California has long been a trendsetter in tenant protection law. On September 30, 2024 Governor Gavin Newsom signed Senate Bill 1103 (SB 1103), known as the Commercial Tenant Protection Act (CTPA), extending that tradition into the commercial leasing space for the first time. Effective January 1, 2025, the law introduces a sweeping set of new obligations for commercial landlords whose tenants fall within a newly created category: the “Qualified Commercial Tenant” (QCT). For California landlords, property managers, and their legal counsel, understanding this law is no longer optional, noncompliance carries serious legal and financial consequences.
The Legislative Background: Why SB 1103 Was Enacted
Historically, California’s commercial leasing market operated largely under freedom of contract. Landlords and tenants were left to negotiate nearly all lease terms as they saw fit, with minimal statutory intervention. SB 1103 marks a fundamental departure from this tradition. Supporters of the bill pitched it as a “first-in-the-nation” commercial tenant protection designed to safeguard California’s smallest businesses and nonprofits from displacement and economic instability. The law’s supporters argued that microenterprises, small restaurants, and nonprofits, unlike large commercial tenants, lack the bargaining leverage to negotiate protective lease provisions on their own
Not everyone was enthusiastic. Before the bill was even signed, 36 industry and business groups co-signed a letter in July 2024 opposing SB 1103, warning that the Act could produce unintended consequences, including increased costs for tenants and reduced commercial space availability, potentially harming the very businesses it was designed to protect. Critics also noted that the law applies equally to large institutional landlords and small “mom-and-pop” property owners, with no carve-outs for landlords who are themselves small businesses.
Who Qualifies as a “Qualified Commercial Tenant”?
SB 1103 does not apply to all commercial tenants, only those who meet the statutory definition of a Qualified Commercial Tenant (QCT). Under the Act, a QCT is a commercial tenant that falls within one of three categories
- Microenterprises: Businesses with five or fewer full- or part-time employees, including the owner, that generally lack sufficient access to loans, equity, or other financial capital. This could encompass solo professionals such as therapists, chiropractors, and artists.
- Restaurants with fewer than 10 employees: The term “restaurant” is not defined in the statute, so landlords leasing to coffee shops, bakeries, and similar food-service businesses with under 10 employees should assume these tenants may qualify.
- Nonprofit organizations: Any Section 501(c)(3) nonprofit with fewer than 20 employees.
Importantly, a tenant does not automatically receive QCT protections simply by falling into one of these categories. The tenant must also provide the landlord with written notice of their QCT status and a self-attestation of their employee count, before or upon execution of the lease for longer-term tenancies, and within the prior 12 months for month-to-month or short-term tenancies, and annually thereafter. Protections only activate once this attestation is provided, which means landlords should proactively build these certifications into their lease intake process.
Five Core Compliance Requirements for Landlords
1. Advance Notice for Rent Increases
For periodic tenancies (month-to-month or less), landlords must provide advance written notice before any rent increase takes effect:
- 30 days’ notice if the rent increase is 10% or less of the amount charged at any point in the prior 12 months
- 90 days’ notice if the rent increase exceeds 10%
All such notices must reference California Civil Code Section 827(a), as amended by SB 1103. While there are no civil penalties attached specifically to a failure to send proper notice, there is ongoing legal debate as to whether the advance notice requirement may apply to all leases with QCTs, including long-term leases with pre-negotiated rent escalation clauses, not just short-term or periodic tenancies. This ambiguity makes legal consultation essential for any landlord with a rent escalation clause in a QCT lease.
2. Lease Termination and Automatic Renewal
If a landlord continues to accept rent from a QCT holding over after a lease expires, the tenancy is automatically renewed, for a period not exceeding the original lease term, unless one party provides timely written notice of termination. Landlords must provide:
- 60 days’ notice of non-renewal if the tenant has occupied the property for one year or more
- 30 days’ notice if the tenant has occupied the property for less than one year
Critically, any termination notice from the landlord must include the specific statutory language prescribed by Civil Code Section 1946.1(h). Generic notice templates that do not cite this provision will likely be defective.
3. Operating Expense Pass-Through Restrictions
This is one of the most operationally complex requirements under SB 1103, affecting the common structure of triple-net (NNN) and modified-gross leases. For leases with QCTs that are (1) entered into or renewed on or after January 1, 2025, (2) existing leases with no express operating cost pass-through provision, or (3) month-to-month or shorter-term leases, landlords may only pass through building operating costs if all of the following conditions are met:
- Proportional allocation: Operating costs must be allocated based on square footage or another method substantiated through supporting documentation
- Temporal limits: Costs must have been incurred within the past 18 months or reasonably expected within the next 12 months
- Pre-lease disclosure: Before lease signing, the landlord must notify the prospective QCT in writing that it has the right to inspect supporting documentation
- 30-day documentation response: Within 30 days of a written request, the landlord must produce reasonable supporting documentation of the costs
- No third-party reimbursed expenses: Costs separately paid by the tenant to a third party or reimbursed to the landlord are excluded
Landlords also cannot alter the method or formula used to allocate operating expenses in a way that increases the tenant’s share without providing written notice and supporting documentation explaining the change. All of these provisions are non-waivable, even if the tenant agrees in writing to waive them, the waiver is void and unenforceable.
4. Lease Translation Requirements
SB 1103 amends Civil Code Section 1632 to expand California’s existing foreign-language contract translation rules to commercial leases with QCTs. If a lease is negotiated primarily in Spanish, Chinese (Mandarin or Cantonese), Tagalog, Vietnamese, or Korean, the landlord must provide a complete written translation of the lease, in that language, before the lease is signed.
This requirement applies even if the tenant used their own interpreter during negotiations, a narrow exception that exists under residential lease law but was deliberately excluded from the commercial QCT context. Failure to comply gives the tenant a nonwaivable right to rescind the lease, with no time limit specified in the statute for when such a rescission can be exercised. Given that professional legal and technical document translation can cost thousands of dollars, this provision has significant economic implications for smaller landlords.
5. Security Deposit Cap
SB 1103 also limits security deposits for QCTs to no more than one month’s rent, preventing landlords from requiring the large upfront deposits that had previously been a common feature of commercial leases with small-business tenants.
Consequences of Noncompliance
The penalties for violating SB 1103 are designed to deter, not merely remediate. If a landlord is found to have violated the Act’s operating cost provisions, they may be liable for:
- Actual damages sustained by the QCT
- Reasonable attorneys’ fees and costs, even if the lease has no prevailing party fee provision
- Treble (triple) damages and punitive damages if the court finds the landlord acted willfully, or with oppression, fraud, or malice
Beyond damages, a landlord’s violation of SB 1103 can serve as an affirmative defense in an eviction proceeding. This means a landlord pursuing an otherwise valid unlawful detainer action could find the entire case undermined by a procedural SB 1103 violation, such as failing to provide proper documentation of operating costs or giving legally defective termination notice.[7][1]
SB 1103 represents more than a technical compliance update, it signals California’s willingness to intervene in commercial leasing relationships in ways that were once unthinkable. By introducing non-waivable protections grounded in state statute, the Legislature has removed a significant portion of what was once freely negotiable contract territory. Landlords and legal practitioners alike would be wise to monitor whether future legislation extends similar protections to a broader class of commercial tenants or regulates other aspects of commercial leasing, such as base rent.[^2]
For now, proactive compliance is the best protection. Landlords who understand the Act’s requirements, build them into their leasing workflows, and seek competent legal counsel will be well-positioned to avoid the steep penalties SB 1103 has put in place.