Familiarize yourself with the Commercial Tenant Protection Act, a law that gives protections to small enterprises
Until now, commercial tenants have been perceived as more sophisticated than residential tenants in the eyes of the law and savvy enough to negotiate lease terms. Essentially, businesses have been left to fend for themselves with comparatively little protections and rights than those who rent a residential dwelling. The status quo has changed.
Enter Senate Bill 1103, also known as the Commercial Tenant Protection Act, which aims to level the playing field between landlords and certain “qualified commercial tenants” who are deemed to be vulnerable and entitled to safeguards that have been traditionally reserved for residential units. These include protections against unfair rent increases, increased notice periods for lease terminations, and transparency in building operating costs.
The chief architect of the legislation, Senator Caroline Menjivar, made her case and summarized the law here.
Before we review the new bill of rights for qualified commercial tenants, let’s define the term.
This newly defined 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, they must provide written notice to the landlord indicating they are a commercial tenant, along with a self-attestation about the number of the tenant’s employees. This exercise must be done at or before the execution of a lease and every 12 months thereafter.
Let’s review what the law prescribes.
Mandatory Lease Disclosures – Prospective commercial tenants must be furnished 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 and if the lease includes pass-through expenses (e.g., maintenance, taxes, insurance), the landlord must provide a breakdown of estimated costs and notify tenants of significant changes annually.
Translation required - If lease negotiations are conducted primarily in a non-English language, the landlord must provide a written translation of the lease in that language. Spanish, Chinese, Tagalog, Vietnamese, and Korean are among the most commonly spoken languages in California.
Prohibition on Hidden Fees – Prevents landlords from charging undisclosed fees or excessive administrative costs that were not initially agreed upon in the lease.
Tenant Right to Review – Grants commercial tenants a reasonable period to review lease terms before signing, reducing the risk of rushed agreements.
Limits on Personal Guarantees – Restricts landlords from requiring excessive personal guarantees, particularly for small business tenants, to protect entrepreneurs.
Transparency in Operating Expenses – Requires landlords to provide a clear breakdown of common area maintenance (CAM) charges and other operating expenses.
Dispute Resolution Mechanism – Encourages mediation or arbitration for disputes related to lease terms, aiming to reduce litigation costs for small businesses.
Read the full text of Senate Bill 1103 »