Two new laws go into effect on January 1, 2025, which will impact how commercial landlords manage their properties, as well as the timeline for unlawful detainer (eviction) cases.
In late September 2024, Governor Gavin Newsom signed Assembly Bill No. 2347 (AB 2347) and Senate Bill No. 1103 (SB 1103) into law.
- AB 2347 increases the time a tenant has to respond to an unlawful detainer complaint from five to 10 days.
- SB 1103 provides “qualified commercial tenants” with expanded protections and imposes new obligations on commercial landlords regarding rent increases, lease terminations, and the recovery of property operating costs.
AB 2347
Time to respond to unlawful detainer complaint – doubled
Currently, tenants served with an unlawful detainer summons and complaint have five days, excluding Saturdays, Sundays, and judicial (i.e., court) holidays to respond to the complaint. California Code of Civil Procedure section 1167 will be amended to provide a tenant with 10 days (excluding Saturdays, Sundays, and judicial holidays) to respond to an unlawful detainer complaint. See California Civil Code section 1167(a).
Hearing date on a demurrer or motion to strike – finally a hard deadline, sort of
Current law (California Code of Civil Procedure section 1167) allows a tenant to respond to an unlawful detainer complaint only by an answer or demurrer (i.e., a motion to dismiss the entire complaint). If a demurrer is filed, there is no date by which the demurrer must be heard. California Code of Civil Procedure section 1170 will be amended to allow a tenant to respond by filing an answer, a demurrer, or a motion to strike. If the tenant responds by filing a demurrer or a motion to strike, there must be a hearing not less than five court days and not more than seven court days thereafter. The court, however, upon a showing of “good cause,” may order the hearing on the demurrer or motion to strike be held at a later date. See California Code of Civil Procedure section 1170(b)(1).
The takeaway on AB 2347
The hearing date element of AB 2347 is a step in the right direction, but still allows for some mischief. Getting a firm date for a hearing on a demurrer or motion to strike is a decent trade for giving a tenant 10 days to respond to an unlawful detainer complaint. However, for many years, both before and after the COVID-19 pandemic, tenants would often file a demurrer with a hearing date 60, 90, or 120 days in the future, and thus significantly delay getting the case to trial. The addition of California Civil Code section 1170(b)(1) should curb that abuse, but only time will tell what courts will consider to be “good cause” to order a later hearing date.
SB 1103
What is a “qualified commercial tenant” and why you should care
Three California Civil Code statutes (i.e., sections 827, 1632, and 1946.1) are amended, and a new statute is created (California Civil Code section 1950.9) by SB 1103. Common to all the changes brought by SB 1103 is the new concept of a “qualified commercial tenant.”
A qualified commercial tenant is a tenant meeting both of the following criteria:
- The tenant is a microenterprise, a restaurant with fewer than 10 employees, or a nonprofit organization with fewer than 20 employees; and,
- The tenant has provided the landlord with: (a) written notice of its qualified commercial tenant status; and, (b) a self-attestation regarding the number of employees.
When, and how frequently, the written notice and self-attestation must be provide is a function of the length of the tenancy. Unless it is a short-term tenancy (i.e., week-to-week, month-to-month, or other period less than one month), the notice and self-attestation must be given either before or upon execution of the lease, and annually thereafter.
A “microenterprise” is already defined by the California Business and Professions Code as a sole proprietorship, partnership, limited liability company (LLC), or corporation that has five or fewer employees, including the owner (who may be part-time or full-time), and generally lacks sufficient access to loans, equity, or other financial capital. See California Business and Professions Code section 18000(a).
Two of the elements of SB 1103 relate to short-term leases or leases with no specified term
- New notice required for rent increases in short-term tenancies
Landlords dealing with short-term tenancies (i.e., week-to-week, month-to-month, or other period less than a month in duration) must provide written notice to a qualified commercial tenant of a rent increase. If the increase is 10 percent or less, written notice must be given at least 30 days before the effective date of the increase. If the rent increase exceeds 10 percent, written notice must be given at least 90 days before the effective date. See California Civil Code section 827(b)(2) and (3).
