Opinion: ‘Unconstitutional’ claims about SBJSA are real estate propaganda

Sept24 Associated

Stuyvesant Town’s Associated Supermarket is facing an uncertain future. (Photo by Sabina Mollot)

By Sung Soo Kim, President, Small Business Congress

Lawmakers claim proposed legislation will save mom and pop businesses. Small business advocates claim it’s a “Trojan Horse” created by the real estate lobby to keep status quo.  Who is right?

For over 30 years I have pleaded with local government to pass legislation protecting our hard working small business owners from profiteers, unscrupulous landlords and greedy speculators.  The past decades’ over-speculation in commercial real estate, bidding wars by franchises and banks and manipulation by warehousing storefronts, has wreaked havoc on the commercial rental market. Guided by big real estate campaign contributions, their friends at City Hall have remained silent and done nothing as the American Dream of our small business owners is being destroyed.

At first I was pleased to hear the commitments of Manhattan Borough President Brewer and Council Member Cornegy, to listen to the business owners and to pass legislation to save our businesses. Brewer said, “The mom-and-pop crisis has intensified with a fury.” CM Cornegy acknowledged numerous small and locally-owned businesses that many would describe as New York City institutions were forced to close or relocate as a result of exorbitant rent increases. Both lawmakers’ words sounded very encouraging and offered hope to small business owners who had become indentured servants to their landlords.

But upon analyzing their proposed solution to end this crisis and stop the closing of long established businesses, I have become saddened for the future of our struggling business owners. Their proposal is an insult to the desperate business owners whose survival depends upon fair and just treatment from government’s offering a real solution to end the crisis. The Brewer/Cornegy proposal is no solution in any way and would not save a single small business if passed into law. In fact, their proposal to extend the lease period for one year at 15 percent rent increase, allowing the business more time to find a new location, would, instead, actually help landlords and make the crisis much worse. Rent gouging and oppressive lease abuses are the root of this crisis and their solution addresses neither.

The rent gouging and oppressive lease abuses have been going on for many decades. Many business owners have already been forced to move several times. This gentrification tornado of greed has cut swaths of destruction across many neighborhoods and in every borough. There are no more “safe” locations to move to in NYC, because our government has done nothing to regulate the out of control rents. If a storefront is vacant on a busy main street, it’s because the long established business was forced to close when the landlord refused to accept a fair rent which would have allowed a reasonable profit for the business. I predict that if this weak Brewer/Cornegy proposal is passed, should a business want to stay in their neighborhood, the only choice is to go to another landlord and bid against other local businesses, making the crisis worse.

In my thirty years of advocating for small businesses, and dealing daily with their problems, I can state with confidence this reality: the absolutely essential component of any law to stop the closing of businesses is to give the tenant the “right to renewal of their lease,” without which all proposals will fail and all independent owners in New York City will eventually be forced to close. If the Brewer/Cornegy bill passes into law, giving no rights to small business owners, and keeping all of the power with the landlords, it will be the end of independent small businesses in NYC.

Myself and other small business advocates support the Small Business Jobs Survival Act (SBJSA) because it gives the right to renewal to the business owners as well as equal rights to negotiate fair lease terms. If the parties fail to reach agreement on a new lease, they then go before an arbitrator for final settlement. By giving the tenant equal rights, this law not only stops rent gouging but stops the illegal extortion of mostly immigrant owners by unscrupulous landlords, stops the short term leases which stops all growth and job creation, and stops the ever increasing landlords’ property taxes which the tenants now pay. What rational reason could a so-called progressive and small business friendly lawmaker give for not supporting this bill?

The two main excuses lawmakers hide behind are: the SBJSA is “unconstitutional” and that the bill has collected dust for over 30 years and cannot pass. The claim that the bill is “unconstitutional” is simply false. The SBJSA is the most legally scrutinized legislation in City Council history. The claim made by City Council’s legal counsel challenging the legality of the SBJSA was conclusively resolved two decades ago and again in 2010 by a special legal review panel of the bill, sponsored by Bronx Borough President Ruben Diaz Jr.

