For decades, residential tenants in California have had many legal protections. Thanks to a bill signed into law in September, some commercial tenants will join them. The new law isn’t a “game changer” in the commercial tenant-landlord relationship, but it adds some protections for tenants and hassle and work for landlords.
What is This New Law?
The Commercial Tenant Protection Act (Senate Bill 1103) is the first law in the nation to protect nonprofits and the smallest businesses from displacement, according to a press release by Gov. Newsom’s office. It goes into effect on January 1.
The law provides “commonsense leasing standards” meant to “bring clarity and stability” to tenants and landlords. It requires language access for commercial leases, something that can pose a problem to both tenants and landlords if disagreements are based on miscommunication.
Which Tenants Qualify for Protection?
The law applies to a limited number of tenants, defined as the following:
- Microenterprise: A business with five or fewer employees, including the owner, and generally lacks enough access to equity, loans, or other financial capital
- Nonprofit Organization: Any private, nonprofit organization that comes under the United States Internal Revenue Code of 1986 Section 501(c)(3)
- Qualified Commercial Tenant (QCT): A commercial real property tenant that meets these two requirements:
- The tenant is a microenterprise, a restaurant with less than ten employees, a nonprofit organization with less than 20 employees
- The tenant gives the landlord in the prior 12 months a written notice stating they’re a QCT and provides a self-attestation concerning the number of employees
Some of the language used isn’t precise and could be subject to interpretation or dispute. “Restaurant” isn’t defined, and it’s unclear when a company’s access to loans, equity, or capital is lacking.
Lease Interpretations, Cost Transparency, and Providing Notices to QCTs
The provision concerning lease availability in other languages states:
- When entering into agreements, a landlord, broker, manager, or agent negotiating primarily in Korean, Spanish, Vietnamese, Chinese, or Tagalog shall give the other party a translation of the contract in the language used. It must contain every term and condition agreed upon. A party may rescind such an agreement if it doesn’t comply with this requirement
- This includes any later document that makes substantial changes to the parties’ rights and obligations
According to the press release, the law also involves:
- Creating transparency and standards for building operation costs
- Giving small businesses and nonprofits additional time to prepare for rent increases or the end of their tenancies which could help them remain in their neighborhoods
Supporters of the law argue that nonprofits and small businesses are critical to California’s communities and that these protections will help prevent their displacement.
Property Owners Not So Happy with the Law
Those representing commercial landlords see the new law as robbing Peter to pay Paul. While small business owners who are tenants get protections, small businesses who own commercial properties are saddled with additional work at costs.
The Building Owners and Managers Association of Greater Los Angeles (BOMA) states the new law will result in the following:
- Costs of up to $10,000 for lease translations
- The provision of operating costs documentation in a strict timeframe
- Preventing adjustments to expenses according to tenant usage, which could cause financial losses or changes in lease prices
- Limiting landlords to recovering only some expenses like maintenance and repair, not other essential costs
- Inflexibility in lease negotiations because tenants can’t waive any rights
- Failure to comply can be a defense by tenants in eviction cases, increasing the risk when leasing to a qualified tenant
- Compliance costs can result in higher fees and rents for tenants
- Given the additional costs and risks, landlords may be less likely to rent to “qualified tenants,” which may make it more difficult for them to find an appropriate location, and that reduced supply may result in higher lease costs
Business groups opposing the law state that its passage was a partial win because more expansive provisions were removed during the legislative process.
We’re Here to Help
If you have questions about this law and what to do to comply with it, call the AWB Law PC team at (949) 244-4207 or complete our online contact form today. We can discuss your situation, how the law may apply, and how you should proceed.
