What to Know About the Commercial Tenant Protection Act

The Commercial Tenant Protection Act (SB 1103) provides commercial tenant protections through transparent and fair commercial leasing practices. Governor Newsom signed the legislation on September 30, 2024, and it becomes effective January 1, 2025.

SB1103 aims to thwart the gentrification and displacement of community-serving small businesses and nonprofits by providing common sense protections for qualified commercial tenants.

The bill prohibits a landlord of a commercial real property from charging a qualified commercial tenant a fee to recover building operating costs unless specified conditions are met, including, inter alia, that the costs are allocated proportionately per tenant, and the qualified commercial tenant is provided certain supporting documentation.

Application

The law applies to leases executed or tenancies started, renewed, or amended on or after January 1^st of next year; month-to-month tenancies; and leases executed or tenancies commenced before January 1, 2025 that don’t have a provision regarding building operating costs. Note that SB 1103 only applies to “qualified commercial tenants.”

“Qualified commercial tenant” means a tenant of commercial real property that meets both of the following requirements:

The tenant is a microenterprise, a restaurant with fewer than 10 employees, or a nonprofit organization with fewer than 20 employees; and
The tenant has provided the landlord, within the previous 12 months, a written notice that the tenant is a qualified commercial tenant and a self-attestation regarding the number of employees, at such time the protections under this subdivision come into place.

In addition, the law requires commercial leases primarily negotiated in Spanish, Korean, Chinese, Vietnamese, or Tagalog be provided in those languages in writing. This apples even if the tenant negotiates the lease with their own interpreter. Qualified commercial tenants can revoke or cancel a lease if it’s not provided to them in the language in which it was negotiated.

Notice Requirements

The new law requires a more lengthy notice by landlords for increases in rent and termination of tenancy. Existing California state law typically required only 30 days’ written notice from landlords to commercial tenants for termination of tenancies and rent increases. However, SB 1103 modifies the law to add these notice periods for month-to-month tenants. The legislation requires landlords to give month-to-month qualified commercial tenants at least 90 days’ notice before charging a rent increase of more than 10%. At least 30 days’ notice is required for rent increases of less than 10%.

The law also requires landlords to give month-to-month qualified commercial tenants at least 60 days' notice prior to terminating a tenancy unless the qualified commercial tenant has occupied the property for less than a year; in that situation, they must be provided with at least 30 days’ notice before termination of the lease.

Requirements for Charging Qualified Commercial Tenants Fees for Building Operating Costs

The law states that a landlord of a commercial real property can’t charge a qualified commercial tenant a fee to recover building operating costs unless all of the following apply:

The building operating costs are allocated proportionately per tenant, by square footage, or another method as substantiated through supporting documentation provided by the landlord to the qualified commercial tenant.
The building operating 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.
Before the execution of the lease, the landlord provides the prospective qualified commercial tenant a paper or electronic notice stating that the tenant may inspect any supporting documentation of building operating costs upon written request pursuant to paragraph (4).
Within 30 days of a written request, the landlord provides the qualified commercial tenant supporting documentation of the previously incurred or reasonably expected building operating costs.
The costs do not include expenses paid by a tenant directly to a third party.
The costs do not include expenses for which a third party, tenant, or insurance reimbursed the landlord.

Furthermore, SB 1103 requires landlords to provide “supporting documentation” for building operating costs. A landlord can’t charge qualified commercial tenants building operating costs until it provides supporting documentation.

“Building operating costs” means “costs that are incurred on behalf of a tenant for the operation, maintenance, or repair of the commercial real property, including, but not limited to, maintenance of common areas, utilities that are not separately metered, and taxes or assessments charged to the landlord pursuant to property ownership.”

“Supporting documentation” is defined as a dated and itemized quote, contract, receipt, or invoice from a licensed contractor or a provider of services that includes, but is not limited to (i) a tabulation showing how the costs are allocated among tenants in compliance and (ii) a signed and dated attestation by the landlord that the documentation and costs are true and correct.

In addition, during the course of a commercial tenancy, the landlord can’t change the method or formula used to allocate building operating costs to the qualified commercial tenant in a manner that increases the qualified commercial tenant’s share of those costs, unless the qualified commercial tenant is provided with written notice of the change in the method or formula with supporting documentation of the basis of the alteration.

Notification of Qualified Status

Qualified commercial tenants are required to inform their commercial landlords of their qualified status in order to enjoy the protections in SB 1103.

To use these protections, qualified commercial tenants must provide the landlord with a written notice, within the previous 12 months, that they are a qualified commercial tenant and a self-attestation regarding the number of employees.

The law also states that unless the tenancy is from week-to-week, month-to-month, or other period less than a month, the tenant provided the notice and self-attestation described in the bill prior to or upon execution of the lease, and annually after that.

Damages

A landlord of a commercial real property who violates SB 1103 is liable to a qualified commercial tenant in a civil action for all of the following:

Actual damages.
In the courts discretion, reasonable attorney’s fees and costs.
Upon showing that the landlord, lessor, or their agent has acted willfully or with oppression, fraud, or malice both (A) three times the amount of actual damages and (B) punitive damages.

Takeaway

California commercial landlords should pay strict attention to the added administrative and legal requirements impose on them by the new law.