CA: Lawmakers Enact New Restrictions on Commercial Leases and Retail Supplier Warehouse Locations

California’s state legislature has ended another landmark session with Governor Gavin Newsom (D) signing dozens of bills impacting commercial properties and owners.

Lawmakers in Sacramento enacted more than 45 bills this year on issues ranging from curbing organized retail crime (ORC) to incentives for revitalizing downtown properties to mandates for EV charging stations. Two newly enacted laws will have a major impact on the retail industry in the state, specifically affecting the structure of commercial leases for business tenants and where retailers locate their warehouse supply centers:

New Requirements for Commercial Landlords - SB 1103

For commercial landlords, Senate Bill 1103 contains several changes to how commercial leases are structured and establishes new rights for tenants in the contracting process. The main provision of the bill requires commercial landlords to give the same amount of notice as residential landlords regarding rent increases. Currently, residential landlords must provide tenants with 30 days’ notice of a 10% increase in rent and 90 days’ notice for any amount greater than 10%.

In addition, SB 1103 requires leases to be translated into the tenants’ preferred language. Many small businesses in California are owned by non-English speakers so this provision would seek to provide those owners with the ability to better understand what terms are included in their lease agreements.

The bill also places limits on the amount of building expenses a commercial landlord can recoup during the course of a tenant’s lease. As enacted, SB 1103 would prevent property owners from recovering the costs from any unforeseen expenses throughout the term of the lease, such as electrical failures, HVAC breakdowns, capital improvements and tax and insurance premium increases.

Supporters claim that SB 1103 is intended to give small businesses and restaurants more time and flexibility in negotiating their leases with property owners. Opponents, meanwhile, maintain the bill raises the cost of doing business in the state and puts landlords in an untenable position if tenants are allowed to rescind leases for minor errors in translating lease agreements. 

Restrictions on Warehouse Locations- AB 98

Newsom also signed legislation (Assembly Bill 98) this month that restricts where supply chain warehouses can be located. The bill preempts local regulations by setting statewide standards regarding the design and building standards for any new or expanding warehouse. Some restrictions include the orientation of truck loading docks and prescriptive distances of warehouses from schools, homes and hospitals. The bill also includes several requirements for monitoring air pollution from trucks and limits truck traffic to commercial roads.

The California Business Properties Association (CBPA), along with other state groups, sent a letter to lawmakers expressing concerns over the impact AB 98 will have on commercial tenants as well as local economies.

“Rather than offering practical solutions, AB 98 imposes statewide mandates that undermine local control, stifle economic growth, negatively impact the supply chain, and will push more warehouses further away from ports and population centers, increasing greenhouse gas emissions and costs to consumers,” CBPA President and CEO Matthew Hargrove stated.