NEW TENANT PROTECTIONS FOR “QUALIFIED COMMERCIAL TENANTS” (November 2024)

Via recent legislation (Senate Bill 1103), California has expanded some tenant protections, previously applicable only to residential leases, to certain commercial leases starting on January 1, 2025.  The protections apply to commercial leases in which the tenant is a “qualified commercial tenant.”  To be a “qualified commercial tenant,” the tenant must satisfy both of the following two criteria:

  1. the tenant must be (a) a microenterprise (five or fewer employees including the owner and generally lacks sufficient access to loans, equity, or other financial capital), (b) a restaurant with fewer than 10 employees, or (c) a 501(c)(3) non­‑profit organization with fewer than 20 employees; and

 

  1. the tenant must have provided the landlord, before or upon execution of the lease and annually thereafter, a written notice that the tenant is a qualified commercial tenant and a self‑attestation regarding the number of the tenant’s employees.  If the tenancy is from month to month or shorter period, the tenant must have provided the notice and self‑attestation within the previous 12 months.

The tenant protections now applicable to commercial leases with a “qualified commercial tenant” include the following:

  • Rent increases on commercial leases that are month to month or shorter periods will now require 90 days written notice if the increase is more than 10 percent over the preceding 12 months.  The notice must include information on the statutory provisions.
  • If the lease was negotiated primarily in a foreign language (Spanish, Chinese, Tagalog, Vietnamese, or Korean), the party that drafts the lease must deliver, before lease execution, to the other party and any other signers a translation of the entire lease.  At the time and place where the lease is executed, notice in the same language must be provided to the tenant.  Failure to comply entitles the tenant to rescind the lease.
  • With implied term leases (e.g., month-to-month), the owner/landlord must give 60 days written notice to terminate the tenancy if the tenant has occupied the premises for a year or more.  The notice must include information on the statutory provisions.
  • There are restrictions on charges for building operating costs (often called “CAM charges”).  For leases that were executed or renewed after January 1, 2025, that are month to month or shorter period, or that were executed before January 1, 2025 but do not have an operating cost provision:
  • Building operating costs cannot be charged unless (i) the costs are allocated proportionately per tenant, by square footage, or another method as substantiated through supporting documentation provided to the tenant; (ii) the costs have been incurred within the previous 18 months, or are reasonably expected to be incurred within the next 12 months based on reasonable estimates; (iii) before the execution of the lease, the landlord provided the prospective tenant a paper or electronic notice stating that the tenant may inspect any supporting documentation upon written request, and the landlord provides the documentation within 30 days of that request; and (iv) the costs do not include expenses paid by a tenant directly to a third party or expenses for which the landlord was reimbursed.
  • To alter the method or formula used to allocate operating costs in a way that increases the tenant’s share of those costs, the landlord must provide the tenant with written notice of the change in the method or formula with supporting documentation of the basis of the alteration.

Violations can lead to liability for actual damages, reasonable attorneys’ fees and costs in the court’s discretion, and treble and punitive damages if the landlord acted willfully or with oppression, fraud, or malice.

 

 

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