- Navigating lease termination notices
For leases with an unspecified term, or when a tenant holds over following the natural expiration of the lease (creating a de facto month-to-month tenancy), a landlord must provide written notice of the termination to the qualified commercial tenant. If the qualified commercial tenant has occupied the property for less than one year, the landlord must provide written notice at least 30 days prior to the effective date of the termination. In all other instances (i.e., the tenant has occupied for more than one year), the landlord must provide written notice to the qualified commercial tenant at least 60 days prior to the effective date of the termination. See California Civil Code section 1946.1(a), (b), and (c).
Significant changes for recovering traditional triple-net expenses
SB 1103 adds a new section 1950.9 to the California Civil Code, and limits a landlord’s ability to charge and recover “building operating costs” from a qualified commercial tenant. However, Section 1950.9 only applies to: (a) leases executed or tenancies commenced or renewed on or after January 1, 2025; (b) a “short-term” tenancy (discussed above); (c) leases executed or tenancies commenced before January 1, 2025, that do not contain a provision regarding building operating costs.
New California Civil Code section 1950.9(h)(1) defines building operating costs as “costs that are incurred on behalf of a tenant for the operation, maintenance, or repair of the commercial real property, including, but not limited to, maintenance of common areas, utilities that are not separately metered, and taxes or assessments charged to the landlord pursuant to property ownership.”
- New record-keeping and notice requirements
SB 1103 also imposes a “supporting documentation” requirement for a landlord with a qualified commercial tenant. Supporting documentation means a dated and itemized quote, contract, receipt, or invoice from a provider that includes, but is not limited to both: (i) a tabulation showing how the building operating costs are allocated; and (ii) a signed and dated attestation by the landlord that the documentation and costs are true and correct. See California Civil Code section 1950.9(h)(6).
In order to recover a building operating cost from a qualified commercial tenant, not only must a landlord provide a qualified commercial tenant with supporting documentation, but a landlord must be able to demonstrate all of the following:
1. The building operating costs are allocated proportionately per tenant, by square footage, or another method as substantiated through supporting documentation;
2. The building operating costs were incurred within the last 18 months, or reasonably expected to be incurred within the next 12 months (based on reasonable estimates);
3. Before the lease is executed, the landlord provided notice that supporting documentation for the building operating costs (incurred or expect to be incurred) may be inspected within 30 days of a request from a qualified commercial tenant;
4. The building operating costs do not include expenses paid directly by the tenant to a third party (e.g., water, trash, or electricity); and,
5. The building operating costs do not include expenses for which a third party, tenant, or insurance company reimbursed the landlord.
- Changes to the building operating costs allocation method or formula
During the term of the lease, a landlord may not alter the method or formula to allocate the building operating costs which results in an increase to a qualified commercial tenant’s share of those costs without providing the qualified commercial tenant with written notice and supporting documentation. See California Civil Code section 1950.9(c).
- Qualified commercial tenant defenses and landlord liabilities
The waiver of any right granted to a qualified commercial tenant under Section 1950.9 is void as a matter of public policy. See California Civil Code section 1950.9(g). In an unlawful detainer, a qualified commercial tenant may raise a landlord’s violation of Section 1950.9 as an affirmative defense. See California Civil Code section 1950.9(d). A landlord violating Section 1950.9 may also be liable to the qualified commercial tenant in a separate civil action for actual damages and attorney fees and costs. A willful violation by a landlord exposes the landlord to treble and punitive damages. See California Civil Code section 1950.9(e).
New lease translation requirements
If you primarily negotiate leases in Spanish, Chinese, Tagalog, Vietnamese, or Korean, as of January 1, 2025, you must provide the qualified commercial tenant with a translation of the lease into the applicable language before the lease is executed. See California Civil Code section 1632(b).
The takeaway on SB 1103
The new notice and record-keeping requirements of SB 1103 are extensive, and unfortunately will increase the cost of doing business for landlords with qualified commercial tenants.
We are available to discuss these changes to California’s landlord-tenant laws, recommend best practices for leasing and property management personnel, and answer any questions you may have.
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