California Senate Bill 1103 (SB 1103), also known as the Commercial Tenant Protection Act of 2024, introduces significant changes for certain commercial landlords, particularly those leasing to small businesses and nonprofits. Effective January 1, 2025, the new law aims to provide greater protections for “Qualified Commercial Tenants,” which include microenterprises (as defined in Business and Professions Code Section 18000(a) – typically fewer than five employees and limited capital), small restaurants (with fewer than 10 employees), and certain nonprofits (with fewer than 20 employees).
KEY PROVISIONS OF SB 1103
1. Rent Increase Notices: The new law extends the notice requirements for rent increases, previously applicable only to residential properties and commercial properties leased by Qualified Commercial Tenants. A landlord must now provide a written notice before any rent increase can take effect, i.e., landlords must give at least a 90-day notice for rent increases exceeding 10% and, at minimum, a 30-day notice for rent increases less than 10%.
2. Termination Notices: The new law requires landlords to provide a notice period before terminating a commercial lease, i.e., landlords must give at least a 60-day notice for terminating leases of tenants who have occupied the property for over a year and at minimum a 30-day notice if the tenant occupied the property for less than a year.
3. Restrictions on Operating Cost Fees: One critical aspect of the new law is the regulation of fees related to building operating costs. Landlords are prohibited from charging these fees to Qualified Commercial Tenants unless specific conditions are met. These conditions include proportional allocation of costs among tenants and providing documentation to support the charges.
4. Translation Requirement: The new law mandates that any commercial lease agreement negotiated primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean must be translated into the language primarily used during negotiation.
5. Legal Recourse for Tenants: The new law provides tenants with legal avenues to challenge violations of its provisions. For instance, if a landlord improperly charges operating cost fees or fails to comply with the translation requirement, tenants can use these violations as a defense against eviction proceedings. Additionally, landlords violating these provisions may be liable for damages (local authorities such as district attorneys can seek injunctive relief), and tenants may be allowed to rescind the lease.
To benefit from the protection of the new law, a tenant must provide written notice to the landlord of its Qualified Commercial Tenant status before the execution of the lease (if the term is greater than 30 days) and annually thereafter. Overall, the new law represents a shift towards greater tenant protections in the commercial sector, requiring landlords to adapt to new regulatory demands while balancing their operational needs. Ferruzzo attorneys can assist in implementing policies and procedures in compliance with these new standards.
Note: This article is not meant to provide specific legal advice. For further advice, please contact any of the attorneys in our Corporate Practice Group who are ready to assist you.
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