Commercial Tenancies 101: Five Things to Know

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

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Rental Agreements: Five Things to Know and Mistakes to Avoid

All landlords and tenants should have a written contract that controls their relationship called a “rental agreement,” “rental contract,” or a “landlord-tenant agreement”. This especially includes landlords who provide free rent to friends or family members or landlords who have unorthodox landlord-tenant relationships.

For landlords, having a well drafted, written agreement in place makes it easier and less expensive to evict a tenant in the event of a failure to pay rent or if the tenant refuses to leave. For tenants, a rental agreement can protect you from greedy or pushy landlords.

Here are the top five things to know about rental agreement provisions in California.

1) Anti-Marijuana Clauses

Many residential landlords in Santa Cruz and Monterey Counties fall victim to renters who convert homes into illegal marijuana grow operations. We are not talking about a recreational puff or two, but the indoor and outdoor production of marijuana as a cottage industry. This is very prevalent in the Santa Cruz mountain communities of Boulder Creek, Bonny Doon, and Ben Lomond. Marijuana grow operations were the alleged source of recent house fires in Felton and a house explosion in Aptos.

Santa Cruz landlords are encouraged to include language in their rental agreements that expressly forbid the cultivation of marijuana indoors or outdoors. Landlords may also include a no-smoking clause in their rental agreements or language that forbids renters from committing crimes on the property. The breach of any of these agreements could support evicting a tenant by a 3-Day Notice to Terminate Tenancy.

2. No-Subletting Provisions

Subletting occurs when a tenant rents the property to a new tenant who temporarily takes over the rental space. The original tenant then becomes a quasi-landlord. From a landlord’s perspective, subletting is generally a bad idea because the tenant, rather than the property owner, will usually be in charge of the critical tenant selection process. Tenants have different priorities than landlords and should not be in charge of selecting tenants. Subletting is very prevalent in Santa Cruz among UCSC students and in Monterey among CSUMB students.

A well drafted rental agreement should include a clear no-subletting provision.

3. Customize the Rental Agreement for Your Property

While many landlords have written agreements in place with their tenants, very few of them actually customize those agreements for their tenant and the specific property. Customizing your rental agreement is an easy way to communicate your expectations as a landlord from the get-go.

Do you have a prized fruit tree at the rental property that needs regular water? Include a provision in your rental agreement requiring your tenant to water it. Have high-maintenance neighbors next to your rental property? Be sure to include a clause about parking and other “good neighbor” provisions.

4. Stick to Your Rental Agreement and Keep it in Writing

Landlords and tenants should stick to their rental agreements and document any changes with a written “amendment” to the rental agreement. If a landlord deviates from a rental agreement, a tenant may argue that the landlord has “waived” their right to enforce that provision of the rental agreement.

As an example, take the case of Eric the landlord. Eric’s written landlord-tenant agreement has a clear no-pet policy, which Eric’s new tenant, Justin, reads and signs. After a three months, Justin asks Eric for permission to get a “medium sized” dog. Eric agrees to the request. Unbeknownst to Eric, Justin brings home a pit bull. Many months later, neighbors start to complain that Justin’s dog is barking constantly. When Justin’s dog doesn’t stop barking, Eric attempts to evict Justin and his dog. However, Justin may successfully defeat the tenant eviction and argue that Eric voluntarily gave up any objection to Justin’s dog when he verbally agreed to him getting a dog.

Important changes, such as allowing a pet, should always be in writing.

5. No Alternative Dispute Resolutions

California landlords have very limited options when forced to evict a tenant who does not pay rent or who commits other serious breaches of the rental contract. For this reason, it is important that your rental agreement not modify or further limit the few protections left available to you as a California landlord. This includes “alternative dispute resolution” clauses that require mediation or arbitration, rather than filing an eviction or “unlawful detainer”. Freebie rental agreements available online are often times not geared for California law and will only muddy the waters if you need to evict.

