California law treats commercial tenancies very differently from residential tenancies. Here are five important differences that should be taken into account by commercial landlords and also by any business owner who rents their commercial space.
1. The Rental Contract Often Controls, Not Public Policy
The California Legislature enacts new protections for residential tenants every single year. These protections must be followed by all residential landlords, despite whatever contract or Landlord-Tenant Agreement exists between the parties. In other words, the public policy will control even if a written landlord-tenant agreement conflicts with California public policy.
However, far fewer public policies apply to commercial tenancies. For example, while California law mandates that all residential landlords must provide provide a rental home with the basic necessities like plumbing, locking doors, and electricity, no such requirement exists for commercial landlords and tenants. Commercial landlords and commercial tenants are free to agree by contract on far more aspects of their business relationship.
As a result of this difference, it is very important for commercial landlords and commercial tenants to have a comprehensive written, commercial tenancy agreement that covers all the frequent areas of disagreement and tension between landlords and tenants.
2. No 60-Day Notice Required
In residential tenancies, a month-to-month tenant who has lived at a rental property for one year or longer must be provided with at least 60 days written notice before their tenancy is terminated. However, no such protection exists for commercial tenants. Month-to-month commercial tenants (meaning a tenant who does not have a fixed term lease) must only be provided with 30-Days Notice, regardless of how long they have rented.
As a consequence, even long-established businesses that have rented at a particular spot for decades can be asked to leave in just 30-Days. This result is devastating for retail businesses who have a customer base familiar with a particular store location and who may have to relocate hundreds of thousands of dollars in inventory within just a few weeks. Read about this real life eviction of multiple Watsonville businesses who were threatened with eviction in just 30-Days.
3. No “Exact Amount of Rent” Rule
Unlike residential landlords who must precisely state the exact amount of unpaid rent in a 3-Day Notice to Pay Rent or Quit, commercial landlords may reasonably estimate the amount of unpaid rent when issuing a pre-eviction notice. Commercial landlords may overestimate the unpaid rent by 20% and still prevail at an eviction lawsuit (called an “unlawful detainer”).
4. Partial Rent Payments Are Allowed
In a residential tenancy, a landlord will often lose their legal standing to evict a tenant if they accept a partial payment of delinquent rent. This unfortunate result typically means that a landlord receives no rent from a tenant during an eviction (which may be a 35 day process).
However there is no rule for commercial tenancies. Landlords may accept partial payments in rent after service of a 3-Day Notice and even after filing a lawsuit without waiving their right to evict the tenant. (See California Code of Civil Procedure Section 1161.1, subd. (b)(c)).
To illustrate this rule, take the following example. Mike the residential tenant leases a house in Aptos from his landlord, Jared. When Mike fails to pay Jared his $2,000 rent on the first of the month, Jared serves Mike with a 3-Day Notice to Pay Rent or Quit. Within the three days, Mike offers Jared a partial payment of $1,950.00, $50.00 short of the amount due. Jared would lose his right to evict Mike if he accepts the partial payment. If he accepts the partial payment, he would have to re-issue a new 3-Day Notice and start the process all over again. However, this would not be the case if Mike was a commercial tenant. Jared could accept the partial payment and still evict Mike for failing to pay the full $2,000 rent.
5. No Security Deposit Limits
Residential landlords in California are legally limited in how much they may charge as a security deposit. Landlords may demand a security deposit of up to twice the monthly rent for for an unfurnished property (for example, $4,000 if rent is $2,000) and up to three-times the monthly rent for a furnished property ($6,000 if rent is $2,000). However, no such agreement applies in the commercial context. Landlords and Tenants are free to agree by contract to whatever amount they want.
Are you a Santa Cruz County commercial landlord or commercial tenant? Call the Law Office of Brian Mathias for a free consultation. 831.531.7141
Read to stand up for your rights?