Purpose and Findings. | |
Definitions. | |
Temporary Eviction Protections. | |
Shutdowns Due to Health Orders. | |
Severability. | |
Sunset Provision. |
(a) The City and County of San Francisco is facing an unprecedented public health and economic crisis due to the COVID-19 pandemic. The Mayor declared a state of emergency on February 25, 2020, and on March 16, 2020, the Governor issued Executive Order N-28-20 (E.O. N-28-20), which found that the COVID-19 pandemic is having severe impacts throughout the State, and which recognized that local jurisdictions must take measures based on their particular needs to prevent displacements and to protect public health and mitigate the economic effects of the pandemic. Paragraph 2 of E.O. N-28-20 initially allowed local governments to enact measures to protect commercial tenants impacted by COVID-19 from being evicted due to non-payment through May 31, 2020. Through a series of follow-up orders (Executive Orders N-66-20, N-71-20, N-80-20, N-03-21, and most recently Executive Order 08-21 1
), the Governor has ordered that the protections of paragraph 2 of E.O. N-28-20 will remain in effect through September 30, 2021, unless the Governor orders otherwise.
(b) On March 19, 2020, the Mayor issued a Fourth Supplement to the February 25 emergency proclamation (and the Mayor later issued an Eighth Supplement to clarify the intent of the Fourth Supplement), and a Twenty-Eighth Supplement to extend its terms, to protect certain commercial businesses in the City from eviction, based on the severe financial impacts of the pandemic and the public health risks that may result from such impacts. These measures have protected many tenants from being evicted, but would allow some evictions to resume as soon as December 1, 2020.
(c) The Board of Supervisors hereby finds that the findings in the orders and directives referenced in subsections (a) and (b) remain valid and compelling, requiring the further extension of commercial eviction controls for certain commercial tenants who could not pay rent that came due under the Executive Orders. An extension is necessary to prevent businesses from displacement, mitigate broader economic harms, and address the public health risks that may otherwise result.
(d) Mindful that restricting evictions for non-payment may burden landlords, the Board of Supervisors has endeavored to prioritize tenants and landlords most in need of protection. It is reasonable to prioritize tenants based on the number of employees, as a tenant with more employees will, generally speaking, be likely to have greater ability to pay rent and a greater ability to absorb financial losses as compared to a business with fewer employees. It is also reasonable to exclude for-profit tenants occupying office space; the City cannot afford to lose commercial tenants, but as more office employers transition to remote work, and given the resilience of the industries that have typically occupied office space in the City, this exclusion is appropriate. Likewise, it is reasonable to grant a hardship exception to smaller landlords, as larger landlords are relatively more likely to be able to withstand any financial impact that the pandemic and these eviction restrictions may impose on them.
(e) The protections of this Chapter 37C shall only apply to rent payments that came due between March 16, 2020 and September 30, 2021, inclusive (or if the Governor extends the effective period of paragraph 2 of E.O. N-28-20 past September 30, 2021, through the date of extension).
CODIFICATION NOTE
“Covered Commercial Tenant” means a tenant or subtenant registered to do business in San Francisco under Article 12 of the Business and Tax Regulations Code with combined worldwide gross receipts for tax year 2019 for purposes of Article 12-A-1 of the Business and Tax Regulations Code equal to or below $25 million, which amount shall be prorated in the case of businesses that were not open for the entire 2019 tax year. However, “Covered Commercial Tenant” shall not include a tenant or subtenant that occupies property that is zoned or approved for use as Office Use (as defined in Section 102 of the Planning Code), unless such tenant or subtenant has established and maintains valid nonprofit status under Section 501(c)(3) of the United States Internal Revenue Code. “Covered Commercial Tenant” also shall not include a tenant or subtenant leasing property from the City and County of San Francisco.
“Financial Impact Related To COVID-19” means a substantial decrease in a Covered Commercial Tenant’s business income or substantial increase in its business expenses that arose due to illness or other disruption, reduced open hours, or reduced consumer demand, related to COVID-19. An example (without limitation) of financial impact would be if the tenant’s profit and loss statement showed that net income decreased by 25% or more in a given month as compared to the same month in 2019. A financial impact is related to COVID-19 if it was caused by the COVID-19 pandemic, or by any local, state, or federal government response to the COVID-19 pandemic, and is documented.
“Forbearance Period” means the time period by which a Covered Commercial Tenant that was unable to pay rent due to a Financial Impact Related to COVID-19 must pay the rent, as set forth in Section 37C.3(a)(1)-(5).
“Moratorium Period” means the period from March 16, 2020 until the expiration of paragraph 2 of E.O. N-28-20, as extended by Executive Orders N-66-20, N-71-20, N-80-20, N-03-21, and N-08-21, and as may be further extended by the Governor.
