California's tenant protections historically stopped at the residential threshold. That changed on January 1, 2025, when Senate Bill 1103, the Commercial Tenant Protection Act, took effect and extended new rights to qualifying small business tenants statewide. More than a year in, many San Diego leases are now hitting the law's recurring deadlines, the annual qualification notice and the renewal and rent-increase timelines, for the first time. If your business leases its space, understanding whether you qualify, and what protections apply, could save you significant money and legal exposure.
Who Qualifies as a “Qualified Commercial Tenant”?
SB 1103 does not protect every commercial tenant. It creates a protected class, the “qualified commercial tenant” (QCT), which includes microenterprises (five or fewer employees), restaurants (fewer than 10 employees), and nonprofits (fewer than 20 employees). To invoke these protections, a tenant must affirmatively notify the landlord in writing that it qualifies, with a self-attestation as to employee count, before or upon lease execution and annually thereafter. Skip that step and you cannot raise the law as a defense. This is one of the most overlooked procedural requirements in the statute.
Operating Expense Transparency
Before SB 1103, landlords could pass through operating expenses (OPEX) with broad discretion and little documentation. Now a landlord cannot charge OPEX to a QCT unless costs are allocated proportionately among tenants, costs were incurred within the previous 18 months or are reasonably expected within the next 12 months, and, within 30 days of written request, the landlord furnishes itemized supporting documentation along with a signed, dated attestation that the costs are true and correct. A landlord cannot alter the allocation formula mid-term to increase the QCT's share without advance written notice, and tenants have an automatic right to audit OPEX records.
Rent Increase and Termination Notice
For month-to-month or short-term leases with a QCT, rent increases of 10% or less require at least 30 days' written notice, and increases above 10% require 90 days' notice. Non-renewal of a periodic lease requires 60 days' notice, or 30 days if the tenant has occupied the premises less than a year. Notices must reference Civil Code Section 827 as amended. A landlord who shortens or skips these notices cannot enforce the resulting change against a QCT.
The Holdover Renewal Trap
A periodic lease with a QCT automatically renews unless a party gives proper written notice of intent to terminate. For a landlord wanting to reposition the property or negotiate a new rate, missing that notice can lock in an extended term at the old economics.
What to Do Now
Tenants should send written notice asserting QCT status before signing and again each year, and keep proof of delivery. Landlords should update lease templates, OPEX billing, and notice-deadline calendars. Both parties should have counsel review current leases, because SB 1103 reaches month-to-month and holdover situations. Getting ahead of these requirements now beats litigating them later.
Bayside Counsel advises San Diego landlords and small business tenants on commercial leasing. Contact us to review your lease before it renews.