California Senate Bill 939 Dead for Now; Split Roll Initiative Challenge Looms

On June 18, 2020, the California Senate Appropriations Committee voted to continue to hold SB 939 in suspense. The result is that SB 939 will not advance to the Senate for a vote. SB 939 was successfully opposed by commercial property owners and real estate interest groups, including the International Council of Shopping Centers and California Business Properties Association.

In summary, SB 939 would have significantly increased the rights of a “commercial tenant” and infringed upon the contractual rights of a “commercial landlord” pursuant to leases of “commercial real property.”

For example, SB 939 provided the failure of an “eligible COVID-19 impacted commercial tenant” to pay rent during the COVID-19 state of emergency would not be grounds for an unlawful detainer action.  Furthermore, any rent not paid by an eligible COVID-19 impacted commercial tenant during the state of emergency would not have been due until twelve months after the end of the state of emergency.

Certain commercial tenants, such as eating or drinking establishments, places of entertainment, or performance venues, would have had the right to attempt to modify the economic terms of their leases.

• If the landlord and tenant were unable to reach an agreement to modify the economic terms of the lease within thirty days after the tenant’s request, the tenant would have had the right to terminate the lease within ten days thereafter.
• If the tenant terminated the lease, the tenant would have been required to pay, within twelve months, a maximum of only three month’s rent that accrued during the COVID-19 state of emergency and any unpaid rent that accrued outside the state of emergency.
• Also, if the lease were terminated, any third party guarantees of the lease would have no longer been enforceable.

SB 939 was merely the latest in a series of challenges to California commercial real estate. Now, the most pressing challenge facing both commercial property owners and tenants is the California Schools and Local Communities Funding Act of 2020, which is commonly known as the “split roll initiative.”

The split roll initiative has qualified for the November 2020 ballot.

If approved by voters in November, the split roll initiative would modify Proposition 13 to provide for the reassessment of commercial, industrial and office properties to their “full cash value.”  Thereafter, commercial, industrial and office properties are to be reassessed every three years.

If passed, the split roll initiative will eliminate the current certainty, stability and predictability of the taxation of commercial, industrial and office properties. The split roll initiative would change the basis for the assessment of commercial, industrial and office properties from an objective standard, based on the sales price of a property, to a subjective standard, based upon the County Assessor’s determination of the full cash value of a property.

The split roll initiative represents a $12 billion per year tax increase – the largest tax increase in California history – to be paid by struggling landlords, tenants and consumers. The commercial real estate community in California must continue to mobilize to defeat this latest threat in November.

 

William B. Brinckloe, Jr. of TransActionLaw is a commercial real estate and business attorney in Irvine, California.  For more information, please visit www.TransActionLaw.com