“Tier 1 Commercial Tenant” means a Covered Commercial Tenant that employs fewer than 10 full-time equivalent (“FTE”) employees as of November 1, 2020.
“Tier 2 Commercial Tenant” means a Covered Commercial Tenant that employs between 10 and 24 FTE employees, inclusive, as of November 1, 2020.
“Tier 3 Commercial Tenant” means a Covered Commercial Tenant that employs between 25 and 49 FTE employees, inclusive, as of November 1, 2020.
“Tier 4 Commercial Tenant” means a Covered Commercial Tenant that employs between 50 and 99 FTE employees, inclusive, as of November 1, 2020.
“Tier 5 Commercial Tenant” means a Covered Commercial Tenant that employs 100 or more FTE employees as of November 1, 2020.
(a) If a Covered Commercial Tenant (1) fails to make a rent payment that originally fell due during the Moratorium Period, and (2) was unable to pay the rent due to a Financial Impact Related to COVID-19, then the landlord may not recover possession of the unit due to the missed or delayed payment unless the rent remains unpaid after the end of the applicable Forbearance Period, which shall be:
(1) For Tier 1 Covered Commercial Tenants, 24 months after expiration of the Moratorium Period;
(2) For Tier 2 Covered Commercial Tenants, 18 months after the expiration of the Moratorium Period;
(3) For Tier 3 Covered Commercial Tenants, 12 months after the expiration of the Moratorium Period;
(4) For Tier 4 Covered Commercial Tenants, 6 months after expiration of the Moratorium Period.
(5) For Tier 5 Covered Commercial Tenants, upon expiration of the Moratorium Period.
(b) A Covered Commercial Tenant may pay rent deferred under the conditions stated in subsection (a) in installments or in a lump sum prior to the expiration of the applicable Forbearance Period; provided, however, that any payments made prior to the Forbearance Period by Covered Commercial Tenants in Tiers 1-4 shall first be applied to rents that come due during the Forbearance Period, and then to unpaid rents that originally came due during the Moratorium Period. Landlords and tenants are encouraged to negotiate agreements for repayment plans in good faith. An agreement for repayment must be in writing and may provide for a longer or shorter Forbearance Period than as set forth in subsection (a), subject to the mutual agreement of the parties, in which case the agreement rather than this Chapter 37C shall govern the timing of the tenant’s obligation to pay the deferred rent. The Office of Economic and Workforce Development (“OEWD”) is authorized to create incentive programs to encourage landlords and tenants to agree to repayment plans, and may require proof of an agreement for repayment or successful mediation in order to be eligible for participation in such programs.
(c) If a Tier 1 Covered Commercial Tenant that is unable to pay the rent due to a Financial Impact Related to COVID-19 and its landlord fail to reach a mutually satisfactory agreement for repayment, the Tier 1 Covered Commercial Tenant shall also have the option to terminate its lease and cease paying any further rent upon 30 days’ written notice to the landlord, notwithstanding any lease term to the contrary. Termination shall not affect whether the tenant is responsible for any unpaid rent that originally came due prior to the effective date of termination. In addition, if the tenant has terminated during the Moratorium Period, then the tenant shall not be liable for any penalties arising out of the termination, notwithstanding any lease term to the contrary. Nothing in this subsection (c) is intended to or shall affect any rights or remedies a landlord may have under state law with respect to the termination of a lease under this subsection, subject to any legal or equitable defenses the tenant may have with respect to such claims.
(d) Notwithstanding subsections (a) and (b), if the landlord owns less than 25,000 square feet of Gross Floor Area (as defined in Section 102 of the Planning Code) in the City, then the eviction for non-payment may proceed before the applicable Forbearance Period ends, if the landlord can demonstrate that being unable to evict would create a significant financial hardship (for example, default on debt or similar enforceable obligation) for the landlord. OEWD shall have authority to adopt regulations and develop and publish guidelines consistent with this Chapter 37C, including forms and recommendations of the types of documentation that tenants may use to show Financial Impact Related to COVID-19 or that landlords may use to show significant financial hardship.
(e) No landlord shall assess interest or other charges on a Covered Commercial Tenant based on unpaid rents that fell due during the Moratorium Period. If rents remain unpaid at the end of the applicable Forbearance Period, interest and penalties may be imposed prospectively, to the extent authorized under the lease.
(f) A Covered Commercial Tenant’s failure to provide their landlord notice and/or documentation regarding their inability to pay at the time of the missed rental payment shall not affect the tenant’s ability to claim the protections of this Chapter 37C as an affirmative defense in the event the landlord sues to recover possession.
