SB 1103: Critical New Rules for Property Owners and Tenants in 2025

Starting January 1, 2025, California property owners will need to adapt to SB 1103, a new law introducing comprehensive protections for Qualified Commercial Tenants (QCTs). As a property owner, understanding these regulations is essential for maintaining compliance and fostering strong tenant relationships. GM Properties is here to guide you through these updates and ensure your properties meet the latest legal requirements.

OVERVIEW OF SB 1103

SB 1103 is designed to support smaller commercial tenants by enforcing new standards for lease translations, building operating cost allocations, rent increase notices, and termination procedures. This legislation marks a significant shift in landlord-tenant practices, mirroring certain aspects of residential rent control.

Who Qualifies as a Qualified Commercial Tenant (QCT)?

A QCT must meet one of the following criteria: 

• Microenterprises: Small businesses with five or fewer employees, including the owner, and limited access to conventional business loans.
• Restaurants: Establishments with fewer than 10 employees.
• Non-profit organizations: Entities with fewer than 20 employees.

QCTs must provide a written self-attestation of their status to landlords annually, unless the lease term is less than one month. Without this attestation, the law’s provisions do not apply.

KEY PROVISIONS OF SB 1103

1. Translation Requirements

If any part of lease negotiations occurs in Spanish, Chinese, Tagalog, Vietnamese, or Korean, landlords must provide a full translation of all contractual documentation into that language. This requirement applies to any new or renewed lease executed after January 1, 2025. Mistakes or non-compliance with translation requirements can allow the QCT to rescind the lease at any time, though the English version remains legally binding.

• Notice Requirement: A clear notice in the relevant language must be displayed during lease negotiations, indicating that a translated lease will be provided.

2. Building Operating Cost Fees

Landlords may only charge QCTs for building operating costs if:

• Costs are allocated proportionately based on rational metrics (e.g., size of the leased space).
• Detailed cost documentation is available and must be shared upon the QCT’s request.

Types of Building Operating Costs: Building operating costs refer to expenses incurred in the operation, maintenance, and repair of the property. These can include, but are not limited to:

• Common area maintenance (CAM): Costs for maintaining shared spaces, such as lobbies, hallways, and parking lots.
  • Utilities: Charges for electricity, water, heating, and cooling that are not individually metered.
• Property taxes and assessments: Fees related to property ownership.
  • Janitorial services: Cleaning and upkeep of shared facilities.
• Repairs and maintenance: Routine and emergency repairs to common areas or building infrastructure.
• Security services: Costs for building security, including personnel or equipment.
• Subtenancies: The rules regarding building operating cost fees apply to subtenancies.
• Third-Party Property Management: If a landlord retains a third-party property management company, the portion of their fees associated with collecting CAMs is likely considered a fee under the statute and subject to the requirements. However, fees for purely providing security, janitorial, or other non-CAM collection services are generally not considered under the statute.

Supporting documentation should include itemized invoices and an attestation from the landlord affirming the accuracy of the costs. Any changes in cost allocation must be communicated in writing, and non-compliance can be used as a defense in eviction cases.

3. Rent Increase Notice Requirements

These rules apply solely to month-to-month tenancies:

• 30 days’ notice for increases up to 10%.
• 90 days’ notice for increases over 10%.

Rent increases are only effective after the notice period expires, and notices must reference California Civil Code §827 regarding rent increases.

4. Termination Notice Requirements

For month-to-month tenancies:

• 60 days’ notice is required to terminate.
• For QCTs with tenancies of less than one year, 30 days’ notice is sufficient.

QCTs can terminate with 30 days’ notice, and any lease clauses waiving these rights are void.

IMPLICATIONS FOR PROPERTY OWNERS

Property owners should carefully review and update lease agreements, operating cost disclosures, and compliance processes to align with SB 1103’s requirements. While these changes may initially seem challenging, proactive adjustments can protect owners from potential legal disputes and foster transparency with smaller tenants.

NEXT STEPS

Understanding and implementing these changes is crucial to staying compliant in California’s evolving commercial real estate landscape. GM Properties offers unparalleled expertise in property management and brokerage services, ensuring that your properties remain compliant and competitive. Contact GM Properties today to learn how our team can assist you in navigating SB 1103 and other regulatory requirements.