Leasing a commercial property in California has changed. As of January 1, 2025, a new law, the Commercial Tenant Protection Act (SB 1103), gives certain small business and nonprofit tenants new rights regarding rent increases, lease termination, and fee transparency. This shift comes as the market itself is in flux.
The national office vacancy rate hit a record 20.6% in a recent quarter, creating pressure on landlords, yet average lease rates are still rising in many areas. This environment presents both opportunities for negotiation and significant risks. The lease you sign is a binding contract that will dictate your rights and financial obligations for years.
If you have questions about a lease you are about to sign or a dispute with your current landlord, contact the business law attorneys at the Gross Law Group by calling (888) 858-1505.
Table of contents
- Key Takeaways for California Commercial Leases
- The Shifting Landscape: What Do High Vacancy Rates and New Laws Mean for You?
- Before You Sign: Deconstructing the Most Important Lease Clauses
- Beyond the Base Rent: What Are You Really Paying For in a Triple Net (NNN) Lease?
- What Are Your Rights if a Dispute Arises?
- Frequently Asked Questions About Commercial Leases in California
- Don't Sign Away Your Rights. Secure Your Business's Future.
Key Takeaways for California Commercial Leases
- New laws in 2025 offer protections for small businesses. The Commercial Tenant Protection Act (SB 1103) gives "qualified" tenants new rights regarding rent increases and fee transparency, which you must claim.
- Triple Net (NNN) leases shift most property expenses to you. It is crucial to negotiate limits on these costs, especially Common Area Maintenance (CAM) charges, to avoid unpredictable financial burdens.
- Every clause in a commercial lease is negotiable before you sign. Have an attorney review the "Use" clause, repair responsibilities, and subletting options to protect your business's future flexibility and financial health.
The Shifting Landscape: What Do High Vacancy Rates and New Laws Mean for You?
Historically, commercial leases were drafted almost entirely in the landlord's favor. Tenants had few protections beyond what they could negotiate into the contract. This created a significant power imbalance, where business owners typically had to accept terms that exposed them to unpredictable costs and limited flexibility.
Today's market is one of contradictions. While high vacancy rates might suggest tenants have more leverage, the reality is more complicated. Landlords are facing their own pressures, with commercial mortgage delinquencies on the rise. This may make them more willing to offer flexible terms on the one hand, but also more aggressive in enforcing fees to protect their bottom line on the other.
This is where new laws become your shield. In California, SB 1103 was specifically designed to protect "qualified commercial tenants," a category that includes many small businesses and nonprofits. These protections are not automatic; you must understand them properly to use them.
For example, the law establishes new, longer notice periods for significant rent increases, which gives you valuable time to plan or negotiate. Our practice at Gross Law Group focuses on handling commercial lease reviews and disputes, and we are dedicated to ensuring our clients understand and assert the full scope of their rights under these new regulations.
Before You Sign: Deconstructing the Most Important Lease Clauses
A commercial lease is not a standard form. Every clause is negotiable, and the details buried in the fine print have significant financial consequences. Before you commit, you must deconstruct the core components of the agreement.
The Core Components of Your Lease
- The Rent: Is it a Gross Lease, where the rent is all-inclusive? Or is it a Net Lease, where you pay for some operating expenses like taxes or insurance? Many landlords prefer a Triple Net (NNN) lease, which requires you to pay for nearly all property expenses. We will explore NNN leases in greater detail below.
- The Term and Renewal Options: This section defines the length of the lease. Does it have an option to renew? An option to renew is a right, not a guarantee, and the terms for that renewal must be clearly defined. We will work to secure renewal terms that are clearly defined and favorable to you.
- The "Use" Clause: This clause defines what business activities are permitted on the premises. If it is too narrow, it could prevent you from adapting your business model in the future. However, a clause that is too broad may inadvertently violate local zoning ordinances.
- Subletting and Assignment: What happens if you need to exit the lease early? The assignment clause dictates your ability to have another tenant take over your lease obligations. Landlords place heavy restrictions on this, but we will negotiate for more reasonable and flexible terms, and advise you on how arbitration clauses in the lease may affect your options if a dispute arises.
- Repairs and Maintenance (The "CAM" Clause): Who is responsible for fixing a broken HVAC system or a leaky roof? The Common Area Maintenance (CAM) clause outlines these responsibilities. These charges, which cover shared spaces, escalate quickly if they are not properly defined and capped.
A well-negotiated lease provides predictability. It caps your exposure to soaring CAM charges, gives you flexible options for the future, and ensures you aren't held responsible for pre-existing problems with the building. It transforms from a potential liability into a tool for growth.
Before you commit to a space, our team will review the proposed lease, identify problematic language, and advise on points of negotiation for the contract.
Beyond the Base Rent: What Are You Really Paying For in a Triple Net (NNN) Lease?
