Small businesses could skip payback on pandemic rent breaks

Small business owners in San Francisco affected by pandemic closures will get a reprieve from having to pay back rent, according to a court decision.

A judge refused to block a city ordinance that will allow some small businesses to avoid paying rent for the time they spent closed because of the pandemic, the San Francisco Chronicle reported.

The ordinance, passed by San Francisco supervisors in July, applies to tenants of commercial storefronts whose income vanished during COVID-19 shutdowns. The law was challenged by property owners who said it conflicted with state law and with executive orders by Gov. Gavin Newsom.

The law could mean the forgiveness of up to $600 million in rent debt from businesses, including gyms, hair salons, bars and movie theaters, that had to shut down for months during lockdown restrictions.

Property owners pointed to the governor’s March 2020 order that temporarily allowed local governments to ban commercial as well as residential evictions, declaring that “nothing in this order shall relieve a tenant of the obligation to pay rent.”

Attorneys for the San Francisco Apartment Association and the Small Property Owners of San Francisco Institute said a city can’t excuse commercial tenants from their previous rental agreements.

City Attorney David Chiu’s office countered that Newsom only said the state wasn’t canceling commercial rents and wasn’t preventing a local government from going further.

Superior Court Judge Charles Haines agreed, saying in a brief order the owners hadn’t shown any conflict with state law or the governor’s edicts. If a commercial tenant can show that a public health order, such as a pandemic-related shutdown, “frustrates the purpose of the lease,” he said, “state law governs the remedies available.”

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A San Francisco ordinance says that when a contract such as a rental agreement becomes impossible to perform, it is no longer binding. If a small business plausibly contends it cannot pay rent for the periods in which it was shut down, the ordinance demands the property owner prove otherwise.

“Our city made the difficult public health decision to shut down businesses early on in our pandemic response,” said Supervisor Dean Preston, who introduced the ordinance. “This measure helped small businesses find a path to get back on their feet, and we are glad to see the specious legal arguments against it were rejected.”

Cody Harris, a lawyer for the property owners, said they may appeal the court decision. “We continue to believe that the ordinance is both unconstitutional and unfair,” he said.

[San Francisco Chronicle] – Dana Bartholomew