Small Businesses Struggle With Lease Renewals

A waitress brings a cart of dim sum to a table of customers at a restaurant in the Chinatown neighborhood of New York, on Jan. 19, 2013. (Mark Lennihan/AP Photo)

NEW YORK—Small businesses across New York City are at the mercy of landlords seeking to double, triple, or even quadruple their monthly rent. According to Councilwoman Margaret Chin, small businesses have no rights in rent-renewal negotiations, and the situation is a “crisis.”

“We need to do all that we can,” said Chin during a press conference with the Small Business Congress (SBC) in Flushing on June 26. Chin is sponsoring the Small Business Survival Act, which would give small business owners the right of lease renewal and arbitration rights in rent-renewal negotiations. Councilwoman Letitia James was also at the event to support the bill.

There are 185,000 small businesses throughout New York City, according to the SBC. Based on eviction orders from the city’s landlord and tenant commercial court warrants, the organization estimates that there are 1,200 rent-related small business closings per month.

Young Kim may soon be among those statistics. On June 19, Kim, the owner of Custom Care Cleaners, received a letter from his landlord doubling his rent. Kim now pays $8,000 a month, but his lease will expire in August. He has been at his location for 20 years; when he first started renting the space, his rent was $5,000 per month.

Chin wants more business owners like Young Kim to step forward. She hopes to hold a hearing to raise awareness about the difficult position small businesses are in and the need for greater tenant rights in negotiating lease renewal.

Unfortunately, many small business owners are afraid of retaliation from their landlords and thus unwilling to step forward.

One of them, Jae Jin Kim, runs a deli in Uptown Manhattan. He was unwilling to give the name or exact location of his business for fear of retaliation. According to Jae Jin Kim, the deli has been doing well lately, and business has been “very stable.” This is important for him, since two of his children are in college, with a third in high school.

His lease will expire next year, and his landlord has already sent brokers to let him know that he has been getting a good deal and it won’t last. He said the brokers have tried to entice him to move his deli to another space, but he is not interested because he can’t expect his customers to follow him.

With everything he has invested in his business, and a monthly rent of $11,000, Jae Jin Kim can’t afford a massive increase in rent or to relocate. Yet, those are the choices he’s faced with.

If he wants to renew his lease next year, his landlord says he must pay $40,000 a month. He is pinning his hope on the passage of legislation sponsored by Chin that would give commercial tenants like him greater bargaining power.

Unlike residential leasing arrangements, which are governed by city regulations, commercial tenants have to protect themselves. The business must make sure the leasing arrangement is fair and meets the business’s needs. But, small business owners are not always able to hire a lawyer to assist with the terms of the lease agreement. They are also at a disadvantage when negotiating with a landlord’s leasing agent.

The Small Business Survival Act would grant commercial tenants the right of renewal for their leases. The legislation stipulates a process of third-party mediation, followed by arbitration of a new lease arrangement, in the event the landlord and the tenant are unable to negotiate mutually agreeable terms on their own. The landlord would also require the tenant to renew for a minimum of 10 years.