I am an eyewitness to the special hearing held in City Council in October, 1988, prior to a vote in committee, on the original version of the SBJSA. This hearing was held exclusively to determine the legality of the bill. Though both former Mayor Koch and Speaker Vallone were strongly opposed to the bill, the city’s own corporate counsel testified that the city had home rule to pass the bill and that the bill was fully constitutional.

Several legal experts testified and reviewed the extensive case law decisions, many from the highest State Court of Appeals, rendered over the 18 years of court challenges to a NYS Commercial Rent Control Law. The real estate lobby challenged this law for over 18 years and lost every single case.

 At the June 29, 2009 public hearing on the bill before the Small Business Committee, no real estate lobby attorney ever testified to any legal issues with the bill, nor were any written challenges to the bill submitted for the record. What is now most upsetting, are those current City Council members who are attorneys that know they are hiding behind an unsubstantiated legality claim to justify their inaction. These attorneys can easily do their jobs and simply make specific recommendations to the bill to satisfy their legal concerns. Instead, they choose to turn their backs on our struggling business owners and, worse, the will of their communities and constituents.

What is so shameful about the second claim, the false statement that the bill has been collecting dust for 30 years, is that an undisputed public record shows the exact opposite to be true. In 2009, the SBJSA had 32 sponsors; it would have passed unanimously in Committee and easily passed a vote in full council. But, when the committee scheduled a vote on the bill, it was stopped by the Speaker’s office who made the legal roadblock claim that the bill had legal concerns. The only thing collecting dust is democracy at City Hall after the real estate lobby bought off career bureaucrats with high salaried private jobs and career politicians with huge campaign contributions.

 If knowledge is the foundation of Democracy, then, regrettably, the de Blasio administration and the City Council leadership have completely failed to inform their public of the unintended consequences of allowing this crisis to continue and, worse still, that a solution exists to end it.

The crisis of long established small businesses closing and the struggle to survive is being denied an honest debate by our government. This is due to the power and influence of the real estate lobby at City Hall. The real estate lobby’s control of corrupt and unethical politicians is really what is behind the “rigging of our political system” as well as the creation of these Trojan Horses which promise help and hope but really have the goal of keeping the status quo and of protecting the windfall profits of the one percent.

Sung Soo Kim is the founder of the oldest small business service center in NYC, the Korean American Small Business Service Center. He co-founded the New York City Small Business Congress and the Coalition to Save New York City Small Businesses and was chairman of the Mayor’s First Small Business Advisory Board, appointed by Mayors Dinkins and Giuliani.

19 thoughts on “Opinion: ‘Unconstitutional’ claims about SBJSA are real estate propaganda

  1. “What is now most upsetting, are those current City Council members who are attorneys that know they are hiding behind an unsubstantiated legality claim to justify their inaction.” Mr. Kim is referring to none other than slick Dan Garodnick. The only Manhattan CM who hasn’t sponsored the SBJSA and who hides behind the “unconstitutional” lie. So essentially, he is saying the entire Manhattan Delegation and the majority of City Council, has sponsored an illegal bill. Last year at REBNY’s gala the WSJ described him as a the “belle of the ball”. No doubt he will be pulling out his tux for this year’s gala on Thursday night.

  2. Bernie Sanders was right, as long as you have the super rich giving huge campaign contribution to unethical candidates who only think about their own political careers,
    the public will continue seeing the real estate lobbyist’s hired puppets scheming behind closed doors to produce more “Trojan Horses” like the Brewer and Cornegy bill. A landlord written proposal which has only one true purpose, to deny small businesses their rights thus keeping the status quo of protecting the windfall profits of big real estate. Even the most dire crisis with the future of our city’s economy, NYer’s jobs, the loss of our arts and culture, the character of most neighborhoods changing for the worse, and being destroyed will move these so called progressives to do the right thing and support the Small Business Jobs Survival Act. Shame on them all , especially Dan Garodnick and Public Advocate James who spend more time thinking about what office they will run for next than serving the public.

