Limitations on Building Operating Costs
Landlords of commercial real estate face strict regulations regarding the recovery of building operating costs from qualified commercial tenants. They cannot impose fees for these costs unless they adhere to a series of specific conditions designed to protect tenants’ rights and ensure transparency. These conditions include the necessity for all operating costs to be proportionately allocated per tenant, based upon square footage or another method backed by thorough documentation provided to the tenant.
- Furthermore, landlords must ensure that building operating costs have been incurred within the past 18 months or can be reasonably expected to arise in the upcoming 12 months, demonstrating a clear relationship between costs and tenant occupancy.
- Prior to the execution of any lease agreement, landlords are obligated to inform prospective tenants through a paper or electronic notice that they have the right to inspect supporting documentation related to building operating costs upon submitting a written request.
- Once a written request is received, landlords have 30 days to furnish tenants with the necessary documentation related to previously incurred or anticipated building operating costs, fostering an environment of accountability.
- The definition of qualifying costs excludes expenses that tenants directly pay to third parties. It also excludes costs for which landlords receive reimbursement from third parties, tenants, or insurance, safeguarding tenants from hidden charges.
- In addition, landlords are prohibited from altering the method or formula used to calculate building operating costs in any manner that would increase a tenant’s share of these expenses unless they provide written notification of the change, accompanied by supporting documentation justifying the alteration.
Tenants may utilize violations of these regulations by landlords as a legal defense in situations involving unlawful detainers or recovery of possession due to non-payment of building operating costs. Should a landlord breach these obligations, they may be held liable to the qualified commercial tenant for actual damages, and potentially face additional consequences including attorneys’ fees and, in egregious cases involving willful misconduct or malice, damages up to three times the actual amount as well as punitive damages. It is essential to note that these protections are non-negotiable and cannot be waived.
Required Notices of Rental Increases for Month-to-Month Tenancies
Required Notices for Terminating a Month-to-Month Tenancy Without Fault
Landlords intending to terminate a month-to-month tenancy without cause must adhere to specific notice requirements. They must issue at least 30 days’ notice if the qualified commercial tenant has occupied the premises for less than one year. For tenants who have occupied the property for over a year, a minimum of 60 days’ notice is mandated before termination, ensuring tenants have ample time to make necessary adjustments to their business operations.
Translated Copy of Lease or Rental Agreement
It is also critical that any lease or rental agreement negotiated primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean comes with a translated copy provided to the tenant before execution. In the absence of a translated copy, tenants have the right to rescind the lease or rental agreement. These rights are fundamental and cannot be waived, reinforcing the importance of clear communication and understanding between landlords and tenants.
Commercial landlords in California planning to lease to qualified commercial tenants should proactively ensure their property management teams and staff are fully educated about and compliant with these new regulations coming into effect on January 1, 2025. Consulting with a real estate attorney is advisable to confirm that all lease forms meet the new compliance standards.
