California’s Commercial Tenant Protected Act: What Landlords Need to Know

The State of California’s Commercial Tenant Protected Act (SB 1103) — originally enacted in fall 2024 — went into effect on January 1, 2025. While there is still uncertainty surrounding CA SB 1103, there are steps that landlords with properties in California can take now to ensure compliance.

• Update the lease and amendment forms to include a tenant representation and warranty stating something to the effect of:
  • “Tenant hereby represents and warrants that, as of Effective Date, Tenant is not a ‘qualified commercial tenant’ as defined in CA SB 1103. Under CA SB 1103, a ‘qualified commercial tenant’ is defined as (i) a microenterprise (a sole proprietorship or business entity that has 5 or fewer part of full-time employees, and generally lacks sufficient access to loans, equity, or other financial capital), (ii) a restaurant with fewer than 10 employees, or (iii) a nonprofit organization with fewer than 20 employees, which, in each instance, has (A) provided the landlord, within the previous 12 months, a written notice that the tenant is a qualified commercial tenant and a self-attestation regarding the number of employees and (B) provided the notice and self-attestation described in clause (A) before or upon execution of the lease, and annually thereafter, at such time the protections under this section come into place, unless the tenancy is month-to-month or less. Tenant shall provide Landlord notice if at any time during the lease term Tenant becomes a ‘qualified commercial tenant’ as defined in CA SB 1103.”
  • Note that tenants cannot waive CA SB 1103. However, if a tenant reps/warrants to not being a “qualified commercial tenant,” most of CA SB 1103 will not apply.
• Review operating cost allocations and draft all leases and amendments with a standard square footage proportionate share distribution. Additionally, California landlords must provide a tenant with notice prior to the execution of the lease stating the “qualified commercial tenant” may inspect any supporting documentation upon written request.
  • Building operating costs must be allocated proportionately based on square footage or another method verified by landlord through supporting documentations (itemized quotes, contracts, invoices, receipts, etc.). These documents need to be retained, since a ‘qualified commercial tenant’ has the opportunity to review the documents within 30 days’ notice.
    • Fixed fee operating costs (i.e. fixed CAM) could be problematic if it can be shown the fixed CAM disproportionately affects the ‘qualified commercial tenant.’
  • A “qualified commercial tenant” may raise landlord’s violation of the operating costs allocation requirements as an affirmative defense (i.e., if a qualified commercial tenant is in arrears, it could use an alleged violation of SB 1103 as a justification for non-payment). If found to be in violation, landlords can be liable for actual damages, reasonable attorney’s fees, and three times the actual damages if the qualified commercial tenant establishes that landlord acted willfully or with fraudulent intent.
• Set up an internal calendar system to generate and distribute reminder notices that are sent to and received by qualified commercial tenants 90 days prior to rental increases (regardless of whether the increase is more or less than a 10% increase). Per CA SB 1103, the notice must be delivered to the qualified commercial tenant in person or by serving a copy by mail. We recommend delivering the notice per the notice requirements of the lease as well.
• If the tenant is communicating in Spanish, Chinese, Tagalog, Vietnamese, or Korean, then landlord is obligated to provide a translated lease/amendment, in addition to the English version.
• CA SB 1103 requires that the lease include a specific duration or end date. Make sure your lease documents always include a lease expiration date.
• Month-to-month leases? Ambiguity rules the day when it comes to which portions of CA SB 1103 apply to all qualified commercial tenants with month-to-month leases. Accordingly, it is safest to assume every CA SB 1103 provision applies to all “qualified commercial tenants” regardless of the lease duration.

We will continue to monitor the interpretation and enforcement of CA SB 1103. Please reach out to AGG Real Estate attorneys Scott Shuman or Matthew Gaudiosi for more information.