Bill to govern commercial evictions passes Assembly Judiciary Committee

Commercial tenants in California would get protections from eviction unless landlords negotiated in good faith under a bill that passed the Assembly Judiciary Committee on Tuesday.

Until July 1, 2025, AB 255 would require a commercial landlord to conduct a “good faith” negotiation with tenants who present evidence they have suffered at least a 50% decrease in average monthly gross revenue that could be “reasonably attributable to public health regulations adopted to address the COVID-19 pandemic.” It would apply to rent missed between March 1, 2020, and Aug. 1, 2021.

But AB 255’s author told the committee he has agreed to drop a provision allowing such tenants to stave off eviction for a year or more if they only pay 25% of rent. Also known as the COVID-19 Emergency Small Business Eviction and Rent Relief Act, the bill would be limited to businesses and nonprofits with fewer than 50 employees and less than $2.5 million in average gross revenues. Beneficiaries must also have their principal offices in California.

“Over 40% of small businesses have already shut down, or are at risk of shutting down, with many concentrated in immigrant or communities of color,” Assemblyman Al Muratsuchi, D-Torrance, the bill’s author, testified. “While our economy is starting to reopen, small businesses are saying the same things we are hearing from our residential tenants: that they’re being saddled with the debt of unpaid rent.”

A group of business organizations led by the California Business Properties Association and the California Chamber of Commerce have taken an “oppose unless amended” position. Matthew Hargrove, senior vice president of government affairs at the association, said they were mainly concerned with the provision that allowed tenants to avoid eviction. He added that landlords already have an incentive to work with tenants.

“Commercial tenants and landlords both struggled through the COVID shutdowns,” Hargrove said. “Our members are doing everything they can to work with their tenants because we don’t want open spaces when we come out of this pandemic.”

Assemblymembers Laurie Davies, R-Laguna Niguel, and James Gallagher, R-Yuba City, raised a concern that the bill’s “good faith” provisions were not clear.

“My concern here is it is very vague,” said Gallagher, an attorney. “We were always told in law school to never write a contract that says, ‘Hey, we’ll reasonably negotiate the terms of the next contract’ because there’s really no way to define that.”

But this drew pushback from committee Chairman Mark Stone, D-Scotts Valley.

“I do want to point out for the committee and for the author, good faith does have a definition and context,” said Stone. “When we’re talking about the UCC [Uniform Commercial Code], talking about labor law, commercial paper, it’s pretty well established.”

California’s Uniform Commercial Code defines “good faith” as “honesty in fact in the conduct or transaction concerned.” This provides a legal framework that a judge can use to void a contract if one party can show the other side hid relevant information or never intended to reach an agreement.

“The basic goal of this bill is to try to encourage good behavior,” Muratsuchi said.

Muratsuchi also agreed to add an urgency clause to the bill. This means it will need a two-thirds vote to pass, but would immediately if Gov. Gavin Newsom signs it. Some of AB 255’s supporters were concerned that it might have little impact if it didn’t go into effect until next year.

The committee also passed several other bills designed to address the economic costs of the state shutdowns. The biggest fireworks came with the debate over AB 1405. This bill would address debt collection practices, a common topic of debate in the Legislature but one that has gotten more heated with large numbers of people in financial distress.

AB 1405 would impose a civil fine of up to $5,000 for “false, deceptive, or misleading” debt collection practices. Republicans and business groups are concerned about a private right of action written into the bill.

Corey Butcher, vice president of the board of an organization called the Consumer Debt Relief Initiative, testified there are very low rates of consumer complaints against debt collectors. He also said they are part of an “ethical industry with no systematic issues.”

This led to an angry response from Assemblywoman Lorena Gonzalez, D-San Diego. Gonzalez said she received opposition letters from an alleged grassroots group called Economic Justice First that claims to represent communities of color. She said she looked into the group and found little besides links to Butcher’s organization and conservative political organizations such as the Arizona Republican Party.