Small Businesses ask City for Help with Landlords
March 19, 2018
Oregon Business - Caleb Diehl
Amid rising commercial real estate costs, small businesses struggle to navigate disputes with landlords.
A group of small business owners met with Mayor Ted Wheeler earlier this month, asking for protection from landlords amid skyrocketing commercial property costs.
“It was a productive meeting,” says Khanh Le, director of the Main Street Alliance, an organization that advocates for small businesses. “We discussed some recommendations on the issues of commercial affordability and tenants rights.”
One of their wishes — a small business liaison to field complaints — will soon be granted. The Bureau of Development Services recently approved funding for the position, spokesperson Thomas Ngo said, but hasn’t yet started the hiring process.
Despite that win, small businesses continue to fight for stronger legal protections. As Portland’s affordable housing crisis continues, Ngo says, public officials are keeping their focus on residential safeguards.
“We think it’s big enough to go to the mayor and make an issue about it,” says Deb Field, owner of Paperjam Press, a digital print and design company on NE Fremont. “We want to be at the table more when the city makes decisions about small businesses.”
Stories of landlords breaking or bending commercial leases with small business owners abound. Businesses complain of paying for structural repairs from their own pockets, and lacking basic utilities like heat or electricity. With no legal fallbacks from the city, tenants who complain face expensive lawsuits, rents increases or eviction.
Tenants and landlords negotiate commercial leases on their own—unlike with residential spaces, there are no overarching city regulations. Triple net leases are common, says Susan Steward, executive director of the Building Managers and Owners Association of Oregon. That means the tenant is responsible for ongoing property expenses, including real estate taxes, building insurance and maintenance.
Tenants have complained to Mark Pendergrass, who manages the Foster Row building in Southeast Portland, about lacking heat in the winter and dealing with an outdated electrical system. He says the tenants are responsible for heat, as stated in their lease.
But commercial leases can run countless pages, and small businesses say they can’t afford the legal services to interpret every line. Sometimes they just sign and hope for the best.
Steward gets two or three calls a week from commercial tenants asking about disputes with their landlords. Most of the time, she says, they didn’t read the lease before signing.
“The tenant has to take some responsibility to review that lease,” says Steward. “It’s just like buying a car or a house.”
“The tenant has to take some responsibility to review that lease. It’s just like buying a car or a house.” —Susan Steward, executive director, Building Owners and Managers Association of Oregon Disputes with landlords can strain the tight profit margins of small businesses. When Marci Petellier moved her clothing swap boutique Shwop into a Powell boulevard retail space in 2013, her landlord, William Craine, assured her the building was in excellent shape.
But before long, she found mold, leaks, and a broken heater. An independent contractor confirmed her suspicions that the upstairs floor wasn't load-bearing. She spent three years making nearly $20,000 in tenant improvements. Craine refused to reimburse her expenses.
“It was frustrating to be in a growth stage for business but all the money I was making was going back to this building that wasn’t even mine,” she says.
We were unable to contact Craine, but using Multnomah County property records we confirmed he owned the building in 2013.
Petellier found it difficult to find legal help. Commercial property tenants lack the basic legal protections afforded to residential tenants. There’s no complaint registry on the city website, no guide to commercial tenant rights and no blanket regulations on what landlords can or can’t do.
“There isn’t any city policy on that, unless it’s very hazardous to the structure, like it could catch on fire,” Ngo says. “These aren’t dwellings, so there aren’t the same protections.”
In court, Ngo says, landlords and management companies often have the upper hand. They usually arrive with powerful lawyers and deep pockets.
Unable to afford a lawyer, Petellier represented herself in court and won. She recovered the cost of some of her tenant improvements and legal fees, but was still stuck with a significant debt.
“It was frustrating to be in a growth stage for business but all the money I was making was going back to this building that wasn’t even mine" —Marci Petellier, owner, Shwop
Skyrocketing rental costs for commercial spaces also play into the landlords’ hands. Tenants say that if a landlord treats them unfairly, it’s difficult to find another space, especially on short notice.
Steward counters that landlords have a strong motivation to fill their retail spaces, and are often willing to negotiate with tenants to avoid empty storefronts. If tenants still can afford the rent, Steward says, they can apply for aid programs like Prosper Portland’s affordable commercial tenanting program. That initiative prioritizes minority tenants and offers reduced rent, tenant improvement contributions and technical assistance.
Small businesses are making progress toward greater protections, Le says, but still have a long road ahead. Following up on the meeting with Mayor Wheeler, Main Street Alliance plans to discuss solutions to the affordability crisis and tenant rights with Prosper Portland and city commissioners.
The liaison position in the bureau of development services, Le says, could provide a model for other city agencies to better meet small business needs.
“It’s a great start,” Le says. “We hope it will reduce waiting times for grants and other opportunities.”