Thanks to Bill Nelson for tipping me off to the article from The Villager (NYC): Retail rent control?
A city councilmember planned to introduce a bill this week that will require small businesses and landlords to submit to arbitration in negotiating lease renewals if both parties can’t agree on a fair rent.
The far-reaching measure, sought by Upper Manhattan Councilmember Robert Jackson and deemed by some as a form of commercial rent control, would set regulated increases not subject to landlords’ whims.
The language of the proposed legislation — which mirrors a similar bill introduced in 1988 that fell one vote short of Council approval — looks to preserve small businesses in the current commercial landscape by prohibiting both short-term lease renewals and “rent gouging by greedy landlords.”
According to the measure, lease renewals would be set at a minimum of 10 years unless otherwise agreed upon, and arbitration would only be triggered if either party disputes the law’s set rent-increase rates. Those rates, the proposed plan indicates, allow for no more than a 3 percent rent increase the first year; no more than a 15 percent increase by the last year of the lease over the previous lease; and no more than 3 percent incremental increases each year of the lease.
The legislation would be applied on a case-by-case basis to all commercial tenants across the city, including manufacturing businesses, nonprofit organizations, performing arts and theater groups, retail establishments, service businesses and professional medical offices.
When asked about the measure’s chances of success, Jackson’s chief of staff, Susan Russell, said she believes “the provisions are reasonable,” but acknowledged the language is subject to tweaking. “I think that this is something that’s worth sitting down at the table and talking about,” she added.
Supporters claim that, in the current climate, small businesses can’t survive because real estate speculators artificially inflated property costs over the years, allowing landlords to seek astronomical rents.
“You cannot allow unchecked speculators to control any segment of your economy for 25 years and not expect people to suffer,” said Steve Null, a former small-business owner who helped write the current bill and the original measure in the ’80s. In the period between then and now, he said, 137,000 small businesses in the city have been issued eviction notices, not including the about 200,000 to 300,000 businesses “that didn’t want to fight and just walked away.”
“I don’t know a businessperson in New York City that would ever recommend a friend to open a business in New York City,” Null added. “It is so anti-small business that the odds of them surviving would be very slim. … This bill is going to bring that dream back.”
I encourage Mr. Null and Councilman Jackson to read Market Urbanism’s series on residential rent control and then decide if their ideas for commercial rent control will really help small businesses.
To name a few, there are many ways this proposal is actually “anti-small” business:
- It will discourage developers from providing mixed-use retail in their projects, actually eroding the supply of retail space.
- It will discourage property owners from rehabilitating their buildings to encourage retail growth.
- In areas where retail rents are close to apartment rents, owners may convert mixed-use retail space to residential, further decreasing the stock of available retail space.
- Loss of supply, higher initial rents, and disinvestment (poor maintenance) of the rent controlled space will actually help the larger retailers compete with the squeezed-out small businesses.
- This type of arrangement will favor chain stores who usually sign long-term, triple-net leases for their space which won’t burden landlords with fears of being trapped by rent controlled mom-and-pop tenants.
The bottom line: rent control may marginally benefit the existing small businesses and large chain stores, but only at the expense of new entrepreneurs and expanding small businesses.
Also, NY Times (from 1984): DEBATE ON RETAIL RENT CONTROL CRACKLES
The Real Deal (April 2008): Activisits push zoning changes, rent control for retail
J. Brian Phillips linked to this post and emphasizes the moral aspects of rent control, and aspect I leave for experts like him.