Commercial Leases – California Lessors & Landlords Have An Advantage

Recent news has shown that the State of California has not been a wise landlord, leaving millions in uncollected rent. This articles outlines some of the advantages of the commercial landlord over the residential landlord in California.

Historically parties negotiating a commercial tenancy are more likely to have equal bargaining power than residential parties, where landlords are in a stronger bargaining position. As a result, California courts often apply different standards to commercial vs. residential leases. While residential leases have an implied warranty of habitability as a dependent covenant in residential leases, commercial leases have no such warranty.

Residential tenants are prohibited from waiving statutory deposit refund rights in Civil Code section 1950.7. There is no comparable prohibition against a commercial tenant’s waiver of security deposit refund rights.

Civil Code section 1953 provides residential tenants a “nonwaivable” bundle of rights which is not extended to commercial property tenants. Waiver restrictions concerning statutory notices apply only to residential rental agreements. A commercial lease may waive or modify the tenant’s right to statutory notice, providing for any substitute form of notice different from and superseding the notice provisions contained in CCP §§ 1161 and 1161.1. Commercial tenants may usually prefer a longer notice period for certain alleged defaults, a term which can be negotiated in commercial tenancies. In such event, the lease should clearly state that the specified notice is in lieu of, and not an alternative to, the statutory notice period.

Parties to a California commercial tenancy generally allocate maintenance and repair responsibilities in the lease; unlike the residential lease, these are typically made the tenant’s obligations.

In a residential tenancy, if the landlord accepts partial rent after serving a three day notice, the notice is invalid and cannot support an eviction. In contrast, a commercial property landlord’s acceptance of a partial rent payment after filing a UD complaint for nonpayment of rent does not waive the landlord’s right to possession, as long as, before accepting the partial rent payment, the landlord gave the tenant actual notice that the acceptance would not waive any of the landlord’s rights.

Commercial landlords may also rely on statutory authority to serve a three-day notice estimated rent demand: Pursuant to CCP § 1161.1, a three- day notice for nonpayment of rent on commercial property may state the amount due as an estimate … so long as the amount is “reasonably estimated” and “clearly identified” by the notice as an estimate.

Given the balance of rights commercial landlords have in California, state government is failing to enforce its leases and appears to be losing millions. A tenant of the state should receive no better consideration then any other commercial tenant, or that tenant is being subsidized by the taxpayers.