California Senate Bill 1103 (SB 1103) was signed into law on September 30, 2024, and went into effect on January 1, 2025. This law provides new restrictions for landlords that are involved in commercial leases with qualified commercial tenants, which includes qualifying:
- Microenterprises
- Restaurants with fewer than ten employees
- Nonprofit organizations with less than twenty employees
SB 1103 is intended to protect small commercial tenants against certain issues, such as:
- Increases in rent
- Unfair and unclear lease terms
- Exorbitant additional fees
- Language accessibility issues in leases
What Restrictions and Requirements Are Placed on California Landlords Under this Bill?
As noted above, SB 1103 establishes new restrictions on California landlords in commercial leases with small commercial tenants, including:
- Restrictions and requirements for charging operating costs and tax expenses
- Providing notices for certain increases in rent
- Providing lease translations in certain situations
- Notice requirements for terminating leases of unspecified duration
SB 1103 prohibits commercial landlords from altering the formula or method that is used to determine building operating costs in such a way that increases the tenant’s share of those costs during their tenancy. This new law can impact a commercial property owner’s ability to handle unforeseen expenses.
Under the prohibitions of SB 1103, property owners may be unable to recoup the following costs:
- Property tax increase: This includes increases in property taxes because of changes in tax laws and reassessments.
- Emergency repairs: This may include costs of unforeseen incidents that involve:
- electrical failures
- structural damage
- damages caused by extreme weather
- HVAC issues
- Increases in insurance premiums: This may include increases based on risk assessment following a claim, such as an accident or weather incident.
- Complying with new regulations: This can include costs required to comply with any new environmental, accessibility, or new safety regulations, such as:
- asbestos removal
- decarbonization efforts
- ADA compliance upgrades
- Adjustment for inflation: This can include general increases in costs related to inflation, such as increases in utilities, that go beyond documented or expected amounts.
- Major capital improvements: This can include necessary upgrades or improvements (for example, elevator repairs or roof replacement).
- Unforeseen security upgrades: This can include needed upgrades to security measures needed due to increased crime rates or specific threats.
There are also additional administrative burdens and compliance costs that a California commercial landlord may need to comply with under SB 1103. This includes landlords having to provide detailed documentation of building operating costs within 30 days of a tenant’s request in writing.
It also includes providing itemization and dates of costs. This can be a burdensome and costly requirement, especially for a small property owner who does not have the resources to maintain these types of extensive records.
Another requirement for commercial landlords is translating commercial leases that were negotiated in non-English languages. This can be costly, as it can be $10,000 or more for accurate translations or technical legal documents. Additionally, errors in these translations may lead to a legal dispute, which can cause additional compliance issues.
What Is a Commercial Lease?
Commercial leases are a type of lease agreement that are used when a commercial tenant rents space from a landlord. These leases provide commercial tenants with the right to occupy the rented space and to conduct their business activities for a certain amount of time in exchange for their rent payments to the landlord.
A commercial lease outlines the commercial tenant’s rights as well as the commercial landlord’s rights. This may include when and how to pay rent, which party will be responsible for certain repairs, and many other issues.
Although less common, some commercial tenants may sign a gross lease, in which a landlord pays all of the costs usually related to owning the leased property, such as utilities, taxes, and insurance. Generally, with these leases, the tenant pays a monthly base rent, and the landlord pays other property-related expenditures and maintenance of the structure.
Commercial leases and their requirements are dictated by commercial real estate law. This area of law outlines the rights and duties of parties to commercial leases.
If an individual is considering entering into a commercial lease in California, it is important for them to consult with a local attorney in California to ensure they meet all of the state requirements and their rights are protected. An attorney can provide answers for questions related to commercial leases, including those that involve SB 1103 provisions.
How Are Commercial Leases Different From Residential Leases?
The main difference between a commercial and a residential lease is the nature of the property that is rented. The terms of a commercial lease agreement focus on operating and maintaining a business in the rented unit.
On the other hand, residential leases are tailored to ensure that tenants have habitable living spaces. Other differences between these two categories of leases include:
- Commercial leases are usually longer in duration than residential, often for several years
- Commercial tenants often have fewer rights than residential tenants because the law considers them to be more “savvy” than general renters
- It is often easier to evict a commercial tenant
- It is typically more difficult to amend or break the terms of a commercial lease
- Commercial leases often involve higher rent amounts
What Are My Rights as a Commercial Tenant in California?
California commercial tenants have numerous rights under California laws, including the right to:
- Privacy: A landlord must obtain permission and provide notice before entering the rented unit.
- A safe property: The unit must meet building and safety codes and provide adequate security.
- Operate a business: The tenant has the right to operate their business for the lease duration, so long as they follow the lease terms.
- Make modifications to the unit: A tenant can alter the rented space with permission from the landlord.
- Sublet and assign their lease: A tenant may be able to engage in an assignment and sublease of their lease, according to its terms.
- Have certain repairs made: This can include water supply and electrical issues.
- Fair notice: A commercial tenant is entitled to fair notice of lease terminations or rent increases.
- Go dark: A commercial tenant may cancel or obtain a rent reduction if their business is part of a strip mall or larger shopping center.
If an issue does arise, commercial tenants in California may have different defenses based on the terms of their lease. California law presumes that conditions that were not included in the lease were not meant to apply.
Some examples of defenses that California commercial tenants may be able to use include:
Depending on the specific circumstances of the cases, when a commercial tenant is successful, it may receive:
- The legal right to remain on the property
- Extended time to remedy the business’ violation
- Monetary damages
If a commercial tenant has any questions about their rights, they should have a legal consultation in California.
Do I Need a Lawyer?
If you are a commercial tenant or a commercial landlord in the State of California and you have questions about your rights and obligations under the new California Senate Bill 1103, it is important to consult with a California real estate lawyer. Issues involving commercial real estate can be complicated, especially as the law evolves and changes.
Whether you are a tenant or a landlord, a lawyer can draft or review a commercial lease as well as provide advice on whether the lease is favorable to you or your business. If a dispute does arise based on your commercial lease, your attorney will represent you and ensure you are in compliance with new requirements and your rights are protected.
LegalMatch is a great resource to find a California lawyer who can answer your commercial real estate questions and help you with your commercial lease under the new SB 1103. Simply submit your concern on the website, and within around 24 hours, you will get responses from California attorneys who can provide help and advice.
