Synopsis of the Commercial Tenant Protection Act

Commercial tenants have historically been left out of the growing body of laws protecting residential tenants in California and elsewhere.  However, recent legislation found in Senate Bill 1103 – known as the Commercial Tenant Protection Act — is intended to level the playing field between landlords and certain “mom and pop” commercial tenants.  The goal is to reduce tenant displacements by ensuring transparent and fair commercial leasing practices. The law became effective January 1, 2025.  Here is a summary of its protections.

Who is Covered?

The bill only applies to “qualified commercial tenants”.  This class of tenants consists of “microenterprises,” as defined by the California Business and Professions Code.  Namely, a microenterprise is one that:

(i) is a proprietorship, limited liability company, or corporation that has five or fewer employees, including the owner, and generally lacks sufficient access to loans, equity, or other financial capital. 

(ii) is a restaurant with fewer than ten employees.

(iii) is a private, nonprofit organization with fewer than twenty employees.

If a tenant falls into one of these three categories, written notice must be provided to the landlord indicating the tenant is a commercial tenant, along with a self-attestation about the number of the tenant’s employees. This notice must be provided at or before the execution of a lease and every 12 months thereafter.

What are the Protections?

Lease Disclosures 

Prospective commercial tenants must be given a written summary of key lease terms in pre-lease disclosure notices, including base rent and any scheduled rent increases, additional costs, lease duration, and renewal options, and personal guarantee requirements, if applicable. Existing tenants must be provided written notice of any material changes to the lease.  If the lease includes pass-through expenses, the landlord must provide a breakdown of estimated costs and notify tenants of significant changes every year the lease is in effect..

Translation required 

SB 1103 amends Cal. Civil Code Section 1632 to require a written translation of commercial leases negotiated in Spanish, Chinese, Tagalog, Vietnamese, or Korean, regardless of whether the tenant negotiates the lease through their own interpreter.

Required Notice for Rent Increases

SB 1103 requires longer notices of a rent increase.  Section 827(b)(3)(A) as amended requires landlords to give qualified commercial tenants at least 90 days’ notice before the effective date of a rent increase that is greater than 10 percent of the rental amount charged to that tenant any time during the 12 months before the effective date of the increase. At least 30 days’ notice is required for rent increases that are 10 percent or less of the rental amount charged to the tenant any time during the 12 months before the effective date of the increase.

Required Notice for Lease Termination

Section 1946.1(b) as amended requires landlords to give qualified commercial tenants at least 60 days’ notice prior to the proposed date of termination unless the qualified commercial tenant has occupied the property for less than one year, in which case they are to be given at least 30 days’ notice prior to the proposed date of termination.

Transparency in Operating Expenses –

SB 1103 requires landlords to provide a breakdown of common area maintenance charges and other operating expenses.

Specifically, SB 1103 adds Section 1950.9 to the Cal. Civil Code. 1950.9(a) states that a landlord shall not charge a qualified commercial tenant a fee to recover building operating costs unless the costs are allocated proportionately per tenant.  The costs must have been incurred within the previous 18 months or are reasonably expected to be incurred within the next 12 months based on reasonable estimates. 

Additionally, the landlord must provide the prospective qualified commercial tenant written notice before the lease is executed stating that the tenant may inspect supporting documentation of building operating costs upon written request.   The costs cannot include expenses paid by a tenant directly to a third party, and cannot include expenses for which a third party, tenant, or insurance reimbursed the landlord.  The legislation also requires supporting documentation for the operating expenses

Prohibition on Hidden Fees 

Senate Bill 1103 prevents landlords from charging undisclosed fees or excessive administrative costs that were not initially agreed upon in the lease.

Penalties

A landlord’s failure to comply with the building operating cost disclosure requirements of the bill may be used by a qualified commercial tenant as an affirmative defense in an unlawful detainer action based on failure to pay building operating costs.  A violation of this law entitles the tenant to bring a civil action for actual damages, in the court’s discretion, reasonable attorney’s fees and costs, and possibly punitive damages.

Please contact Lynx Legal with any questions regarding the above and for all of your eviction needs.  Lynx has handled thousands of commercial eviction cases over the lasty 15 years.  We will ensure your documents are in tip top shape and will handle your case expeditiously from the initial notice to the sheriff lockout stage.  We can be reached at 888-441-2355 or info@lynxlegasl.com.  Our experienced staff is standing by to answer any questions you may have or take your order if you are ready to start a case.