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Navigating SB 1103 – A New Era for Commercial Landlords with Small Business Tenants

November 10, 2024 0 Comment Category: Uncategorized

Navigating California’s SB 1103: What Commercial Landlords Need to Know

Starting January 1, 2025, California’s SB 1103 introduces strict compliance measures for commercial landlords renting to “Qualified Commercial Tenants” (QCTs). These tenants include certain microenterprises, small restaurants, and nonprofits, each subject to unique protections. For landlords, these new rules mean immediate adjustments to how rent increases, lease terminations, operating costs, and lease translations are handled. Here’s a concise guide to the changes and essential steps to ensure compliance.

Understanding SB 1103

SB 1103 is aimed at protecting small business tenants by setting new requirements on how leases are managed. Here’s who qualifies as a QCT under the new law:

• Microenterprises: Small businesses with five or fewer employees and limited access to capital.
• Small Restaurants: Restaurants that employ ten or fewer workers.
• Nonprofit Organizations: 501(c)(3) nonprofits with fewer than 20 employees.

The law applies to tenants self-certifying as QCTs and requires landlords to follow strict guidelines when adjusting lease terms, rent, and other costs. To remain compliant, landlords should carefully review all lease agreements involving QCTs.

Key Compliance Requirements

1. Rent Increase Notifications
   • For rent increases above 10%, landlords must provide 90 days’ advance notice.
   • For increases below 10%, 30 days’ notice is required, and all notifications should reference SB 1103 compliance.
2. Termination Notices for Month-to-Month Tenancies
   • A 60-day notice is now mandatory when terminating month-to-month leases for tenants with 12 months or more occupancy.
   • Tenants can still terminate month-to-month leases with a 30-day notice.
3. Operating Expense Pass-Throughs
   • Landlords must ensure any operating expenses passed to QCTs are reasonable, well-documented, and limited to eligible items within specified timeframes.
   • A clear system for tracking these costs and providing timely documentation to tenants is now a compliance priority.
4. Translation Requirements for Non-English Lease Negotiations
   • If a lease negotiation occurs in Spanish, Tagalog, Chinese, Vietnamese, or Korean, landlords must provide a translated version of the lease in that language to QCT tenants.
5. Non-Compliance Penalties
   • Non-compliance with SB 1103 may allow tenants legal defenses in eviction cases and expose landlords to damages and other legal costs.
   • Intentional violations carry severe consequences, including the risk of treble damages and punitive penalties.

Proactive Steps for Landlords

To avoid penalties and ensure smooth tenant relations, landlords should begin preparations for SB 1103 as soon as possible. Here are recommended steps:

• Audit Existing Leases: Conduct a thorough review of all current leases to identify any compliance gaps with SB 1103. Pay special attention to tenants who may qualify as QCTs, ensuring all provisions align with the new requirements.
• Establish Expense Documentation: Implement a detailed system for tracking and documenting any operating costs that may be passed through to QCT tenants. Transparent documentation will not only ensure compliance but also foster trust with your tenants.
• Inform Tenants of New Rights and Responsibilities: Clear communication about SB 1103’s protections can strengthen tenant relations and reduce potential conflicts. Make sure tenants understand how the new law impacts their rights and obligations under their leases.

At Davidovich Stein Law Group, we specialize in helping California landlords navigate new and complex legal requirements. Whether you’re looking to review lease agreements, establish compliance systems, or clarify tenant communications, our team is ready to help you implement SB 1103 with minimal disruption. Reach out today for guidance on protecting your investments under the new law.

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