The Commercial Tenant Protection Act (SB 1103): Extending Residential Protections to Commercial Leases?

Introduction

On January 1, 2025, SB 1103 took effect. SB 1103 introduces significant new protections for certain small commercial tenants, marking one of the first major legislative changes to commercial tenancy regulations in years.

While California has been focused on addressing the residential housing crisis through extensive tenant protections, SB 1103 extends similar considerations to select commercial tenants by imposing new notice requirements for lease term changes—including rent increases—and regulating how landlords can pass operating costs onto tenants.

Additionally, the bill mandates that written commercial leases be translated if negotiations are conducted primarily in another language.

However, these protections apply only to "qualifying commercial tenants," which include microenterprises, nonprofit organizations with fewer than 20 employees, and restaurants with fewer than 10 employees. To benefit from these protections, tenants must provide their landlords with notice of their qualifying status.

What Changes Does SB 1103 Bring to California?

SB 1103 introduces three key protections for qualifying commercial tenants, one of the most notable being a new translation requirement for written commercial leases. If lease terms are primarily negotiated in a language other than English, landlords must provide a translated copy of the lease to the tenant. (Civ. Code, § 1632(a)(8).) Both parties must have access to the translated version, and if the landlord fails to comply, the tenant may have the right to rescind the lease. While California law has long required translation for certain commercial transactions—such as loans and mortgage agreements—this marks the first time such a requirement applies to commercial leases.

SB 1103 also imposes new notice requirements for lease term changes, including rent increases and lease terminations, offering qualifying commercial tenants protections previously reserved for residential leases. Under the new law, landlords must provide at least 30 days' notice for rent increases of less than 10% and 90 days' notice for increases exceeding 10%. (Civ. Code, § 827(b).) Additionally, landlords must now give at least 60 days’ notice before terminating a lease at the end of its term—or 30 days if the tenant has occupied the premises for less than one year. (Civ. Code, § 1946.1.)

Before SB 1103, commercial leases operated strictly as business contracts, with no statutory notice requirements for rent increases or lease non-renewals beyond the terms of the lease itself. This bill marks a significant shift by introducing advance notice obligations, aligning commercial tenancy protections more closely with residential leasing laws.

SB 1103 also introduces new regulations on how landlords can pass building operating fees and costs onto qualifying commercial tenants. Under the newly added Civil Code section 1950.9, landlords must follow specific procedures before charging these fees, including providing documentation of the costs, the formula used to allocate expenses among tenants, and the timing of when costs were incurred. Additionally, if requested by the tenant, landlords must furnish records of previously incurred or reasonably expected operating costs.

This provision enhances transparency and ensures that qualifying commercial tenants are not unfairly burdened with unexpected or excessive charges. Notably, the statute also grants tenants a civil cause of action against landlords who fail to comply with these requirements, further strengthening tenant protections under SB 1103.

DM Law’s Perspective on the New Law

At first glance, the new procedural requirements—translation mandates and notice requirements for lease term changes—are not particularly onerous. These protections have long been standard in residential tenancies, and extending them to certain commercial tenants aligns with existing regulations governing commercial loans, mortgage agreements, and even legal fee agreements. From a practical standpoint, requiring lease translation when negotiations occur in a foreign language merely closes an existing gap, ensuring that commercial tenants have the same fundamental protections as other business parties in California.

The notice requirements for rent increases and lease non-renewals also seem reasonable, particularly given that commercial landlords remain free to raise rents without restriction—the bill only imposes minimum notice periods. Unlike residential tenancy laws in some jurisdictions, which have heavily restricted lease non-renewals, SB 1103 does not impose any new renewal obligations on landlords. Instead, it simply ensures that qualifying commercial tenants receive sufficient time to prepare for potential displacement.

However, the new requirements concerning building operating costs may present more of a challenge for landlords. The addition of Civil Code section 1950.9 introduces new documentation and disclosure obligations that could increase administrative burdens, especially if the statute is interpreted broadly. The lack of clarity regarding what constitutes “supporting documentation” and the requirement to notify tenants of changes to cost allocation formulas could introduce compliance risks and potential disputes. Landlords of qualifying commercial tenants will need to be proactive in structuring and documenting these costs to avoid legal pitfalls.

While it is too early to determine the full impact of SB 1103, the bill represents an important shift in commercial tenancy regulation—one that acknowledges the vulnerability of small businesses, nonprofits, and microenterprises. Ensuring that these tenants receive basic protections like lease translations and advance notice of rent increases is a logical step forward. The real test will be in the implementation of the building operating cost provisions, and whether the administrative burden on landlords outweighs the intended benefits for tenants.

Ultimately, SB 1103 reflects California’s evolving approach to tenant protections—extending beyond residential affordability to consider the viability of small businesses and local economies. Housing and commercial spaces are interconnected; thriving small businesses help create stable communities. Whether this law strikes the right balance between tenant protection and landlord feasibility remains to be seen, but it is a clear signal that commercial tenancy laws are no longer being left behind in California’s broader regulatory landscape.

Questions?

Do you have any questions about SB 1103 and how it may impact your commercial property? Contact us today—we’re here to help!