The Triple Net (NNN) lease is a common arrangement in commercial real estate. The "NNN" refers to the three "nets," or categories of property expenses, that you, the tenant, are typically responsible for paying in addition to your base rent:
- Property Taxes: Your proportional share of the building's property taxes.
- Property Insurance: Your share of the insurance the landlord carries on the property.
- Common Area Maintenance (CAM): The costs of maintaining shared spaces like parking lots, lobbies, landscaping, security, and building systems.
The primary area for conflict typically lies in the definition of these operating expenses. A landlord may try to include costs that are actually capital improvements, such as replacing an entire roof, instead of routine maintenance. This essentially makes you pay to upgrade their building, an expense that should fall on the property owner.
New Protections Under SB 1103
For qualified tenants in California, SB 1103 brings much-needed transparency to these charges. A landlord now only charges you for your proportional share of operating expenses and is prohibited from arbitrarily changing the method used to calculate these costs.
Most importantly, you now have the right to inspect the records. Upon written request, the landlord must provide "supporting documents" to justify the charges they are passing on to you. This gives you the ability to audit the fees you are being asked to pay.
While this law is a major step forward, the term "supporting documents" is still open to interpretation. Having a legal advisor who presses for full transparency is key to ensuring you are only paying for what you owe.
What Are Your Rights if a Dispute Arises?
Even with a carefully negotiated lease, disagreements and disputes happen. A landlord may fail to make necessary repairs, attempt to raise the rent beyond what seems reasonable, or even threaten eviction.
Problem: Your Landlord Hands You a Massive Rent Increase.
Solution: Check the Notice Period. For qualified commercial tenants, SB 1103 now mandates longer minimum notice periods for rent increases over a certain percentage. For instance, a landlord must provide 90 days' notice for a rent increase exceeding 10%. A landlord who fails to provide this proper notice may have their attempted increase invalidated.
Problem: The Landlord Demands You Sign a Lease in English, Even Though You Negotiated in Another Language.
Solution: The Translation Requirement. California Civil Code Section 1632 has long required that if a contract is primarily negotiated in Spanish, Chinese, Tagalog, Vietnamese, or Korean, a translated copy of the contract must be provided before it is signed. SB 1103 reinforces this for commercial leases. Failure to provide a translation gives the tenant the right to rescind, or cancel, the lease. If you need to settle the dispute, an attorney can help you assert this right effectively.
Problem: Your Landlord Is Threatening Eviction.
Solution: Understand the Process. A landlord is not permitted to simply change the locks. They must follow a strict legal process to evict a commercial tenant, which starts with a formal written notice. You have rights at every stage of the eviction process; assert them.
Frequently Asked Questions About Commercial Leases in California
Does SB 1103 apply to all businesses in California?
No, it only applies to "qualified" commercial tenants. This is a new legal category that includes a microenterprise with five or fewer employees, a restaurant with fewer than 10 employees, or a nonprofit with fewer than 20 employees. You may also need to provide your landlord with a written self-attestation that you meet these criteria to receive the protections.
What is a "personal guarantee," and should I sign one?
A personal guarantee is a clause that makes you, the business owner, personally responsible for the lease payments if the business is unable to pay. This means your personal assets, such as your home or savings, are at risk. While many landlords demand it, particularly for new businesses, it is a significant point of negotiation and should be approached with extreme caution.
Is it possible to run my business from home and avoid a commercial lease?
Sometimes, but this depends entirely on local zoning laws. Many residential areas have strict ordinances that limit the type and scale of commercial activity allowed. Before operating from home, you must verify that your business complies with all municipal codes to avoid fines or shutdown orders.
What happens if I make improvements to the leased space?
These are called "tenant improvements." Your lease should clearly state who pays for them and, just as importantly, who owns them at the end of the lease term. Without a clear agreement, any fixtures or improvements you install become the landlord's property when you leave, with no compensation to you.
Is a verbal agreement to lease a property binding?
Generally, no. A legal concept called the Statute of Frauds requires that leases for a period of more than one year must be in writing to be enforceable. Relying on a verbal promise for a multi-year commercial lease offers you no legal protection.
Don't Sign Away Your Rights. Secure Your Business's Future.
A commercial lease is one of the most significant and long-term contracts you will ever sign as a business owner. It is easy to feel pressured to sign quickly to secure a desirable location, but the terms within that document will either become a stable foundation for your business's growth or a financial burden that leads to its failure.
You are making a multi-year financial commitment that will define your overhead and your operational flexibility. Before you put pen to paper, ensure the terms are fair, that you understand all your obligations, and that your rights are fully protected. The Gross Law Group is here to review your lease, explain your obligations in plain language, and help you negotiate from a position of strength. Call us for a review of your situation at (888) 858-1505.