Do you have a written landlord-tenant agreement in place with your tenant?

Ready to stand up for your rights? Call Brian Mathias Law for a  consultation.

Five Common Mistakes for Landlords to Avoid

Each and every landlord-tenant issue will pose a unique challenge or novel issue. However, most landlords can avoid legal problems by learning from these top five most common landlord mistakes.

1. Preparing your own 3-day, 30-day, or 60-day notices

Landlords should never draft and serve their own pre-lawsuit notices. This can be a time consuming and costly mistake.

For background, a landlord is required to serve a pre-lawsuit notice on the tenant in the event of a failure to pay rent or other breach. These are commonly referred to as a “3 Day Notice to Pay Rent or Quit” or a “30-Day Notice to Quit”. The notice must meet highly technical requirements in order to survive an unlawful detainer or eviction.

The problem is that landlords often prepare these forms incorrectly. This results in the notice having to be re-served and the landlord having wait another three days, another 30 days, or even another60 days to enforce legal rights in court. Landlords should always have an attorney prepare a pre-lawsuit notice.

2. Not asking for a security deposit

Landlords should always require a security deposit of at least one-month’s rent, or even more. Legally, a landlord may require a security deposit of up to two-months’ rent for an unfurnished property and three-months’ rent for a furnished property.

Collecting a security deposit is often a landlord’s only opportunity to collect money from the tenant in the event of a failure to pay rent. As an illustration, in the event the tenant refuses to pay rent, a lawsuit called an “unlawful detainer” must be initiated. That process, if successful, can take 30 days or longer to complete. During that entire time the tenant is typically not paying any rent.

3. Not promptly objecting to late rent payments or other contract breaches

A common problem occurs when landlords fail to promptly object to late payments of rent or other breaches of the rental contract. This is problematic for landlords because the tenant may successfully argue that the landlord “consented” to the breach.

As an illustration, take the case of Jared who rents an apartment in Capitola and his landlady, Laurel.

Jared started off as a very good tenant from Laurel’s perspective and always paid his rent on the first of each month. Then Jared gradually starts paying the rent a few days late. He never pays a late fee. Secretly Laurel is highly annoyed with Jared for paying the rent late, but she never says anything to Jared about the problem. After 8 months of receiving the rent late, Laurel is fed up and wants to evict Jared for failing to pay rent on time and failing to pay a late fee.

Unfortunately for Laurel, and luckily for Jared, Jared may argue that Laurel consented to his practice of paying rent late and paying it without a late fee. He may argue that the long-standing practice of paying rent late modified the rental contract that called for rent on the first day of the month. Jared has a viable defense to an unlawful detainer.

Landlords should always promptly object to late payments of rent or other breaches of the landlord tenant agreement.

4. Allowing “tenant swapping” and “subletting”

It’s a bad idea for landlords to permit to “tenant swapping”. Tenant swapping occurs in multiple-occupant rentals when one tenant moves out, and the remaining tenants select a new tenant to take the old tenant’s place. Tenant swapping is prevalent in student-occupied housing at UCSC and CSUMB.

“Subletting” occurs when an existing tenant rents out the rental premises for a short period time. The original tenant then becomes a quasi-landlord. Subletting is common during the summer when college students leave Santa Cruz and Monterey at the end of the school year.

Tenant swapping and subletting are problematic for two reasons. First, much of the time tenant swapping and subletting results in the new tenant not signing a written landlord-tenant agreement with the landlord. Failing to have a written landlord-tenant agreement with each tenant creates complications with the security deposit and in the event of an eviction.

Second, tenancies that result from tenant swapping and subletting typically do not go through any basic screening and application process by the landlord. A basic screening process will disclose if the potential tenant has a history of evictions and not paying rent. Would you want a career squatter living in your property? Absolutely not!

