commercial tenant’s legally required shutdown excuses rent owed for the shutdown period.
We previously reported on San Francisco’s eviction protection for “Covered Commercial Tenants,” which are tenants (1) registered to do business in San Francisco, and (2) with combined worldwide gross receipts for tax year 2019 equal to or below $25 million. Covered Commercial Tenants do not include for-profit entities occupying space in property zoned or approved for Office Use, nor entities leasing property from the City and County of San Francisco.
Covered Commercial Tenants are currently protected from evictions for COVID-19 related missed rent payments that came due between March 16, 2020 and September 30, 2021. After September 30, 2021, unless the Governor further extends his executive order allowing for local jurisdictions to protect commercial tenants from eviction, Covered Commercial Tenants with 50 or more full time equivalent (“FTE”) employees will be required to immediately pay any unpaid rent owed to their landlords, while smaller Covered Commercial Tenants will be entitled to a forbearance period after September 30, 2021 ranging from 12 to 24 months.
On July 20, the Board of Supervisors took further action that would effectively forgive some past due rent from certain Covered Commercial Tenants, even after their applicable forbearance period expires. The Board of Supervisors unanimously passed an ordinance (Board File No. 210603) establishing a rebuttable presumption, for a Covered Commercial Tenant legally required to shut down due to COVID-19, that the shutdown frustrated the purpose of the lease, and that payment of rent for the shutdown period is excused. Importantly, the rebuttable presumption only applies where a generally applicable health order legally obligated a tenant to shut down, not where a tenant closed operations because of a COVID-19 outbreak or due to COVID-19 economic impacts. It does not apply if there is a contract provision or other agreement between the landlord and Covered Commercial Tenant demonstrating that the shutdown did not frustrate the purpose of the lease. Where applicable, a Covered Commercial Tenant can avail itself of this rebuttable presumption without terminating its lease.
Recognizing that many commercial landlords and tenants negotiated site-specific agreements regarding their existing leases in response to COVID-19, and seeking to encourage such agreements, the ordinance specifically states that the presumption also does not apply where a landlord and tenant executed a valid, written agreement in response to COVID-19 to reduce, waive, or extend a deadline to pay rent.
While the above-described contract provisions and agreements between a landlord and tenant render this presumption inapplicable, the factual circumstances that could rebut the presumption are less certain. For example, a landlord could attempt to rebut the presumption if the tenant could have operated at the premises during a shutdown in a different, legally permitted manner, such as a restaurant that was forced to close onsite dining, but still prepared or could have prepared food for pick-up or delivery from its premises without violating health orders.
Another more incremental, but nevertheless important potential change to San Francisco’s commercial tenant relief program has been introduced, and is pending Board of Supervisors action. Supervisor Safai has introduced legislation (Board File No. 210762) to allow a 6 month forbearance period for Covered Commercial Tenants with between 50 and 99 FTE employees, who as discussed above are currently entitled to no forbearance. On July 15, Board President Walton waived the 30-day hold for this legislation and transferred it to the Budget & Finance Committee. We will provide further updates when they are available.
Contact Real Estate attorneys Dan Gershwin at dgershwin@coblentzlaw.com and Caitlin Connell at cconnell@coblentzlaw.com for additional information.
