New Seattle Law Aims to Protect Small Businesses in Commercial Lease Default

As the COVID-19 pandemic continues to rage, many small Seattle restaurants are facing dire economic straits. But newly-passed legislation that offers protections in a lease default may give them at least some peace of mind.

On Monday, the Seattle city council passed a law that prevents landlords from seizing personal property should a small business of 50 or fewer employees (or a nonprofit) default on a commercial lease. The law will be in place throughout the current state of emergency, and stay in effect six months after.

Though forfeiture of personal property is a rare occurrence for commercial lease defaults, the specter of such an action can exacerbate an already-stressful situation. Seattle council member Andrew Lewis, who sponsored the bill, said that he spoke with a couple of small business owners fearful of losing personal assets, even if landlords in the city haven’t explicitly indicated they are pursuing them. “It was a more subtle sort of mafia style like, ‘Oh, it would sure be a shame if that personal guarantee was enforced …’”

“Nobody wants to close their business, but if they have no other choice they shouldn’t have to declare personal bankruptcy due to COVID-19,” says Jeanie Chunn, group director of Seattle Restaurants United, a local coalition that lobbied for the legislation. “They shouldn’t lose their home because they had to shutter their business for the sake of public health.”

Many family-owned restaurants in Seattle have a lot on the line when it comes to the ups and downs of their business. As Uttam Mukherjee — co-owner of Capitol Hill street food restaurant Spice Waala — wrote recently, he put much of his personal savings account into building his business: “If Spice Waala goes bust, all our savings would be gone with it.”

This legislation — like a moratorium on commercial rent evictions in Seattle, which expires on Aug. 1 — attempts to address mainly the worst-case scenario when it comes to lease defaults. But Seattle restaurants won’t truly find rescue until there’s some long-term plan for extended rent relief. During the stay-at-home order this spring, both landlords and tenants seemed to take a wait-and-see approach in anticipation of payroll protection program (PPP) loans and possible summer reopenings. But there’s been little talk about canceling rent this summer or fall.

Now that COVID-19 doesn’t look to be going away anytime soon, and Gov. Jay Inslee indicating restrictions on restaurants may need to be reinstated if things don’t improve, finding additional safety nets in commercial leases becomes that much more essential. The first of the month is looming.

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