A recently enacted law provides new commercial tenant protections that may benefit nonprofit organizations, such as land trusts. The Commercial Tenant Protection Act (SB 1103) was recently passed by the California Legislature and signed into law by the Governor. Generally, SB 1103 imposes requirements on landlords to ensure fair commercial leasing practices, including those related to charging tenants for building operating costs, providing notices for rent increases and lease termination, and translating leases.
SB 1103 applies to “qualified commercial tenants,” which are small businesses that have 20 employees or less. The term “qualified commercial tenant” includes 501(c)(3) nonprofit organizations, such as land trusts.
To benefit from SB 1103, the small business must notify its landlord in writing of its status, attesting to its number of employees. The timing and frequency of notice depends on the duration of the tenancy, ranging from the time of the lease execution and annually thereafter to within the previous 12 months from when the protections come into place.
Should a land trust meet the definition of a qualified commercial tenant, it may be able to enjoy the following protections as of January 1, 2025:
Building Operating Costs Charged to Tenants Must Be Allocated Proportionately and Documented.
Existing law generally permits landlords to pass through building operating expenses—such as area maintenance costs, common utilities, property taxes, insurance premiums, and capital improvements—by allocating and charging those expenses to their tenants. Under SB 1103, to charge a qualified commercial tenant a fee to recover building operating expenses, the landlord must proportionately allocate the costs per tenant and provide the tenant with dated, detailed, and itemized documentation supporting such operating expenses, showing that the costs have been appropriately and proportionately allocated among tenants. SB 1103 generally prohibits landlords from changing the method or formula used to allocate the building operating expenses in a manner that increases a qualified tenant’s share of those costs during a commercial tenancy unless the tenant is properly notified. Moreover, qualified commercial tenants cannot be held responsible for operating costs that were incurred prior to the last 18 months or are expected beyond the next 12 months.
Tenants Must Be Properly Notified of Rent Increases and Lease Terminations.
In leases for commercial property by a qualified commercial tenant, landlords are now required to provide tenants with a certain amount of notice prior to increasing rent. An increase in rent of the commercial property will not be effective until the applicable notice period has expired. For instance, for all month-to-month leases by a qualified commercial tenant, a minimum of 60 days’ advance notice is required before increasing rent by 10% or less and a minimum of 90 days’ advance notice is required before increasing it by more than 10%.
Likewise, should a landlord seek nonrenewal or termination of a lease, landlords are now required to provide tenants with a certain amount of notice. For those qualified commercial tenants that have occupied the leased property for more than a year, landlords must provide a minimum of 60 days’ advance written notice; and for qualified commercial tenants that have occupied the leased property for less than a year, landlords must provide a minimum of 30 days’ advance written notice. Note that these increases apply to leases executed before and after the effective date of January 1, 2025, but there may be limits to these protections based on prior agreements related to the lease extension options.
Leases Negotiated in Certain Foreign Language Must Be Provided in That Language.
Lastly, the law requires that, if a lease is primarily negotiated—orally or in writing—in Spanish, Tagalog, Chinese, Vietnamese, or Korean and the lease is signed on or after January 1, 2025, the landlord must translate and deliver to the tenant the lease in the language in which the tenant negotiated it.
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If SB 1103 is violated by a commercial landlord, depending on the facts and applicable provisions, a qualified commercial tenant may be entitled to actual damages, contract rescission, punitive damages, and/or other relief and may have an affirmative defense in an eviction or possession action. Further, the district attorney, city attorney, or county counsel may also seek injunctive relief.
In sum, we recommend that qualifying land trusts notify their current or future landlord of their “qualified commercial tenant” status so that they can benefit from the new commercial tenant protections or reach out to us so that we can notify the landlord on the land trust’s behalf.
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