Challenges to governor's extension of bans on commercial evictions may move too slowly to matter

Like many of Gov. Gavin Newsom's directives since the pandemic began, portions of his new order allowing cities and counties to continue banning commercial evictions through next March are likely to be challenged in court.

But even as Newsom has mostly won in court against challenges to his ever-changing pandemic orders, many lawyers also say litigation has moved too slowly to have much of a real world effect.

San Francisco real estate attorney Steven Adair MacDonald said that will likely be the case with the order issued Wednesday. A successful challenge would likely focus on constitutional hurdles to government interference in contracts, he added in an email.

"I believe it will be challenged," said the managing partner of Steven Adair MacDonald & Associates PC, "and, successfully. But, it will take too long."

Adair's firm represents both landlords and tenants. But he said he's been telling the latter group of clients to go to their landlords and say, "Work with us."

"It could be an uphill battle, but I can see constitutional challenges and arguments that such conduct amounts to an unconstitutional taking," said Viral Mehta, a litigation partner with Manatt Phelps & Phillips LLP in Los Angeles, in an email. "If nothing else, commercial property owners may use litigation as leverage to alter the moratorium."

Perhaps more than the residential rental market, commercial property was already undergoing profound long-term changes that began well before the pandemic. Attorneys say many commercial landlords already have plenty of incentive to work with cash-strapped tenants rather than try to throw them out.

Newsom's order extended provisions of earlier orders first enacted in May and only allows eviction bans when nonpayment of rent arises "out of a substantive decrease in .. . business income" because of the economic shutdown.

Some commercial tenants are desperate, MacDonald said. "Some will try to exploit the situation to their advantage. But the economy and its unknown future, for office space, restaurant space, etc. seems to dictate a lower demand and long vacancies. Thus, parties need to compromise."

San Francisco may be ground zero for the changing face of commercial property in the state. The number of empty storefronts in even the most sought-after parts of the city caused some to lament what some have called a retail apocalypse. Many areas also have excess office space that could be hard to rent as more companies allow employees to work from home.

"I just walked up Fillmore Street and there are dozens of vacant storefronts," said David J. Foran, who represents residential and commercial landlords with the Sacramento and Foran Law Office Inc. in San Francisco. "It's not like there's people who are clamoring to rent. There are lots of people that have plain walked away."

The growing amount of empty commercial space has led to calls to throw out bans on chain stores in some areas and to renovate commercial buildings into much-needed residential space. Foran said he recently consulted with a landlord who found out a commercial tenant was also living in the property, potentially making it subject to the city's strict policies protecting residential tenants.

Another factor that may limit the impact of the latest order, Foran said, is that local governments appear to have passed more protections for residential renters than commercial ones.

Some of these same political differences appear to be playing out in Sacramento. Newsom's latest order was in part intended as a response to AB 3088. This was a bill written and passed in the closing days of the legislative session to provide further protections for residential renters who lost income because of business shutdowns after a Judicial Council rule barring unlawful detainer cases expired on Sept. 2.

"There's a question here about the scope of the governor's authority," commented Delilah L. Clay, government and regulatory advisor with Manatt, referring to the extension of the moratorium. "It remains to be seen whether the explicit exclusion of commercial property in AB 3088 creates a new argument for challenging the governor's authority."

Groups representing renters and low-income people criticized the law, especially after late changes that benefited landlords. But a similar effort never came together for commercial renters.

Both Los Angeles and San Francisco enacted eviction protections for commercial renters in March, but with limits. Los Angeles' ordinance doesn't apply to publicly traded companies or those with more than 500 employees. San Francisco Mayor London Breed's order applies only to commercial tenants with less than $25 million in annual gross receipts.