  3. Deblasio and his novice staff have no clue when it comes to advocating for small business. This was a big issue when BDB was Public Advocate and he advocated for nothing and his staff ignored all small business issues. So, BDB took the same useless staff and gave them fancy titles at city hall, and same problem, same ridiculous unqualified staff and same issues.

  4. The sorts of “uber rents” we are seeing demanded by landlords of small businesses are largely a function of chain retailers, banks and franchise businesses having market power to drive out “mom & pop” businesses. Additionally, “Doc-in-a-box” businesses arising from the ACA (“ObamaCare”) have proliferated.

    I’m not an attorney, but I suspect small businesses might be able to be protected somewhat by limiting chain stores, franchise businesses, banks, and “Box Docs” via the zoning regulations.

    It seems to me there is a compelling state (i.e., city) interest in maintaining local proprietorship of some or a majority of businesses on a block. Owners, rather than employees, are far more likely to tend to their own business premises, provide a higher degree of customer satisfaction, and be more deeply involved in community activities and sponsorships than some store manager buried below seven layers of upper management who has to seek approval before even moving a display rack. Owners are far more likely to ensure that sidewalks are shoveled and cleaned, that panhandlers don’t hassle their customers and that public safety risks to their livelihood are addressed by local authorities than a mere manager who is “paid the same whether I march or fight”, as soldiers sometimes lament.

    Limiting chain retailers, et. al., to, say, two locations on a street block (, for example, the west side of First Avenue between East 14th and East 15th) via the zoning regulation would allow chain retailers their place while preserving space for small business proprietors of lesser means who nevertheless provide vital or convenient customer goods and services, like grocery stores, delis, shoe repair, tailoring, dry cleaning and the like.

    Lastly, the state interest is served by preserving the diversity of the city streetscape that stops New York from devolving into a big open-air GAP-Walgreens-BestBuy-Barnes&Noble-GAP-Walgreens-BestBuy-Barnes&Noble-GAP-Walgreens-BestBuy-Barnes&Noble shopping mall you find in Peoria.

  5. The SBJSA is written to fail (I’d say intentionally). The bill proposes to apply “to all commercial lease renewals for a commercial premises”. That means that every single non-residential space is covered within the SBJSA, including the largest commercial office tenants. The bill if enacted would govern the negotiating process of all commercial lease renewals in NYC, every single square foot of commercial space in NYC. That is an extra-ordinary reach to save the mom-and-pop stores.

    I continue to read that the SBSJA is constitutional. Arguments center around the NYC home rule issue. But well beyond the home rule issue is the major concern that the bill violates the US Constitution. If SBSJA is enacted to secure some type of public benefit, it would fall upon property owners to ‘pay’ for the benefit and cause significant property devaluation. And that is serious litigation subject to the Takings Clause.

    No where in the United States does such a law exist. I cannot even find an example outside the US. Currently, leases are a negotiated agreement between landlord and tenant. Each side is typically represented by a broker and a lawyer. So both tenant and landlord have the opportunity to negotiate its requirements prior to lease execution.

    I understand the want to retain the feel and continuity of neighborhoods. But the City will have to come up with another option.(and I hate that I’m agreeing with ‘handsome Dan’).

    • “No where in the United States does such a law exist. I cannot even find an example outside the US. Currently, leases are a negotiated agreement between landlord and tenant. Each side is typically represented by a broker and a lawyer. So both tenant and landlord have the opportunity to negotiate its requirements prior to lease execution.”

      So I guess you take REBNY’s point of view that the NYS RS law is not constitutional as well. And currently, until 6/2020, all of PCVST is under NYS RS law. So I guess you should have the courage of your convictions and move out of this heavily NYS/NYC regulated community called PCVST.

      And “Tired of Being Punked” many of the small businesses are patronized by the public, they are thriving, it’s when their lease renewal comes up with a seven times rate increase, that’s when they are killed and replaced with a chain store. See any of Jeremiah Moss’s Vanishing New York blog entries or his Face Book posts for the reality. Dan’s so called tax relief plan with do nothing. And Gale Brewer’s plan is a stay of execution for one year.

