The Commercial Tenant Protection Act, which was passed by the California legislature in 2024 and took effect as of January 1, 2025, expanded certain protections which already may benefit residential tenants to include certain classes of commercial tenants. Specifically, tenants who are (i) microenterprises (those businesses with 5 employees or less and have limited access to capital or loans), (ii) restaurants with less than 10 employees, and (iii) nonprofit entities with less than 20 employees, all collectively known as “Qualified Commercial Tenants” (“QCT”). In order to qualify as a QCT, a tenant must annually represent to its landlord that it is one and attest to its number of employees as within the threshold.
If a tenant is deemed a “Qualified Commercial Tenant,” then it can be afforded several statutory rights which other commercial tenants do not enjoy. First, a landlord cannot raise the rent of a QCT without first providing a statutorily required written notice to the QCT and waiting a certain period after delivery of that notice. If the rent is being raised less than 10% above the lowest rental amount in the last twelve months, then the notice period is 30 days. However, if the rent is being increased by 10% or more from the lowest rental amount in the last 12 months, then the QCT must be given at least 90 days before the rental increase can take effect. We advise commercial landlords timely serve their QCTs with rental increase notices in advance of any stated changes in the lease, otherwise the rental increase might not be enforceable until the notice and time period has expired.
Additionally, month to month leases with a QCT shall automatically renew for an additional month term, unless the landlord delivers a specific written notice to such tenant – 60 days in advance of the termination date if the tenant has been there at least one year, and at least 30 days if the tenant has been there less than one year. Alternatively, a QCT is only required to give that same landlord 30 days advance written notice of termination in either instance.
The California legislature also wanted to make the operating expense reimbursement process more transparent for QCT leases. As such, a new statute requires landlords to disclose the operating expense process to their QCTs and ensure that the method of cost allocation to them is fair. Further, certain costs cannot be recovered like those reimbursed to landlord by a third party and those which were not incurred in the prior 12 months or reasonably to be incurred in the ensuing 18 months.
Finally, the Legislature clarified that any QCT negotiating their lease in Chinese, Spanish, Tagalog, Vietnamese or Korean shall have their lease translated and signed in that negotiated language. If it is not translated, then that lease could be rescinded by the affected tenant. Please note that the above is a general overview and there are additional conditions and requirements for compliance with the above laws which cannot be stated here due to breadth. As such, we recommend these new laws be reviewed prior to sending any documentation to a QCT.
As a result of the Commercial Tenant Protection Act, commercial landlords should be aware of these rights afforded to QCTs and ensure they comply with any notice, disclosure and timeline obligations. There are penalties for failing to comply with these laws, including the prospect of punitive damages in certain cases if found to be a willful violation. Landlords would be best served by doing their due diligence in understanding if a tenant is a QCT and these restrictions apply. On the other side of the coin, tenants should be aware of these laws and ensure they timely notify landlords of their status to take advantage of these additional protections.
Authored by Reuben, Junius & Rose, LLP Partner, Lindsay Petrone.
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.
