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Commercial tenant protection and anti-displacement policy.
Commercial tenant protection and anti-displacement policies are tools municipal governments use to help keep small businesses that rent their properties in place. Keep in mind that these legacy businesses are susceptible to rapid rent or market fluctuations and risk displacement due to rapid changes in their economic environment. This is especially true in BIPOC and immigrant communities.
Tenant protection and anti-displacement policies focus on key issues legacy business owners face, such as gentrification and rapidly rising rents, redevelopment pressures, and market-driven property speculation. This frequently occurs in the older, sometimes culturally significant commercial corridors that house legacy businesses. Implementing this type of policy can enable local municipalities to provide stable costs and a consistent business environment for legacy businesses to succeed. While these policies are not widely used in legacy business programs, their importance is understood. The City of Long Beach, California, in their recent Commercial Anti-Displacement Memo stated that “Legacy Business programs have been hailed as a strategy with great potential to prevent the displacement of long-standing businesses that often play an additional role of cultural institution for specific ethnic enclaves.”
Resource.
Commercial Tenant Protection Resource
The Small Business Anti-Displacement Network offers a valuable online resource, Commercial Tenant Protections, that provides overviews, implementation information, strengths, and challenges for a wide variety of commercial tenant protection tools.
Right-of-First-Refusal (ROFR) Policy
A Right-of-First-Refusal (ROFR) policy gives commercial tenants the first opportunity to purchase a property before it is put on the market. This policy requires property owners to notify tenants that they are selling the property and grants tenants a specific timeframe to make an offer to purchase. While many legacy business owners cannot afford to purchase the property on their own, this policy can be combined with Path-to-Ownership programs and funding from CLTs, CDFIs, or other financial resources, enabling long-standing tenants to purchase their space, stabilize their costs, and build long-term equity. While municipal governments recognize ROFR as a valuable financial tool and use it in other programs, it is not currently implemented in any existing legacy business programs. It does, however, provide an example of an existing funding resource that could be leveraged, with additional effort, to benefit legacy businesses.
Municipal ROFR policies are generally created through your local legislative process and require the creation of a local ordinance or municipal code to enact. Creating ROFR policies for a legacy business program will require partnering with multiple municipal departments, including planning, economic development, and most notably the city attorney’s office or legal department, which will create the legal framework for the policy. Since the policy works best in conjunction with other programs, determine if it can be combined with financing or path-to-ownership ordinances created for your legacy business program.
Lease Protection Policy
Creating municipal policy that offers lease protection for legacy businesses would be a valuable tool for a legacy business program. This would give legacy business tenants the first opportunity to renew a building’s lease. However, this has been a controversial topic within municipal governments, as it interferes with the local free market. New York City had long debated commercial lease protections before settling on its Commercial Lease Assistance Program, which offers legal support for the lease process.
That being said, San Francisco’s Legacy Business Program adopted an indirect approach to lease protection, offering incentives to landlords who sign long-term leases with legacy businesses. Recognizing the value of legacy businesses and the immense displacement risks they faced, the city created a Rent Stabilization Grantthat provides up to $4.50 per square foot of leased space annually for leases of at least ten years. Depending on how you implement this type of solution, it could incentivize both renewing existing leases and providing leases to legacy businesses that have been displaced elsewhere. San Francisco provides the best example of a lease protection policy used by legacy business programs and of an innovative approach to meeting program goals.
San Francisco implemented the Rent Stabilization Grant as part of the Legacy Business Historic Preservation Fund, created through a voter-approved legislative process. This provides a pertinent example of planning and combining the needs of your legacy business program into a single municipal order package.
Commercial Rent Control Policy
While the topic of commercial rent control has been widely discussed, it remains highly controversial due to its impact on commercial real estate markets and broad opposition from business owners and developers. Rising rents are among the most significant issues legacy business owners face, yet there are currently no comprehensive commercial rent control programs in the US. However, indirect forms of rent mediation are ongoing through financial incentives that help legacy business owners cope with rent hikes. Business continuity grants or rent gap subsidy grants, like those used by the San Francisco Legacy Business Program, are common. They offer funding to legacy business leaseholders, usually for a limited time, to help subsidize the cost of rapid rent increases (see the Rent Gap Subsidies section of Economic Support for more information). These types of grants can be initiated and allocated through the funding policy you create for your legacy business program.