(g) This Section 37C.3 shall also apply in its entirety to attempts to recover possession of a commercial unit from a Covered Commercial Tenant that is occupying the unit on a month-to-month periodic tenancy, holdover basis, or similar arrangement, and including where the landlord has the right to terminate or not renew the agreement at the landlord’s discretion. In such situations, if a Covered Commercial Tenant misses a rent payment due to COVID-19, the prohibition against recovering possession due to non-payment shall apply, unless the landlord qualifies for the “significant financial hardship” exception stated in subsection (d), or can demonstrate an alternative, non-pretextual reason (unrelated to the commercial tenant’s failure to make a rental payment) for recovering possession of the unit (for example, turning the unit over to a new tenant under a previously executed agreement; planned renovations; or a previous agreement to turn over the unit vacant to a new owner).
(h) The provisions of this Chapter 37C, being necessary for the welfare of the City and County of San Francisco, its residents, and the health of its economy, shall be liberally construed to effectuate its purpose, which is to protect Covered Commercial Tenants from being evicted for missing rent payments due to the COVID-19 pandemic.
(i) Nothing in this Chapter 37C shall relieve a Covered Commercial Tenant of the obligation to pay rent, nor restrict a landlord’s ability to recover rent due. In addition, nothing in this ordinance shall affect any legal or equitable defenses that a tenant may have with respect to claims arising out of the unpaid rent.
(a) Purpose and Findings. The COVID-19 pandemic has created an unprecedented crisis in the City, leading to disputes between commercial landlords and tenants regarding whether a tenant is required to pay rent that accrued during periods when the tenant was legally prohibited from operating due to COVID-19. In some cases, where performance of a contractual duty has become impossible or where the purposes of a contract have been frustrated, state law excuses a party to the contract from performance. The Board of Supervisors finds that it is appropriate to presume – at least in the absence of a contract provision or other agreement between the parties to the contrary – that a legally required shutdown due to COVID-19 is a circumstance that made it impossible for those tenants to perform or frustrated the purpose of those tenants’ leases. This presumption applies only to those situations where a tenant fell under a category of businesses that was required to shut down under a health order, not where a tenant would have been allowed to stay open but had to close due to a COVID-19 outbreak, or where the tenant closed due to the economic impacts of COVID-19. The payment of rent pursuant to a commercial lease should be excused if the operation of the business was rendered illegal by a COVID-19 health order(s), if the parties have not agreed otherwise.
(b) Excusing Performance. Absent an agreement to the contrary between a Covered Commercial Tenant and the landlord, if the Covered Commercial Tenant fell under a category of businesses that was legally prohibited from operating in the unit due to a state or local health order concerning COVID-19, then there shall be a rebuttable presumption that the shutdown frustrated the purpose of the lease and that payment of rent covering the period of the shutdown is excused. The Covered Commercial Tenant need not seek to terminate the lease to invoke the protections of this ordinance. This presumption shall apply unless and until evidence is introduced that would support a finding that, notwithstanding the shutdown order(s), the purpose of the lease was not frustrated and performance remained possible.
(c) Non-Applicability to Certain Negotiated Agreements. In some cases, commercial landlords and their tenants may have executed written agreements in response to the COVID-19 pandemic in order to reduce, waive, or extend the tenant’s deadline to pay rent that might otherwise have been due. It is the policy of the Board of Supervisors to encourage such negotiated agreements. Accordingly, the presumption in subsection (b) shall not apply to those rent payments that the landlord and tenant addressed in such a negotiated agreement, assuming the agreement is otherwise legal and valid.
(d) Federal and state law. Nothing in this Section 37C.4 shall be interpreted or applied so as to conflict with the terms of the lease or any federal or state law. This Section 37C.4 does not override the terms of any lease, does not modify any state laws that relate to the interpretation or enforcement of leases, and does not alter the burden of proof under state law with regard to a landlord’s claim that a tenant has breached the lease or a tenant’s defense or excuse regarding the alleged breach. Instead, this Section 37C.4 seeks to simplify the burden of presenting evidence so that landlords and tenants, especially those who may be unable to afford legal representation or protracted litigation, may resolve their disputes more easily and more economically.
(Added by Ord. 122-21, File No. 210603, App. 8/4/2021, Eff. 9/4/2021)
If any section, subsection, sentence, clause, phrase, or word of this Chapter 37C, or any application thereof to any person or circumstance, is held to be invalid or unconstitutional by a decision of a court of competent jurisdiction, such decision shall not affect the validity of the remaining portions or applications of the Chapter. The Board of Supervisors hereby declares that it would have passed this Chapter 37C and each and every section, subsection, sentence, clause, phrase, and word not declared invalid or unconstitutional without regard to whether any other portion of this Chapter or application thereof would be subsequently declared invalid or unconstitutional.
This Chapter 37C shall expire by operation of law on June 30, 2025. Upon expiration, the City Attorney shall cause this Chapter 37C to be removed from the Administrative Code.