New! Commercial Tenant Protections as of January 1, 2025

The Commercial Tenant Protection Act, SB1103, went into effect on January 1, 2025.  This new law introduced a number of protections for a new category of commercial tenants that the law calls “qualified commercial tenant.” Click here for complete text of the law

A “qualified commercial tenant” is a commercial tenant who:

1. Has provided the landlord with a written notice of its qualified commercial tenant status AND a self-attestation regarding the number of employees;

   
   

   AND WHO

2. Is one of the following:

   1. a restaurant with fewer than 10 employees;

   2. a nonprofit organization with fewer than 20 employees; OR

   3. a “microenterprise” which is defined by the Business & Professions Code Section 18000(a) as a sole proprietorship, partnership, limited liability company (LLC), or corporation that has five (5) or fewer employees, including the owner (who may be part-time or full-time), and generally lacks sufficient access to loans, equity, or other financial capital.

If you have a qualified commercial tenant, you have a number of new burdens, including the following highlights:

RENT INCREASES

RENT INCREASE PROCEDURE FOR QUALIFIED COMMERCIAL TENANTS

If the tenant is on a tenancy that is not longer than month-to-month, notice periods applicable to residential rent increases apply to rent increases for qualified commercial tenants.  In other words, if the rent increase is 10 percent or less, written notice must be given at least 30 days before the effective date of the increase. If the rent increase exceeds 10 percent, written notice must be given at least 90 days before the effective date.

IMPOSING TRIPLE NET EXPENSES FOR QUALIFIED COMMERCIAL TENANTS

If you have a qualified commercial tenant:

a) with a lease executed/tenancy commenced or renewed on or after January 1, 2025;

b) with a tenancy that is not longer than month-to-month; OR 

c) with a lease executed or tenancy commenced before January 1, 2025 that does not contain a provision regarding building operating costs;

You will have to provide supporting documentation AND demonstrate all of the following, in order to recover  building operating costs from a qualified commercial tenant,: 

A. The building operating costs are allocated proportionately per tenant, by square footage, or

another method as substantiated through supporting documentation;

B. The building operating costs were incurred within the last 18 months, or reasonably expected to be incurred within the next 12 months (based on reasonable estimates);

C. Before the lease is executed, the landlord provided notice that supporting documentation for the building operating costs (incurred or expect to be incurred) may be inspected within 30 days of a request from a qualified commercial tenant;

D. The building operating costs do not include expenses paid directly by the tenant to a third party (e.g., water, trash, or electricity); and,

E. The building operating costs do not include expenses for which a third party, tenant, or insurance company reimbursed the landlord.

Moreover, you cannot alter the method or formula to allocate the building operating costs which results in an increase to a qualified commercial tenant’s share of those costs without providing the qualified commercial tenant with written notice and supporting documentation during the lease term.

Furthermore, you are also required to maintain supporting documentation (a dated and itemized quote, contract, receipt, or invoice from a provider that includes, but is not limited to both: (i) a tabulation showing how the building operating costs are allocated; and (ii) a signed and dated attestation by the landlord that the documentation and costs are true and correct) for the qualified commercial tenant.

Civil Code Section 1950.9(h)(1) defines building operating costs as “costs that are incurred on behalf of a tenant for the operation, maintenance, or repair of the commercial real property, including, but not limited to, maintenance of common areas, utilities that are not separately metered, and taxes or assessments charged to the landlord pursuant to property ownership.”

EVICTIONS

TERMINATION OF TENANCY OF QUALIFIED COMMERCIAL TENANTS

For leases with an unspecified term, or when a tenant holds over following the natural expiration of the lease (i.e., on a month-to-month tenancy) AND if the qualified commercial tenant has occupied the property for less than one year, you must provide written notice at least 30 days prior to the effective date of the termination.  If the qualified commercial tenant has occupied the property for more than one year, then you must provide written notice to the qualified commercial tenant at least 60 days prior to the effective date of the termination.  This is similar to residential tenancies.

EVICTION DEFENSES FOR QUALIFIED COMMERCIAL TENANTS

Waiver of any right granted to a qualified commercial tenant under Civil Code Section 1950.9, say, in the commercial lease, is void as a matter of policy.  A landlord’s violation of Civil Code Section 1950.9 may be raised as an affirmative defense by a qualified commercial tenant as a defense in an unlawful detainer action.  A qualified commercial tenant may also sue the landlord in a separate civil action for violations of Civil Code Section 1950.9 and seek treble and punitive damages, in addition to statutory attorney’s fees!  The government may also go after the landlord for violations of Civil Code Section 1950.9.

OTHER LEASE REQUIREMENTS

LEASE TRANSLATION REQUIRED FOR QUALIFIED COMMERCIAL TENANT

The same lease translation requirement applicable to residential tenancies applies to qualified commercial tenants.  If you primarily negotiate leases in Spanish, Chinese, Tagalog, Vietnamese, or Korean, as of January 1, 2025, you must provide the qualified commercial tenant with a translation of the lease into the applicable language before the lease is executed.  The same translation requirement would apply to other tenancy documents that relate to the terms of the tenancy.