      • No where in America are long established businesses forced to close due only to exorbitant rent increases. For 18 years NYC businesses were protected by a strict commercial rent control law enacted under Mayor LaGuardia . The greatest Mayor kicked the speculators out of the marketplace and kept them out for 18 years. Today’s so called progressive lawmakers are owned by REBNY making it close to impossible to keep a good business in business when their leases expire.

  6. How many of us are voting with our pocketbooks and making a point of patronizing the small businesses and not the chains? Even those who do probably succumb now and then to the siren song of CVS or Walgreens or Starbucks or Chipotle (well, maybe not Chipotle lately). We could all probably do more if we’re more mindful of our decisions of where to purchase. We might not knock out the chains, but we’d be supporting small businesses.

  7. Great summary by the former head of the Mayor’s Small Business Advisory board. As far as the zoning comments, they are about 25 years too late and do nothing to stop the unfair lease negotiations, nor do they provide any rights to the tenants, nor do they stop the illegal extortion of tenants going on everyday across NYC.

    As far as the question of constitutionality, there is none. And if there is some how a question, that is why we have a court system. Arbitration is in virtually all our lives whether we read the agreements we click on or not, and purchases we make from cell phones, software, appliances etc. Also from small contracts to multi-million dollar deals.

    If anyone, has a legal applicable case law in the State of New York or Federal Law that actually applies to the Small Business JOBS Survival Act(SBJSA), send it to us. In thirty years, NOT ONE CASE that is ON POINT has been demonstrated that has any merit here and in New York State. Without real hard, applicable law the phony red flags are more stalling and distraction, like shiny windmills. The SBJSA now has 27 and growing smart courageous council members who recognize this CRISIS and the solution. THIS BILL WILL save jobs and mom and pops from extinction in NYC. http://www.SmallBusinessCongress.org

    • A zoning mechanism would basically create a two-tiered rental market. The shortage of space allotted to large, chain retailers and banks would drive up rents for those spaces while creating a lower-cost rent tier for small proprietors whose revenues and reserves can’t be supplemented by a corporate HQ office. (Several of the “high-end” national retailers on Fifth Avenue, Madison Avenue, or 57th Street can’t make rent from their own sales but are subsidized by their corporate HQ as part of marketing and branding campaigns because of the prestige of having a prime NYC locations where they are seen by tourists, in films, TV, etc.)

      It’s probably a jump ball as to whether the state’s compelling state interest argument that I set forth in my original post will overcome a “takings” argument.

      If the law you advocate does fail, a zoning solution enacted pari pasu and separate from it could be a fallback in a layered defense strategy.

      • Zoning for commercial spaces is 15-20 years to late for NYC, where banks and franchises are well established on every busy shopping block in every boro. More importantly , zoning laws do not apply to expired leases only to new leases, therefore zoning would not save one business in NYC nor stop short term leases, illegal extortion, forced to pay landlord’s property taxes, rent gouging etc. Zoning gives zero rights to present lease holders and there lies the problem.

        • Existing small business leaseholders would likely be protected ad infinitum as a small business space, so while their lease might not be “protected”, chain retailers -who can pay more – would not be competing, only other small retailers.

    • The only hope for all who love NYC is to draft someone who is not owned by REBNY to run for Mayor . Forget so called progressives who then take REBNY money and either remain silent or hide behind REBNY created lies. Forget Public Advocate James , her record of doing nothing speaks for itself. Only person that I trust is Zephyr Teachout.

    Every Council bill that has been proposed in the last 30 years no matter how much support it had from Council Members has died in the Small Business Committee. Not one of these bills has ever made it to the Council floor for a vote. Why is that? The Real Estate Industry pays the Piper so they call the shots, The City’s Mom & Pop stores are “Dead Folks Walking”. They are just waiting for their currrent leases to run so their businesses and their dreams can die.
    R.I.P on their stores tombstones stands for RENT INCREASE PROBLEM
    Meanwhile, the City Council Band plays on….

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