5. Using free landlord-tenant agreements

Landlords also encounter problems by using free landlord-tenant agreements and leases from the internet. While some free landlord-tenant agreements may be fine, many are not tailored for California law. Free landlord-tenant agreements may also require the landlord to utilize an expensive arbitration or mediation process in the event of a failure to pay rent. Landlords should always use a landlord-tenant agreement from a trusted source that is based on California law.

Are you a residential landlord in Santa Cruz or Monterey County? Call the Law Office of Brian Mathias for a free consultation.

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Landlord-Tenant Law 101: Common Eviction Questions

The basic facts behind an eviction lawsuit are simple. A landlord and a tenant enter into an agreement. The landlord promises to provide a habitable property. In exchange, the tenant agrees to pay timely rent. But what happens if a tenant stops paying rent and refuses to leave?

The answer is that the landlord must file a lawsuit to evict the tenant, called an “Unlawful Detainer”.

Can landlords lock out tenants who are not paying rent?

Absolutely not. California has very clear laws that prohibit landlords from locking out their tenants if they fail to pay rent. Otherprohibited “self-help” remedies include shutting off utilities or other actions short of an actual lockout that essentially require the tenants to move.

The law is clear: if a landlord wants to evict a tenant, they must use the unlawful detainer process. The landlord needs to go to court and get a judgment ordering the tenants to leave.

How long does an unlawful detainer process take?

An unlawful detainer typically takes between 20 and 30 days to complete. The total amount of time depends on the case’s complexity and how quickly the court schedules a trial. To a landlord, this can be an excruciatingly long time because the tenant will have typically already been in default of rent a week or more before the legal process is initiated.

As an illustration, take the case of Linda the landlord and her tenant, Tim. Tim fails to pay Linda $2,000.00 in rent on the first of May (the due date). Linda repeatedly asks Tim when he will pay, but two weeks go by and Tim still doesn’t pay rent.

Linda must initiate an eviction by serving a legally compliant “3-Day Notice to Pay Rent or Quit”. Tim the tenant will have three days to pay rent, or move out of the property. If Tim fails to pay $2,000 or move out, Linda may file a lawsuit. Tim will have five days after being served with the lawsuit to respond or “answer.” The court is then required to set a trial in 20 days or less. A part-day trial will then take place. Assuming Linda wins the trial, the Court Clerk will issue a Writ of Possession. The Writ of Possession is then served on Tim who will have another five days to move out. At the end of the fifth day, the Sheriff will forcibly remove Tim from the property. Only then does Linda get the property back.

That’s 33-days total. Delays in service of process, court holidays, or other complications will extend the timeline even further.

How much does an eviction cost?

Evictions can cost several hundred to thousands of dollars. It completely depends on the complexity of the underlying facts of the case.

There are two components to the cost of an eviction. The first component of costs are fixed fees charged by the court system, process servers, and the Sheriff’s Office. Those fees will typically cost around $550, including $245 to file the underlying lawsuit.

The next component of costs is attorney-fees. The total attorney fees in any eviction are entirely dependent on the complexity of the case and how much work needs to be done.

Do I need an attorney to file an Unlawful Detainer?

Yes. Landlords are not legally required to have an attorney represent them in court or file legal documents. However, they should be discouraged from doing so. Unlawful detainers are highly technical and it’s often better in the long run to get advice through an attorney from the outset to avoid long delays.

For legal context, a judge will only evict a tenant if the landlord can demonstrate strict legal compliance with all procedural requirements. In other words, one slip up can result in the landlord having to re-start the entire process.

The laws and rules surrounding unlawful detainers are very technical. As an example, what if your tenant owed $2,000 in back rent, $150 in late fees, and $200 in utilities? Would you know to serve two separate notices, a 3-Day to Pay Rent or Quit and a 3-Day to Perform a Covenant or Quit? Would you know the difference between the notices? The rules can be complicated. It’s often better to talk to an attorney rather than face a delay.

Are you a Monterey, Salinas, or Santa Cruz County landlord with additionalquestions about an unlawful detainer? Contact the Law Office of Brian Mathias for a consultation.