New Legislative Developments Impacting Leasing Procedures for Qualified Commercial Tenants in California – Senate Bill 1103 – Translation of Commercial Leases

Attention commercial brokers, agents, property managers and landlords effective January 1, 2025, a significant shift in the landscape of commercial real estate leasing will arise due to the enactment of Senate Bill 1103, recently ratified by California Governor Gavin Newsom. This new law mandates that landlords and their representatives—across all commercial sectors, including office, industrial, and retail—adapt their leasing practices when engaging with a newly classified category of tenants known as “qualified commercial tenants.”

Commercial Lease Agreement Rules Have Changed

Overview of Legislative Changes

The implications of this law encompass foundational alterations in lease agreements, especially concerning rent adjustments, lease termination notice periods, and the stipulations regarding the pass-through of operating expenses, i.e., property taxes. Particularly noteworthy are the requirements for translation in leases that exhibit substantial negotiation in any of five specified languages. The bill has faced opposition from significant commercial property associations, including the California Business Properties Association, the International Council of Shopping Centers, and the California Chamber of Commerce, underscoring the contentious nature of this legislation.  This is a business disruption which will impact all commercial leasing activities going forward.

Qualified Commercial Tenants Have Two Categories

Who is a Qualified Commercial Tenant?

The statute introduces the definition of “qualified commercial tenants,” targeting those who require enhanced safeguards in lease negotiations. The criteria for this new defined classification stipulate that tenants must fall within one of two categories: (1) a microenterprise or a restaurant employing fewer than 10 individuals, or (2) a nonprofit organization with fewer than 20 employees. To qualify, tenants must furnish a written declaration affirming compliance with these parameters, along with self-attestation regarding their workforce size. The term “microenterprise” aligns with existing definitions under California Business and Professions Code section 18000, encompassing sole proprietorships and entities with no more than five employees, particularly those lacking robust access to financial capital. Notably, the term “restaurant” remains undefined under this legislation.

Qualified commercial tenants must renew their compliance notice annually unless they are on a month-to-month lease, in which case, they can provide the notice at any point within the preceding 12 months.

Most Commercial Properties are Affected

New Compliance Requirements Under SB 1103

The following provisions will govern new leases—and, where indicated, existing leases—commencing in 2025 with qualified commercial tenants:

  1. Extended Notice for Rent Increases: Landlords must now provide a minimum of 90 days’ notice prior to imposing rent increases that exceed 10%. Accompanying this notice should be pertinent information, potentially including applicable Civil Code sections pertaining to the changes. This requirement extends to all leases with qualified commercial tenants, raising questions regarding its applicability to existing lease option exercises.
  2. Revised Termination Notice for Month-to-Month Leases: Landlords must now grant qualified commercial tenants who have occupied a month-to-month lease for over 12 months a minimum of 60 days’ written notice for nonrenewal or termination. Conversely, tenants retain the right to terminate such tenancies with just a 30-day notice, even if they have received a 60-day notice from the landlord. This stipulation also applies to existing leases, and additional notice regarding the disposal of personal property must be communicated to qualified commercial tenants.
  3. Operating Expense Pass-Through Regulations: New restrictions will be enacted concerning the pass-through of operating expenses in month-to-month tenancies. Landlords will need to provide “supporting documentation” for applicable costs, which must be limited to expenses related to operation, maintenance, and repair. Allocations must be proportionate based on square footage or other substantiated methods. Violations may result in severe penalties, including tenants raising these violations as defenses in unlawful detainer actions and seeking recovery of attorneys’ fees, along with potential punitive damages. Local district attorneys have been granted authority to enforce these requirements, necessitating a rigorous adjustment to leasing practices.
  4. Translation Requirements for Lease Agreements: The most contentious aspect of SB 1103 is the mandate for landlords engaging in negotiations—whether verbal or written—to provide accurate translations of lease agreements in one of five designated languages: Spanish, Tagalog, Chinese, Vietnamese, or Korean. This requirement is applicable to all new leases executed post-January 1, 2025. Landlords must ensure that tenants receive translation copies that encompass all terms and conditions of the contract. Notably, failure to comply grants tenants a right of ongoing rescission, although the English version retains control in cases of discrepancies.

Addressing Potential Impacts, Next Steps and Unanticipated Consequences

Concerns have been voiced, and rightly so, regarding the potential unintended consequences of this law, which may hinder leasing opportunities for the very small businesses it aims to support and protect. Ambiguities in certain language provisions could lead to protracted eviction processes and increased litigation between landlords and tenants. Additionally, the stipulations concerning notice requirements for rent hikes and the limitations on operating cost pass-throughs may signal an initial foray into commercial rent control legislation which would be an epic battle to so the least.

Commercial Lease Changes are Statewide

As these developments unfold and more legislation gets introduced, brokers, agents, property managers, and landlords leasing to qualified commercial tenants are strongly advised to consult legal counsel. A comprehensive review of the procedural changes necessitated by SB 1103 will be essential to ensure compliance and mitigate the risks of rescission, punitive damages, etc.

If you are in search of a seasoned, trustworthy and professional commercial property manager, Esquire Property Management Group provides its clients with a continuous and steadfast commitment to adhering to ethical and legal standards more than other commercial property management teams. We understand the importance of drafting commercial property transaction documents in compliance with the latest statues, regulations and laws.  Very few commercial property managers have a licensed real estate attorney on staff to review all documentation to protect the client’s interests.

David Roberson
Latest posts by David Roberson (see all)