Council Weighs Commercial Rent Regs 3 Decades After First Attempt

The Small Business Jobs Survival Act, which proposes a form of commercial rent regulation, is slated for a City Council hearing this month—nearly a decade after the last public airing of the proposal by city lawmakers.

The controversial legislation, which will be the subject of an October 22nd hearing, has existed in some form since the 1980s. The last time the bill received a hearing was in 2009. City Limits wrote on the background of the proposal here in 2016.

The bill is being proposed by northern Manhattan Councilman Ydanis Rodriguez who made the promise of bringing in commercial rent control for small “mom and pop” businesses part of the Inwood rezoning plan which was approved in August.

“First of all this bill is about fairness and small businesses are in crisis. So many ‘mom and pop’ shops have created jobs in our community and we need to create better conditions on how small businesses are able to survive in our city,” Rodriguez said in a phone interview with City Limits. “It creates an equal playing field for both landlords and [commercial] tenants.”

The Small Business Jobs Survival Act (read the legislation here) proposes to give commercial tenant the right to a 10-year lease, or a shorter lease with the tenant’s agreement. The landlord must renew that lease unless there is a sufficient reason to refuse a renewal such as regularly late lease payments or if the owner wants to reoccupy their property.

When the lease is due for renewal, the landlord and tenant would negotiate a new rent. If the both parties are not able to come to an agreement then they would present their cases to an independent arbitrator, who would determine the rent based on over a dozen criteria, including comparable rents in the area, the landlords’ expenses, the nature of the tenant’s business, how much the business is bound to a particular location and other factors. The bill would also give tenants the “right of first refusal” meaning that the tenant gets a chance to reject or accept the arbitrator’s designated rent. If the designated rent is rejected by the tenant, only then can the landlord proceed to seek a new tenant.

If the tenant decided to move or the business failed before the lease was up, current laws would apply, meaning landlords could sue to recover any money owed and the tenant could try to lessen their dues by helping the landlord find a new tenant.

“I am looking forward to this hearing,” said City Council Speaker Corey Johnson in an email statement to City Limits. “It will provide an opportunity for stakeholders to present testimony in order for the Council to fully evaluate the bill on its merits. Preserving mom-and-pop shops is a top priority for me as Speaker.”

Over the decades, supporters of the bill have faced questions about its legality and economic impact, and it has generated strong opposition from the real-estate lobby.

“This bill is illegal and ignores market conditions. The retail market is experiencing a national transformation and successful retailers are adapting to change with creative new ways to attract customers. In New York City, retail employment is increasing, even though online shopping continues to change consumer behavior,” said John H. Banks, Real Estate Board of New York President, in a email statement to City Limits. “Vacancy rates fluctuate among individual retail corridors and rents are, in general, decreasing. The Council should focus its limited time, energy, and resources on solutions that will support small businesses instead of wasting millions of tax dollars defending an illegal bill that experts agree will be thrown out by the courts.”

A report issued in September by the New York Bar Association raised three main points of legal concerns about the bill. First,the report says, the city has no power to enact commercial rent control; the report notes: “Whether the power to enact legislation that mimics aspects of commercial rent control is within the City’s general health and welfare power has not been specifically decided by the courts.” Its second argument is that courts have turned down the city’s attempt at residential rent control and therefore it would be prove even more difficult for the city to regulate commercial rent. And finally, the Bar Association worried that SBJSA would create inconsistencies with state laws. “The enactment of the Bill would also create many inconsistencies with existing provisions of the State Real Property Law,” the report read. “While courts have permitted City laws to remain in effect when such laws were somewhat inconsistent with State laws addressing minor State interests, they have generally invalidated City laws that were inconsistent with State laws addressing significant State interests.”

Both in 1988 and 2008, SBJSA introduction was met with questions about whether the bill violated the Constitution’s “contract” clause, which forbids the government from “impairing” contracts between private individuals, and doubts about whether the city has any authority over commercial rent regulations. But corporation counsel lawyers in 1988 and the City Council legislative division in 2009 both concluded that the city did, in fact, have jurisdiction.

One backer of the bill, the Small Business Congress of New York City and its founder Sung Soo Kim, recently published an open letter to the chairperson of the City Council’s Small Business Committee, Mark Gjonaj, in the The Villager saying that the legal and economic concerns about the bill have never been proven while the dangers to small businesses are readily apparent.

“This is because government’s failure for the past decade to take any true actions to address the unfair commercial lease-renewal process has made a crisis grow worse. The outcome of our city’s one-sided lease-renewal process, where business owners have no rights in a hyper-speculative market, has produced record closings of long-established businesses — on average, 500 court evictions of businesses each month — out-of-control rent gouging, growing numbers of illegal extortions of cash demanded from mostly immigrant owners to remain in business, harsh short-term leases of sometimes month-to-month and one and two years, oppressive lease terms and empty storefronts on blocks where thriving businesses once stood,” Kim wrote.

A spokesperson from the city’s Law Department said the agency would not be commenting on the matter.

The Small Business Jobs Survival Act hearing is scheduled for Monday October 22, 2018 at 1:00 p.m. in City Council Chambers at City Hall. (Live video here.)

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