Will This New Controversial Bill Save NYC’s Small Businesses?

New legislation recently signed into law by New York City mayor Bill de Blasio is taking a small yet controversial step in the direction of protecting local “mom and pop businesses,” which are disappearing across the country. New York in particular has suffered from a high-profile and visible loss of unique small businesses that used to serve as the lifeblood of their neighborhoods, and “Int. No. 851-B,” which alters the city’s administrative code, is looking to address that.

Disappearing Businesses in NYC

It’s a catch-22 experienced by many developing—otherwise known as gentrifying—New York neighborhoods:

An area becomes popular because of its unique character, low prices, and a strong community feel. But that popularity encourages landlords to raise rents or push existing tenants out in favor of those who can pay higher prices. The new tenants are often corporate chains, which are seen as a detraction from what made the neighborhood popular to begin with.

But rapid development is hardly unique to NYC. The nation as a whole is undergoing this shift: Other major cities, like Washington, D.C., are seeing mom-and-pop disappearances at unusually high rates. Florists, book stores and meat markets staffed by families and friends are being replaced with convenience and furniture stores run by publicly traded companies, much to the chagrin of locals.

In the wake of the law’s passing, some have argued that it isn’t enough to curtail the decline of what makes each U.S. city distinctive and inclusive for all economic brackets. Others say commercial rent control, in nearly any capacity, goes too far in limiting the rights of landlords.

Here’s a breakdown of how the legislation works and whether other cities can learn from New York’s new bill.

What are the new NYC regulations?

The new NYC law, sponsored by City Council members Robert Cornegy and Mark Levine, gives a cause of action for harassment of small businesses and other non-residential tenants by landlords.

For years, according to small business advocates, landlords have reportedly tried to coerce tenants to vacate by means of threats, interruptions to essential services like water and heat, or the use of aggravating and frivolous court proceedings, among other tactics.

This bill lets tenants recover possession of property, attorney fees, and damages amounting to $1,000 or one month’s rent from the landlord (whichever is more).

It has been reported that the bill also gives small businesses rights in the commercial lease renewal process, including a 10-year minimum lease with the right to renewal—but that appears to not be the case. Details of the bill, including its text, can be found on the New York City Council website.

Why was this legislation needed?

Commercial tenants now have a way to litigate against their landlords the way residential tenants do if they feel they’re being harassed into leaving their space.

Stories of landlords who commence unnecessary repairs or refuse to do needed improvements are just some of the many reasons why small businesses are forced to vacate their building in favor of higher paying tenants.

It’s true that rents, both commercial and residential, have skyrocketed in New York recently:

Some streets in Brooklyn saw a 40% increase in commercial rents from June 2014 to June 2015. Commercial evictions were on the rise during that year as well. According to Take Back NYC, a coalition of small business owners, local residents, and advocacy groups, at least 1,000 New York small businesses lose their leases each month thanks to drastic rent increases.

As a result, small New York City businesses struggle to stay open or are forced to increase their prices in order to afford remaining in the area. NYC residents then need to pony up additional funds in order to patronize these stores… Or, more likely, let the businesses die and be replaced with the kind of chain stores that populate every corner of the nation.

Advocates for greater protection for small businesses have called this cultural displacement, and many New Yorkers can attest to the changing face of the city over the last few years, if not decades.  

Does the bill go far enough?

Commercial rent regulation is very difficult to pass in any American city, much less New York.

In fact, NYC is only of the only cities with even a history of any kind of commercial rent control: in the post-World War II era, the New York State legislature created a law that limited when commercial tenants could be evicted and restricted rent increases. The law, unpopular with real estate moguls, was challenged often in court and eventually expired in 1963.

With that in mind, any step forward might be seen as progress—and the beginning of greater change. But that’s not the outlook of either advocates or opponents of commercial rent regulations.

“The bill offers no real protections for a commercial tenant,” Ahmad El-Najjar of TakeBackNYC told us. “Why would a landlord go through the trouble of harassing a tenant when they can legally raise the rent to any amount they want to and force the tenant out this way?”

“This is a ‘Feel-Good’ bill that addresses a non-issue,” says El-Najjar. “Ask any small business owner what their number one concern is and they’ll answer: rents. Not harassment—rents.”

The question is, can the issue of rent truly be addressed?

Most attempts at regulating commercial rents across the country have been shot down or overturned as unconstitutional over the years, and supporters of keeping the status quo argue that capping commercial rents will stifle growth.

“I do think that there are neighborhoods that are changing rapidly and real estate prices are at a place where commercial landlords in particular and landlords of large residential buildings are needing to get more traditional credit tenants in the bases of their building in order to make the math pencil,” said New York deputy mayor Alicia Glen during an urbanist conference in the city last year, according to Politico.

What other steps can be taken to counteract disappearing small businesses?

Various forms of legislation have been proposed and languished in New York City’s council chambers for decades.

The most recent and viable bill, the Small Business Jobs Survival Act—championed by TakeBackNYC and sponsored by dozens of NYC council members—proposes the following:

• A minimum 10-year lease for commercial tenants with the right to renewal, so they can better plan for the future of their business.
• Equal negotiation terms when it comes time to renew their lease, as well as recourse to binding arbitration by an outside party if fair terms can’t be found.
• Restrictions to prevent landlords from passing their property taxes on to small business owners.

Note that this bill includes the minimum 10-year lease clause that some have mistakenly credited to the recent legislation. These regulations aim to provide stability for small businesses, so they can plan for their future without worrying about sudden rent gouging.

Whether this is more effective than continued unregulation of the marketplace of providing long-term job growth remains to be seen. The bill was first introduced by NYC council member Annabel Palma in 2014, with no action taken on it since.

Can other U.S. cities follow suit or improve on New York’s legislation?

The anti-harassment bill is, some would argue, ineffective enough that it should find passage in any number of city council chambers throughout the country. Whether it actually is ineffective is still up for debate, since the legislation is still new and there is no evidence that it has been used in a lawsuit as of this writing.

El-Najjar of TakeBackNYC insists that this kind of legislation is doomed from the start, and that other cities should look to outpace New York in this regard.

“The harassment bill will set no precedent nor inspire other municipalities to consider this as a viable option for the issue of commercial rents,” he says. “Commercial rents and harassment are two separate issues. Commercial rents are driven by speculation and greed with no concern for the public good or our communities, and harassment is harassment: there are already laws in place for this.”

A Potential Solution: Compromise

One alternative might be to bring landlords and tenants together.

San Francisco recently passed Prop J, which allows for the creation of “Legacy Businesses”—local businesses that have been open at least 30 years and are nominated for special rights by the mayor, with help from the Board of Supervisors and Small Business Commission. If the landlords of these businesses give them a 10-year lease with no rent hikes, both the landlord and the business will receive grants. Nine businesses were awarded this title just this month.

In the case of New York, what some advocates want and what’s realistically or even constitutionally possible don’t always align.

The fact that commercial tenants now have a weapon to use against unscrupulous landlords is a step in the right direction for those who want to maintain the character that brought them to New York in the first place. Commercial landlords now know there is a means for recourse and must act accordingly to stay within their rights.

The larger question that New York and other cities are facing is what kind of city they want to be.

Limiting commercial rent spikes would be a win for small businesses, but that would sacrifice the kind of large-scale investment that corporations require in order to become a part of the landscape. Both avenues have their pros and cons, and it’ll be up to local governments to decide which path to take.

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from Fundera Ledger https://www.fundera.com/blog/2016/08/16/new-bill-nyc-small-businesses/