Small-business tenants: new protections on operating-cost charges
Qualifying small businesses, restaurants, and nonprofits can limit how landlords pass through building costs, but only after giving the landlord a written notice.
Reviewed by Laurence S. Bezinover · Published
What changed
SB 1103 created “qualified commercial tenants”: microenterprises, restaurants with fewer than 10 employees, and nonprofits with fewer than 20 that give the landlord a written notice and a self-attestation of their employee count. Under a fixed-term lease, the notice is due before or when the lease is signed and every year after; under a month-to-month tenancy, within the previous 12 months.
For those tenants, operating-cost charges must be allocated proportionately, must cover costs incurred within the prior 18 months or reasonably expected within the next 12, and must be backed by documents the landlord provides within 30 days of a written request (Civ. Code § 1950.9). Month-to-month rent increases need 30 days' notice, or 90 days for increases over 10% (Civ. Code § 827), and leases negotiated mainly in Spanish, Chinese, Tagalog, Vietnamese, or Korean need a translation (Civ. Code § 1632).
Who it affects
Landlords of small commercial spaces, and small-business, restaurant, and nonprofit tenants.
Questions to raise with counsel
- Tenants: have we sent the notice and self-attestation, kept proof of delivery, and calendared it for every year?
- Landlords: are our lease forms and expense reconciliations updated, and are cost records ready for a 30-day request?
This briefing is general information about California law, not legal advice for your situation. Reading it does not create an attorney-client relationship.