Doubts About Breadth of Small Business Rent Bill Emerge at Council Hearing

During a long-awaited City Council public hearing on the Small Business Jobs Survival Act on Monday, Speaker Corey Johnson and committee members scrutinized the city’s Department of Small Business Services and real-estate lobbyists for not making a real effort to help save small businesses, but also criticized the measure’s supporters for not being flexible about potential changes to the legislation.

The last time the bill was heard in the City Council chambers was a little over a decade ago and the last time there was a vote on the bill was 30 years ago. Former City Council member Ruth Messinger, who first introduced the bill 30 years ago, was present during Monday’s hearing.

There is a new sense of urgency around the bill because of what appears to be an increase in the number of vacant storefronts in many retail districts around the city.

For Johnson, those vacant storefronts are a reality. “I can’t imagine New York without its mom-and-pop shops and I don’t want to,” he said. “To know your bodega owner is to know someone who will hold your keys, receive your packages, ask you how you’ve been. I don’t have a doorman. I don’t want one. I have L&M Deli. But we keep losing places like L&M.”

Johnson listed several iconic businesses that were lost due to high commercial rent increases such as the Lenox Lounge in Harlem, where Miles Davis and Billie Holiday entertained, which was demolished and will be replaced by a Sephora.

Regulating the way rents are set

The Small Business Jobs Survival Act (read the legislation here) proposes to give any 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 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.

The bill’s primary sponsor is northern Manhattan Councilmember Ydanis Rodriguez, who made the promise of bringing in commercial lease protections for small “mom and pop” businesses part of the Inwood rezoning plan that was approved in August.

“Why is it that we’ve overcome the great financial crisis of 2008, yet we still see so many small businesses closing their doors. The Small Business Jobs Survival Act will encourage both parties, property owners and small-business owners, to act honestly and to engage fairly when negotiating a commercial lease,” Rodriguez said.

He emphasized that the SBJSA was not commercial rent control but instead a fair way for commercial property owners and their tenants to create their lease.

City Hall opposes

The hearing began with the testimony of the city’s Department of Small Business Services Commissioner Gregg Bishop who mentioned a few programs–such as the “Chamber on the Go” initiative, the Commercial Lease Assistance Program and the non-Residential Tenant Harassment law–that have helped small businesses across the city, before making clear the de Blasio administration did not support SBJSA.

“SBS is supportive of helping commercial tenants during the lease renewal process. However, we are concerned about potential unintended policy consequences of the proposed legislation that could make it harder for all commercial tenants, existing and new. We have also been advised by the Law Department that this bill may have several legal issues,” the commissioner said.

Johnson disputed that the programs Bishop ticked off—the lease assistance program, for instance, has helped 250 small businesses in a city with other 230,000 of them—are robust enough to deal with the problems facing neighborhood retail. Johnson prodded further,, asking how SBS helps a neighborhood when they lose a vital grocery store and Bishop said there was no current program but ideas such as a “vacancy storefront tax” or “small business registry” were on the table.

But Johnson also took issue with the breadth of the proposal.

“What I am trying to understand this today and certain advocates won’t like hearing this but I do think this bill needs to see some changes. I do not think this is a perfect bill,”Johnson said he could not give full weight support to the bill until the legislation defined, “I don’t think this bill should treat a WeWork in the same way it treats a bodega. And that is what this bill currently does. I am not here today to help Goldman Sachs.”

Manhattan Borough President Gale Brewer pointed out in her testimony that the scope of the legislation has to be narrowed to avoid unintended consequences such as motivating landlords to sign leases with bigger chains to avoid small businesses.

The Small Business Congress, which drafted the bill 30 years ago, spoke about the details of their experience with small businesses that led them to the legislation. But the real-estate lobby, which has been critical of the bill, says that consumer behavior has changed and the legislation will not help in saving small businesses.

“The truth is the retail market is in flux around the country. Online shopping has changed the way consumers behave. We are vehemently opposed to this legislation, which will do nothing to solve the underlying issues behind storefront vacancies and instead would have a catastrophic impact on our local economy,” testified John Banks, president of the Real Estate Board of New York.

While Banks made an economic argument against the bill, much of the opposition to the SBJSA is on legal grounds. A report issued in September by the New York Bar Association raised several legal concerns about the bill, including that it steps beyond the city’s legal authority under state law.

SBJSA supporters have claimed those arguments are old and unsubstantiated.

Several hours later the hearing ended with some business owners who talked about how businesses they know have failed after trying to keep up with rent increases while community activists recalled how their favorite pizzerias and shops were sitting dark and empty in their neighborhoods.

The next step is for the City Council to review the legislation and consider amendments and a possible vote.