New Laws Reshape California Commercial Leases and Warehouse Locations

The California state legislature wrapped up a significant session with Governor Gavin Newsom (D) signing several bills that will affect commercial property owners and tenants. Among the more than 45 bills passed this year, key measures focus on addressing organized retail crime (ORC), revitalizing downtown areas, and encouraging the installation of EV charging stations. Two newly enacted laws specifically target the retail sector, affecting how commercial leases are handled and where retailers can establish warehouse supply centers.

New Rules for Commercial Landlords – SB 1103

Senate Bill 1103 introduces several changes to commercial lease agreements, providing new rights for tenants. A central provision of the bill requires commercial landlords to give tenants the same notice period as residential landlords for rent increases. Currently, residential landlords must provide 30 days’ notice for rent hikes of 10% or less and 90 days for increases exceeding 10%.

Additionally, SB 1103 mandates that leases be provided in the tenant’s preferred language. This provision aims to assist non-English-speaking small business owners in understanding the terms of their lease agreements more clearly.

The bill also limits the ability of landlords to recover certain costs from tenants during the lease period. SB 1103 prevents landlords from passing on the costs of unexpected expenses, such as electrical outages, HVAC repairs, capital improvements, and tax or insurance premium hikes.

Proponents argue that SB 1103 offers small businesses and restaurants more flexibility and time in negotiating lease terms. However, critics believe the bill will increase business costs and place landlords at a disadvantage, especially when minor translation errors in lease agreements could allow tenants to cancel contracts.

New Warehouse Location Restrictions – AB 98

Governor Newsom also signed Assembly Bill 98, which restricts where retailers can establish supply chain warehouses. The bill overrides local zoning laws by setting statewide requirements for the design and placement of new or expanding warehouses. Key restrictions include the orientation of truck loading docks and minimum distances between warehouses and sensitive areas like schools, homes, and hospitals. AB 98 also mandates air pollution monitoring and limits truck traffic to designated commercial roads.

The California Business Properties Association (CBPA) and other industry groups have voiced concerns about the potential negative effects of AB 98. In a letter to lawmakers, CBPA President and CEO Matthew Hargrove warned that the bill could hinder economic growth, disrupt local supply chains, and push warehouses further from ports and population centers, increasing emissions and consumer costs.

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