WHAT ARE “QUALIFIED COMMERCIAL TENANTS”

A qualified commercial tenant is a renter of commercial real estate satisfying two main requirements. The tenant must first be either a microenterprise, a restaurant employing less than 10 people, or a nonprofit with less than 20 staff members. Second, the tenant has to have sent a written notice verifying their qualification as a qualified commercial tenant to the landlord within the past 12 months together with a verification on employee count. If the tenancy is not on a week-to- week or month-to- month basis, this notification and verification must be given to the landlord either before or at the time the lease is signed, then annually once the safeguards take effect.

NOTICE REQUIREMENTS

Under the new law, landlords must provide notice of rent increases to, and the increase is not effective until the notice period has passed. If the proposed rent increase is 10 percent or less compared to the rent charged in the previous 12 months, the notice must be given at least 30 days before the increase takes effect. If the rent increase exceeds 10 percent of the rent charged in the past 12 months, the notice must be provided at least 90 days before the increase becomes effective.

Additionally, the new law covers lease renewals, unless the landlord or the tenant notifies the other that they want to terminate the tenancy, the lease will be considered renewed unless the lease specifies the ending of the term of the lease.

 It also requires landlords to provide advance notice for termination of a tenancy, including information on the notice requirements for qualified commercial tenants in the termination notice. The landlord must provide notice of termination at least 30 days before the termination date. But if the tenant has leased the commercial property for one year or more, the landlord must give at least 60 days' notice, unless otherwise specified. The landlord must also properly deliver the notices by either (1) by delivering a copy to the tenant personally or (2) by serving a copy by mail.

TRANSLATION REQUIREMENTS

If the lease negotiations with a qualified commercia tenants is usually done in another language besides English, like Spanish, Mandarin, Tagalog, Vietnamese, or Korean, the landlord must provide a translated copy of the contract in the language of used for in the negotiations. This covers sub leases, rental agreements, or tenancy agreements for commercial leases for nonresidential-zoned spaces, there is an exemption to the requirement if the tenant provides their own interpreter.

If no interpreter or a translated contract is provided, the qualified commercial tenant has the authority to cancel the contract later.

OPERATING COSTS REQUIREMENTS

In California, "building operating costs" are expenses a landlord spend on the maintenance, operation, and repair of their commercial property, which can include utilities, and property taxes.

The new law applies to new leases started or renewed on or after January 1, 2024 and prohibits landlords of commercial real property from charging qualified commercial tenants a fee to recover “building operating costs” unless the conditions below are met.

1)      The costs must be fairly shared among tenants, based on square footage or another method and the landlord must provide proof of how these costs were calculated.

2)      The costs must have occurred in the last 18 months or are expected to happen in the next 12 months, based on reasonable estimates.

3)      Before signing the lease, the landlord must tell the tenant in writing (either on paper or electronically) that they can ask to see the documents that support the operating costs.

4)      If the tenant asks in writing, the landlord must provide the supporting documents within 30 days.

5)      The costs should not include anything the tenant already pays directly to a third party or anything that a third party, tenant, or insurance has reimbursed the landlord for.

Also, during the lease, the landlord cannot change how they calculate the costs in a way that makes the tenant pay more, unless they give written notice and show proof of why the change is happening.

The operating cost requirement is especially important to tenants and landlords because the law states that if a landlord violates it, they can face significant financial consequences. If the landlord doesn't follow these new requirements, they could be required to pay actual damages to the tenant, which means the landlord has to compensate the tenant for any real losses caused by the violation. In addition to that, the landlord may also be responsible for paying the tenant's reasonable attorney's fees and court costs, depending on the court's decision. On top of this, the landlord could face a civil penalty of up to three times the amount of actual damages the tenant suffered, plus punitive damages, which are meant to punish the landlord for wrongful behavior.

It's important for both tenants and landlords to fully understand their rights and responsibilities under the new law. We suggest speaking with an attorney to make sure you're following all the required notice rules and legal obligations, and to get a clear explanation of how these changes apply to your specific situation.

Disclaimer: This article is for informational purposes only and is not a substitute for legal advice. If you have specific legal questions, consult an experienced attorney.