By Carol Tannenhauser
The Small Business Jobs Survival Act (SBJSA) is a bill pending in the New York City Council intended to shore up small businesses and reduce the number of closings by regulating the commercial lease-renewal process.
First introduced in 1986, the SBJSA had its ninth hearing before the City Council Committee on Small Business on Monday afternoon at City Hall. In the prior eight hearings — the last in 2009 — the bill did not make it out of committee to the full Council for a vote.
It appears the ninth time’s the charm.
“This year’s version is expected to pass the Small Business Committee, as four of the five members — all except chair Mark Gjonaj — have signed on as co-sponsors,” Gothamist reported.
But in what form the final bill will emerge from the committee remains to be seen. Council Speaker Corey Johnson cautioned advocates against holding firm to their position that it be passed “intact,” as their signs read.
Gjonaj began the hearing by explaining exactly what the bill would do for commercial tenants in its present form.
“First, it would grant the tenant the right to renew his or her lease for a minimum of 10 years, and would set procedures for negotiating the right, including a mutual available option to seek non binding mediation. If mediation does not lead to an agreement with the landlord, the tenant may then demand final and binding arbitration.
“Second, if the tenant chooses not to renew the lease after arbitration, the law would regulate that he or she would continue to occupy the premises, while paying a rent that is no greater than 10% above the average rent that was charged during the final 12 months of the last rental agreement between the landlord and tenant. The landlord may then market the premises to a new tenant.
Finally, if the landlord reaches a lease agreement with a new tenant, he or she must offer the agreed-upon terms to the existing tenant. In that event, the original tenant is obligated to vacate the premises, only if he or she declines the new offer.”
Opposing the bill are those who view it as “commercial rent control,” and believe it would not reduce the problems of small businesses, but, rather, have “unintended consequences” (the catch phrase of the day) that would make their circumstances — and the city’s economy — worse.
That fear was first put forth by the de Blasio administration’s Commissioner of Small Business Services (SBS) Gregg Bishop, who testified that “we are concerned about potential unintended policy consequences of the proposed legislation that could make it harder for all commercial tenants, existing and new.”
John Banks, president of the Real Estate Board of New York (REBNY), was more emphatic. “We are vehemently opposed to this legislation,” he said, “which will do nothing to solve the underlying issues behind storefront vacancies and instead would have a catastrophic impact on our local economy…Failure rates have been consistent for decades — the average retail business survives less than 14 years— because there is always a new challenge. This decade the big disruptor is e-commerce, with a 50% increase in the online share of the retail sales market since 2013.”
Banks was supported by a cadre of commercial real estate brokers, one of whom cited stats from the Upper West Side. “I’m a commercial broker at Cushman & Wakefield,” said Steve Soutendijk. “My lifeblood depends on landlords and tenants coming to terms and agreeing on deals and filling vacant storefront space. We all recognize that this is a problem. However, landlords have already tremendously dropped expectations on retail rents over the last 18 to 24 months. Market rents — in every market, including the Upper West Side, specifically on Broadway — are down between 30% and 40%. There are just not that many tenants out there to rent all of the space available on the Upper West Side.”
Not so said David Eisenbach, a Columbia University history professor and leading advocate of the SBJSA. “I’m sick and tired of people talking about the small business crisis, but talking about everything but what’s causing the small business crisis. What’s causing high rent blight?” he demanded. “High rent. Astronomically high rent.”
Former Manhattan Borough President Ruth Messinger, who introduced a version of SBJSA in 1986 when she was a council member for the Upper West Side, also testified. She mentioned longtime local business RCI, holding up the book “We are Staying” by Jen Rubin about her family’s struggle to keep that store going.
Current Borough President Gale Brewer took the middle road in her testimony.
”While I agree fully with the goals of the SBJSA,” she said, “I have concerns about how effective the current version of the bill will actually be. As it is written, the SBJSA applies to all commercial leases, including thousands of white shoe law firms, hedge funds, and other financial institutions which do not need support. The scope of the legislation would first need to be significantly narrowed. Whether it should be narrowed to small businesses, small retail businesses, storefronters, or legacy businesses (long-term neighborhood businesses) needs to be studied, as does how those terms might be strictly defined in order to withstand a legal challenge.
“The Act must not be so cumbersome to implement for both landlords and tenants that unintended consequences arise,” she continued. “For landlords: will the regulatory burdens of the Act encourage them to sign up national chains that will always be able to pay rent increases, resulting in fewer opportunities for storefronters? For existing small commercial tenants who operate without a lease or month to month, the provisions of the Act must not increase the likelihood that they will be forced out.”
Brewer raised what Johnson reinforced: the SBJSA has a long road of negotiations ahead of it.
“It’s not reasonable to think there will be no changes to this bill,” Johnson said. “No bill happens that way in the City Council. I’m looking forward to having a constructive conversation with each other to understand where we think there is some wiggle room to still get to the heart of what this bill seeks to accomplish, while not overreaching in a way that will potentially harm small businesses, or help those that don’t need it.”