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For decades, commercial leasing in California has been governed by the assumption that commercial tenants generally possess sufficient sophistication to negotiate and protect their own interests. Senate Bill 1103, known as the Commercial Tenant Protection Act (“CTPA”), alters that framework for certain smaller commercial tenants. Effective January 1, 2025, the law extends several protections traditionally associated with residential tenancies to qualifying commercial tenants. The statute imposes new requirements relating to rent increase notices, lease translations, common area maintenance (“CAM”) charges, and termination notices. Landlords leasing space to small businesses, restaurants, and nonprofit organizations should understand when these requirements apply and consider whether updates to existing leasing practices are warranted. Who Is a “Qualified Commercial Tenant”? The CTPA applies only to a “qualified commercial tenant” (“QCT”), not to all commercial tenants. A tenant qualifies if it is: 1. A microenterprise, generally defined as a business with five or fewer employees and limited access to capital; 2. A restaurant with fewer than 10 employees; or 3. A nonprofit organization with fewer than 20 employees. Publicly traded companies and their subsidiaries are excluded from the statute’s protections. However, franchisees may still qualify if they independently satisfy the applicable employee and eligibility requirements. Importantly, a landlord’s obligations under SB 1103 are triggered only after the tenant provides written notice affirming its status as a qualified commercial tenant. That notice must have been provided within the preceding 12 months. Until the landlord receives the required attestation, the statute’s protections generally do not apply. The law applies to commercial leases executed, renewed, or amended on or after January 1, 2025. CAM Charges: New Transparency and Substantiation Requirements One of the most significant operational changes under the CTPA involves CAM charges and other operating expense pass-throughs. Before charging a QCT for CAM expenses or similar costs, landlords must ensure that: 1. The costs are allocated proportionately among tenants through square footage or another reasonable and documented methodology; 2. Supporting documentation regarding the allocation method is provided before lease execution and, upon written request, within 30 days; and 3. The charges either were incurred during the prior 18 months or are reasonably expected to be incurred during the next 12 months, with documentation supporting the amounts charged. These requirements may create practical challenges for landlords, particularly in shopping centers or mixed-use properties where CAM allocations involve anchor tenants, negotiated exclusions, or other unique arrangements. The substantiation requirement may also limit the flexibility landlords have historically exercised in estimating or “grossing up” operating expenses. As a result, some landlords are reevaluating the use of gross or modified gross lease structures, including forms commonly used in AIR leases, to minimize the administrative burden associated with CAM compliance. Longer Notice for Rent Increases and Terminations SB 1103 also expands notice requirements for certain qualified commercial tenants. For month-to-month tenancies and other periodic tenancies, Civil Code section 827(a) requires: 1. At least 30 days’ written notice for a rent increase of 10 percent or less; and 2. At least 90 days’ written notice for a rent increase exceeding 10 percent. The statute also incorporates Civil Code section 1946.1(a) for qualified commercial tenants. If a tenant has occupied the premises for more than 12 months, a landlord generally must provide at least 60 days’ written notice before terminating the tenancy. Landlords who routinely rely on standard commercial notice provisions should review their forms and procedures to confirm they remain compliant when dealing with QCTs. Enforcement: Why Compliance Matters Compliance with the CTPA is important because many of its protections cannot be waived by agreement. A landlord that violates the statute may face liability for damages and attorneys’ fees. In cases involving willful or oppressive conduct, punitive damages may also be available. In addition, a tenant may raise a statutory violation as a defense in an unlawful detainer action, potentially complicating or delaying efforts to recover possession of the property. Given these risks, landlords should review both their lease documentation and day-to-day leasing procedures. What Landlords Should Do Now Landlords should consider taking the following steps before entering into new leases or renewals with smaller commercial tenants: 1. Review existing tenant rosters to identify tenants who may qualify for CTPA protections. 2. Evaluate current lease forms and update provisions relating to CAM charges, notices, and lease translations where necessary. 3. Establish procedures for receiving and tracking tenant qualification notices. 4. Consider whether gross or modified gross lease structures may be appropriate for certain tenants in order to reduce CAM-related compliance issues while maintaining the intended economic terms of the lease. The Commercial Tenant Protection Act represents a notable shift in California commercial leasing law. Although the statute applies only to a limited category of tenants, its requirements can affect lease administration, expense recoveries, and enforcement rights. Landlords should take a proactive approach to identifying qualified commercial tenants and updating leasing practices to address the law’s requirements.  At Reicker Pfau, we assist commercial landlords with lease reviews, compliance strategies, property operations, and dispute resolution matters. If you have questions regarding SB 1103 or its application to your properties, please contact our office.

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