The Ground Floor

Effective January 1, 2025, Senate Bill (“SB”) 1103 amended California’s Civil Code to impose new obligations on landlords leasing to certain “qualified commercial tenants.” Landlords now subject to the bill’s requirements must ensure compliance with their new duties or risk subjecting themselves to lawsuits seeking actual damages, attorney’s fees and costs, and multiplied and punitive damages.

SB 1103 Governs Leases Between Commercial Landlords and Qualified Commercial Tenants

The threshold issue, for both landlords and tenants, is whether SB 1103 governs their lease. SB 1103 applies only to leases of “commercial real property” to “qualified commercial tenants” (“QCT”).

Codified at Civil Code §§ 827, 1632, 1946.1, and 1950.9, SB 1103 defines “commercial real property” in each section as all real property in California excluding “dwelling units” (broadly, homes and residences), mobilehomes, and recreational vehicles.[1] Each section cited above defines “qualified commercial tenants” as tenants meeting the following 2 conditions:

1. the tenant is a microenterprise[2], a restaurant with fewer than 10 employees, or a nonprofit organization with fewer than 20 employees, and
   
2. within the previous 12 months, for periodic leases of a month or less, or before the execution of a lease for leases longer than one month and then annually thereafter, the tenant has provided the landlord with written notice of its QCT status and provided the landlord with an attestation regarding the tenant’s number of employees.

SB 1103 seeks to provide additional protections to small, commercial tenants by increasing notice periods and translation requirements, but its provisions are not automatic. Eligible tenants must affirmatively notify their landlord, in writing, of their QCT status before the landlord’s obligations are triggered. For leases longer than one month, that written notice must be provided before execution of the lease and annually thereafter. For week-to-week leases, month-to-month leases, or leases shorter than one month, the new law requires that written notice have been provided “within the previous 12 months.” Notably, the new law does not provide a discrete mechanism for landlords to challenge a tenant’s self-attestation as a QCT.

SB 1103 Imposes New Obligations on Commercial Landlords

SB 1103 imposes four categories of new obligations on landlords leasing commercial real property to QCTs:

1. additional written notice requirements for lease terminations;
   
2. additional written notice requirements for rent increases;
   
3. specific written notice, documentation, and allocation requirements for landlords seeking common area cost recoupments from QCTs; and
   
4. document translation requirements for landlords whose QCTs negotiated their lease in Spanish, Chinese, Tagalog, Vietnamese, or Korean, without an interpreter.

1. New Obligations in the Terminations of QCT Leases

SB 1103 amended Civil Code § 1946.1 to provide that a lease entered by a QCT for an unspecified duration automatically renews at the end of the term implied by law unless the landlord or tenant provides written notice of termination. This section does not specify whether it applies to existing leases as of January 1, 2025, or only those entered thereafter. Presumably, it applies to all.

For landlords, written notice of the termination must be provided to the QCT no later than 60 days before the proposed date of termination, or no later than 30 days before the proposed date of termination if the QCT has been in possession of the premises for less than one year. Civil Code § 1946.1(h) further provides that these notices must include specific language pertaining to abandoned personal property.

For tenants, written notice must be provided for a period at least as long as the term of the periodic tenancy prior to the proposed date of termination.

2. New Obligations for Rent Increases of QCT Leases

SB 1103 amended Civil Code § 827(a) to require that landlords provide QCTs under week-to-week leases, month-to-month leases, or leases for less than one month with specific written notice periods before increasing their rent.  

As of January 1, 2025, landlords who intend to increase a QCT’s rent by more than 10% of the rent charged to the QCT any time during the 12 months before the effective date of the increase (either in and of itself or when combined with any other rent increases for the 12 months before the effective date of the increase) must provide the QCT at least 90 days’ written notice. Where the rent increase is 10% or less, that notice must be no less than 30 days before the effective date of the increase. Civil Code § 827(c) further provides that should the lease agreement provide for a longer notice period than provided by the new law, the contractual notice period shall control.

The Code also requires that the landlord’s written notice inform the QCT of Civil Code § 827(b)’s provisions. Notwithstanding these requirements, the new law is clear that a landlord’s failure to satisfy the obligations of § 827(b) does not entitle a QCT to civil penalties.

3. New Obligations Pertaining to Building Operating Costs

SB 1103 amended Civil Code § 1950.9 to limit a landlord’s ability to recover building operating costs from QCTs under the following types of lease agreements: (1) leases commenced or renewed on or after January 1, 2025, (2) week to week leases, month to month leases, or other lease periods of less than a month, and (3) leases executed or tenancies commenced before January 1, 2025, that do not contain a provision regarding building operating costs. For those leases, a landlord may only recover building operating costs if the following 6 criteria are met:

1. the costs are allocated proportionately per tenant, by square footage, or another method as substantiated through supporting documentation provided by the landlord to the QCT;
2. the costs have been incurred within the previous 18 months, or are reasonably expected to be incurred within the next 12 months;
3. before execution of the lease, the landlord provides the prospective QCT written notice stating that the QCT may inspect any supporting documentation of building operating costs upon written request;
4. within 30 days of a written request, the landlord provides the QCT supporting documentation of the previously incurred or reasonably expected costs;
5. the costs do not include expenses paid by a QCT directly to a third party; and
6. the costs do not include expenses for which a third party, QCT, or insurance reimbursed the landlord.

