Enacts the small business survival act; creates a small business lease program for fair negotiations in the commercial lease renewal process

Summary of specific provisions

Sections 1 and 2 of the bill set for the short title and legislative intent of the bill.

Section 3 of the bill amends Title 22 of the administrative code of the city of New York by adding a new chapter 8 entitled "Commercial Lease Arbitration and Mediation" which includes the following sections:

Section 22-801 sets forth the "scope" stating that the chapter shall apply only to all commercial lease renewals for commercial premises.

Section 22-802 sets forth applicable definitions;

Section 22-803 sets forth "manner of service" provisions.

Section 22-804 sets forth "rental guidelines" which include the following provisions:

(a) renewals at option of tenant for minimum of 10 year term (exceptions require tenant approval);

(b) no lease extension is required where landlord lack lawful ability to continue to rent premises;

(c) landlord must negotiate or arbitrate a renewal lease only for such period as they have lawful ability to rent to tenant and must provide tenant 180 days notice prior to termination of lease under such circumstances;

(d) tenants lose the right of renewal when any of following occurs - (1) persistent delay of rent payments without cause, (2) use of leased premises for purposes not covered in the lease, (3) tenant conducts or permits illegal activity on premises, (4) tenant breaches substantive obligations of lease and fails to cure within 30 days following written notice, (5) landlord intends to reoccupy premises for purposes of demolition or reconstruction or substantial construction, (6) sublet tenancy without approval of landlord, (7) tenant is gross or persistent violator of New York city laws including tax laws and license obligations due to use of premises, (8) landlord intends to reoccupy retail premises to carry out its own different type of business;

(e) procedure for lease renewals:

(1) where landlord agrees to renew lease they must notify tenant at least 180 days prior to lease expiration of their willingness to renegotiate renewal of commercial lease once notice provided then in first 90 days parties can either negotiate and agree to new lease term or notify other party of request for mediation and parties must agree to mediator or have one appointed and both parties share cost of mediation. If after 90 days of negotiation or mediation no agreement is reached then the tenant must request arbitration within 14 days after first 90 day period.

(2) where landlord refuses to renew lease they must notify tenant at least 180 days prior to lease expiration that they do not intend on renewing lease and provide reasons therefore in detail; if tenant chooses to challenge denial of renewal then they must notify landlord within 30 days of their intent to challenge refusal and seek arbitration within 14 days.

(3) if arbitration is requested then arbitrator is chosen by agreement within 30 days or one to be appointed by the arbitration organization, arbitrator will notify parties of time, date, place within 14 days and such hearing shall take place in borough where commercial premises are located or as otherwise agreed by parties and costs of arbitration to be borne by both parties; the arbitrator's decision setting rent price shall be final and binding and parties shall entire into lease incorporating such rent and such lease cannot diminish any services in current lease, except where tenant elects not to pay rent set by arbitrator then no lease renewal is required. If tenant elects not to pay rent set by arbitrator, and the prior lease has since expired, they shall be allowed to remain in possession and pay rent at no greater than a 10% increase over average rent charged in last 12 months of last rental agreement between the parties for a period commencing from the expiration of the last rental agreement until landlord receive bona fide offer from another tenant to occupy the premises. Landlord must first give tenant notice of such offer and give tenant right of first refusal under terms of proposed new offer to be exercised within 14 days. If tenant declines new offer then they must vacate premises within 30 days.

Section 22-805 addresses "security deposits" which shall not exceed an amount equal to 2 months rent and shall be held in interest bearing escrow account.

Section 22-806 addresses "retaliation" provisions which state that such conduct can result in liability for damages, injunctive relief and attorney's fees.

Section 22-807 prohibits waiver of rights pursuant to this chapter.

Section 22-808 requires an evaluation of this chapter by the administration and reporting to the mayor and the council on the effectiveness of the new "commercial lease arbitration and mediation" provisions in carrying out the legislative intent of the law.

Section 22-809 addresses "penalty" provisions including remedies of injunctive relief mandating arbitration and/or appropriate damages

against any party who fails to submit voluntarily to arbitration or fails to act in good faith and the award of attorney's fees.

Section 22-810 addresses "inconsistency with other laws".

Section 4 of the bill sets forth a "severability" clause.

Section 5 of the bill sets forth an effective date of one hundred and thirty days after is shall have become law.

Justification

The small business sector of the city of New York remains vulnerable at a time when New York city is more dependent than ever on small business for job growth and revenues. The New York city commercial rental market has been negatively influenced by speculators for such an extended period of time that the interests of small businesses and job creation, and the broader general economic interests of the city, are being harmed.

For the last two decades an unacceptable number of established small businesses continue to be forced out of business solely as a result of the commercial lease renewal process. A breakdown has taken place in the normal processes of bargaining and freedom of contract has become an illusory concept during the commercial lease renewal process.

The current commercial rental market results in unjust, unreasonable, and oppressive leases for the payment of rent for commercial space in New York city. Landlords continue to exact such agreements from tenants under stress of prevailing market conditions and unequal bargaining power, without any tenants' rights to allow for bargaining in good faith to arrive at fair and reasonable lease terms.

Furthermore, the absence of legal protection for commercial tenants in the lease renewal process has unnecessarily accelerated the closing of small businesses resulting in lost jobs, lost tax revenues causing higher inflation, higher cost of living rates, decreased job growth opportunities for New Yorkers and community instability.

The intent of this legislation is to give small businesses some rights in the commercial lease renewal process, and therefore, a measure of predictability of future costs through a two-step procedure of mediation and, if necessary, arbitration for negotiating commercial lease renewals and rentals. This process will create a fair negotiating environment, which would result in more reasonable and fair lease terms to help small businesses to survive and encourage job retention and growth in the city of New York.

Prior legislative history

New Bill

Fiscal implications

None.

Effective date

One hundred thirtieth day after it shall have become a law.