On September 30, 2024, Governor Gavin Newsom signed Senate Bill 1103 (SB 1103) into law, marking a significant shift in commercial leasing practices across California. Known as the Commercial Tenant Protection Act, the new legislation introduces a series of protections for small businesses and nonprofits that lease commercial space while creating new obligations for landlords. Senator Caroline Menjivar sponsored SB 1103, and the legislation is set to take effect on January 1, 2025, and applies specifically to a group of tenants defined as “qualified commercial tenants.”
At its core, SB 1103 seeks to provide additional safeguards for the smallest players in the commercial real estate market: microenterprises (businesses with five or fewer employees), restaurants with fewer than ten employees, and nonprofits with fewer than 20 employees. To be considered “qualified,” a tenant must provide landlords with written notice of its status and a self-attestation about the employee count at the time of lease execution and annually thereafter.
The law introduces new restrictions for California landlords in four key areas: operating costs, rent increases, language translation requirements, and lease termination for unspecified durations. These changes demand attention and proactive planning to ensure compliance as 2025 approaches.
New Restrictions on Operating Costs
One of the most impactful components of SB 1103 is its overhaul of how landlords can charge “qualified commercial tenants” for operating costs—expenses like utilities, maintenance, and property taxes. Under the new law, landlords must provide detailed supporting documentation to tenants before collecting these costs. This documentation must include clear records, such as invoices and receipts, and must be backed by a signed attestation that the costs are accurate.
Landlords are also prohibited from modifying the method or formula used to calculate a tenant’s share of operating costs without giving written notice and providing the supporting documentation to justify the change. Cost allocations must now be proportionate—typically based on square footage—or otherwise substantiated.
In practical terms, landlords need to adopt rigorous systems to track operating expenses and promptly share relevant details with tenants. For leases executed, renewed, or commencing on or after January 1, 2025, landlords can no longer charge tenants for operating costs incurred more than 18 months prior or for costs they cannot reasonably justify as upcoming expenses.
Non-compliance carries significant penalties. Tenants can bring civil lawsuits against landlords for damages, and courts have the discretion to award attorney’s fees and punitive damages in cases of willful violations.
Tighter Requirements for Rent Increases
SB 1103 also introduces stricter rules governing rent increases for qualified commercial tenants under amended Section 827 of the California Civil Code.
For modest rent increases—10 percent or less—landlords must now provide tenants with at least 30 days’ notice. If the rent increase exceeds 10 percent, the notice period extends to 90 days. The law requires that these notices be delivered in writing, either through personal delivery or by mail, and must explicitly reference the statutory requirements under Section 827.
For landlords managing multiple tenants or planning rent adjustments in the coming year, this provision emphasizes the importance of proper documentation and timeline management. Failure to comply with the notice requirements could delay the implementation of rent increases and lead to disputes.
Translation Requirements for Negotiated Leases
Language accessibility is another key focus of SB 1103. Under the amended Section 1632 of the California Civil Code, landlords who negotiate leases primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean must now provide tenants with a translated version of the lease before execution. This requirement applies to all terms and conditions of the agreement.
The translation requirement addresses barriers faced by non-English-speaking business owners and ensures transparency in lease negotiations. For landlords, it means preparing translated versions of their lease templates and engaging qualified legal and translation professionals to comply with this mandate.
Changes to Termination Rules for Undefined Lease Terms
For commercial leases without a specified term—such as month-to-month agreements—SB 1103 amends Section 1946.1 of the Civil Code to require landlords to provide tenants with a 60-day notice before terminating the lease. If the tenant has occupied the property for less than one year, the notice requirement is reduced to 30 days.
While this provision will likely affect only a small subset of landlords, it serves as a reminder of the importance of clarity in lease terms. Undefined lease durations can create unnecessary legal complications under SB 1103.
How Landlords Can Prepare
With SB 1103 set to reshape commercial leasing in California, landlords must take a proactive approach to compliance. The following steps can help minimize risk and ensure smooth implementation:
- Audit Existing Leases: Identify tenants who may qualify under SB 1103 and review leases set to renew or commence in 2025.
- Update Documentation Processes: Ensure operating cost records are accurate, itemized, and easily accessible to meet the new reporting standards.
- Review Rent Increase Notices: Update procedures to deliver proper notices for any planned rent adjustments.
- Prepare Translations: Develop systems to provide translated lease documents for negotiations conducted in applicable languages.
- Clarify Lease Terms: Avoid ambiguity by ensuring all leases have clearly defined durations.
By taking these steps now, landlords can stay ahead of the curve and avoid the significant legal and financial risks associated with non-compliance.
Source: California Legislature, Civil Code Amendments (SB 1103).