Section 1950.9 also provides that a landlord shall not charge a fee to recover any building operating costs from the QCT until the landlord provides the qualified commercial tenant supporting documentation, and that during the course of a commercial tenancy, the landlord shall not alter the method or formula used to allocate costs to the QCT in a way that increases the QCT’s share of those costs unless the QCT is provided with written notice of the change and documentation supporting the basis of the change.

Like the translation obligations discussed below, § 1950.9 provides that these obligations cannot be waived as a matter of public policy, and in an action for an unlawful detainer, ejectment, or other action to recover possession based on a failure to pay a fee to recover building operating costs, a QCT may raise as an affirmative defense that the landlord violated § 1950.9’s provisions.

4. New Obligations to Translate Lease Documents

SB 1103 amended Civil Code § 1632 to provide that QCTs engaged in a trade or business who negotiate primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean, orally or in writing, and who enter into a lease agreement without an interpreter must be provided a translation of the lease agreement in the language in which it was negotiated, including a translation of every term and condition in that lease. This provision applies only to leases entered on or after January 1, 2025, and requires that a translated copy be provided to the prospective QCT before execution of the lease agreement.[3]

Excluded from the translation requirement, and thus may remain in English in the translated copy, are names and titles of individuals, addresses, brand names, trade names, trademarks, registered service marks, full or abbreviated designations of the make and model of goods or services, alphanumeric codes, numerals, dollar amounts expressed in numerals, dates, and individual words or expressions having no generally accepted non-English translation.

Noncompliance with the translation requirements of SB 1103—which cannot be waived as a matter of public policy—is particularly hazardous for landlords. Pursuant to Civil Code § 1632(k)(1), a landlord’s failure to comply with the new law’s translation requirements entitles a QCT to rescind the lease agreement altogether.

The Legislature’s Motivation Behind SB 1103 and the Probable Consequences

SB 1103’s author drafted the bill to give additional protections to small business and non-profit organizations. In SB 1103’s August 23, 2024, Assembly Floor Analysis, the author states: “[s]mall businesses and nonprofits are a vital resource for many in my district and across California. Their storefronts contribute to the aesthetics and vitality of our business corridors, as well as increase the walkability and cultural representation within neighborhoods. Government agencies alone cannot close the service gaps afflicting the most vulnerable Californians and we rely on the dedicated service of nonprofits.”

Supporters of SB 1103 similarly argued that the bill would help “small businesses and nonprofits remain in their communities and continue to provide culturally significant goods and services,” and would help them “stay afloat due to rising rents, inflation, and gentrification.”[4]

Arguments in opposition to SB 1103 noted that the bill would increase burdens on landlords and tenants alike: “the provision allowing tenants to rescind leases at any time for non-compliance with translation requirements introduces severe legal uncertainties and risks that disproportionately impact small landlords, threatening the stability of the rental market. The ripple effects of SB 1103 will lead to increased costs for tenants, reduced commercial space availability, and ultimately harm the very businesses and nonprofits it purports to support.” Opponents further argued that “[t]he unintended consequence of this measure is that landlords will be less likely to rent out to ‘qualified commercial tenants,’ making their rental options scarcer and more expensive.”[5]

Ultimately, while SB 1103 may seek to protect smaller commercial tenants by providing longer periods to prepare for rent increase or lease terminations, it inevitably makes QCTs less attractive tenants. For the purchasers and sellers of real property, SB 1103 may also impact the desirability of buildings where QCTs are the most likely prospective tenants.

For landlords currently leasing to QCTs or who anticipate leading to QCTs, consulting with counsel because ensuring compliance with SB 1103’s new obligations may help avoid unexpected claims and expenses, including the potential rescission of leases.

[1] Civil Code § 827(b)(7)(A) borrows the definition of “dwelling units” from Civil Code § 1940(c), borrows the definition of “mobilehome” from Civil Code § 798.3, and borrows the definition of “recreational” vehicles from § 799.29.

[2] A “microenterprise,” for purposes of SB 1103, means a sole proprietorship, partnership, limited liability company, or corporation with five or fewer employees (including the owner) which generally lacks sufficient access to loans, equity, or other financial capital. See, e.g.¸Civil Code § 827(b)(7)(B), which borrows the definition of “microenterprise” from Business and Professions Code § 18000(a).

[3] Civil Code § 1632(b), (b)(8).

[4] August 31, 2024, SB 1103 Senate Floor Analysis, p. 12.

[5] August 23, 2024, Assembly Floor Analysis, p. 5.

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