Small businesses will now have a bill of commercial tenant rights that mirrors the rights of residential renters. 

There has been a longstanding perception that commercial tenants are a sophisticated bunch and that there is a level playing field between merchants and their landlords. They have been considered equal negotiating partners. That may be true with big box stores that wield much negotiating power, but the reality for the little fish is different.

This balance of power is about to change.

A coalition of community development organizations, small business networks, legal aid groups partnering with small businesses, and community land trusts successfully lobbied for Senate Bill No. 1103.

By amending Sections 827, 1632, and 1946.1 and adding Section 1950.9 to the Civil Code, lawmakers have bestowed a host of commercial tenant rights to businesses that fall into a defined class of tenants.

“Creating these baseline protections, in our view, is not tipping the scales in favor of one party over another, but it’s actually creating a more equal playing field for these types of negotiations.”

~ Doug Smith, Senior Directory of Policy and Inclusive Action for Los Angeles.

Who does the law apply to?

The new law makes no distinction between office, industrial, or retail tenants. Instead, it paints a broad brush of “qualified commercial tenants.” Namely, the tenant is:

• A microenterprise, which means it has five or fewer employees, including the owner, and typically lacks access to financial capital such as loans or equity.

• A restaurant with fewer than 10 employees.

• A nonprofit organization with fewer than 20 employees and has a 501(c)(3) status.

Once these boxes are checked and the tenant provides a self-attestation, let’s review the new regulatory regime.

New and longer notice requirements for rent increases

This includes a 90-day notice for rent increases in excess of 10%. We can’t help but draw a parallel with AB 1482, which affords residential tenants more notice for surprisingly high rent increases.

New and longer notice periods for termination by a landlord of a month-to-month tenancy. 

Let’s say that a qualified commercial tenant has been in possession of the space for over 12 months and is on a month-to-month lease. These tenants are entitled to 60 days' written notice of nonrenewal or termination of the tenancy.

The public policy behind this is that such a brief window of time precludes businesses from remaining in their current location or finding new whereabouts within the community where they have a connection with customers and enjoy name recognition.

The qualified commercial tenant still has the option to terminate the month-to-month tenancy with a 30-day heads-up to the landlord. Furthermore, they must be notified of the disposition of personal property left behind.

Rules relating to the pass-through of operating expenses

With certain exceptions, these include real property taxes. As for operating costs that are incurred for “operation, maintenance, and repair,” we need to put a finger on square footage and who is responsible for what. Landlords and tenants have to be on the same page.

Negotiating contracts in the same tongue

Small business owners who have limited English proficiency are often faced with digesting a complex lease agreement. They may not fully understand the terms.

While residential landlords have become required to translate their leases into other languages, owners of commercial properties have not been held to the same standard until now.

Although the English iteration of the contract is controlling, the commercial tenant can demonstrate a “substantial difference in material terms” of the lease if it is not properly translated into an easily understandable dialect.

From the negotiation of commercial leases or renegotiating leases to adopt in changing times to managing disputes and evicting a tenant for nonpayment or other breaches of the lease, Bornstein Law can assist.

For informed advice, request a consultation »