Leases

Lease agreements

Are lease agreements in your state subject to any formal requirements?

Commercial rents and lease terms are not subject to government regulation, but are dictated solely by market forces.

Do state or local laws set out any mandatory or prohibited provisions in lease agreements?

California is a contract law state. Landlords typically limit tenants to the anticipated use for which the building was intended. Covenants, conditions and restrictions will outline acceptable and prohibited uses. Some may be imposed by jurisdictions. For example, there are municipal-specific laws about the types of businesses that can be near schools. Areas zoned for office or R&D (research and development) can only be used for those specific respective purposes. Some municipalities seeking to promote certain industries have further restrictions. For example, some areas in California are zoned and developed specifically for life sciences use.

What are the standard forms of lease agreement used in your state?

There are office, industrial and retail leases of commercial property. Office leases are the most highly complicated and thus highly negotiated leases. Industrial leases are less complicated, as the properties are used primarily for storage. Retail leases focus on terms and conditions to help maximize the retailer’s ability to sell product.

Additionally, there are ground leases, master leases and space leases. Ground leases, in which a tenant leases the ground and develops the property, are typically 55 to 99 years long. Master leases, in which a tenant leases the entire building and then finds subtenants, are rare. Space leases, in which a tenant leases a particular space, are the most common.

Length of term

Are there any state or local laws regulating the terms of leases? Are long-term tenants accorded any special rights as to extension or renewal of leases?

There are various restrictions regulating the length of the term of a particular lease depending on the property type, owner and tenant. The length of a lease is usually five to 10 years, and sometimes 15 years. However, a general rule of thumb is the length of the term of a particular lease cannot exceed 99 years. Extension or renewal rights should be negotiated within the lease regardless of the length of a particular lease.

Rent and security deposits

Are there any state or local laws regulating rent increases?

Unlike with certain residential leases, there are no state or local laws regulating rent increases in commercial leases.

Are there any state or local laws governing rent security deposits?

Section 1950.7 of the California Civil Code governs rent security deposits. Among other items, this regulation (i) establishes the time frame by which a landlord must refund a security deposit under a lease, and (ii) provides that a landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by a tenant or to clean the subject premises. However, section 1950.7 of the California Civil Code can be waived, and typically is in fact waived, in commercial leases.

Can the tenant withhold rent payments on any legal grounds?

The payment of rent is typically treated as an independent covenant under a commercial lease, and as such, tenants do not have a de facto legal right to withhold rent payments under a lease. However, a tenant can negotiate a right to withhold rent payments (including the right to make repairs that are the landlord’s responsibility under the lease and then deduct the cost of such repairs from the tenant’s rent obligations) in any commercial lease.

Sub-letting

Under what circumstances is sub-letting allowed?

The law favors the free transfer of property, so except as otherwise set forth in a lease, a tenant may sublet its premises as it pleases. However, commercial leases typically provide for various conditions and limitations on a tenant’s ability to sublet its premises, such as the requirement that such tenant obtain the landlord’s consent prior to any such subletting.

Obligations and liabilities

What are the general obligations and liabilities of the landlord in respect of the property and what are the consequences of breach?

Landlords are responsible for keeping the building in good working order, and fund and supply all amenities according to the lease, such as maintenance and repair of common areas (lobby, garden, parking garage), working elevators, etc. Landlords typically provide utilities, and then bill tenants directly, unless the entire building is occupied, and then the tenant contracts with the utility company. Water, sewer and garbage are paid by the landlord and subject to reimbursement via rent. The landlord insures the base, shell and core of the building.

 

A landlord can terminate a lease when there is material cause. Casualty and condemnation give either party the right to terminate the lease.

What are the general obligations and liabilities of the tenant in respect of the property and what are the consequences of breach?

Tenants must limit their use of the property to that defined in the lease and make rental payments on time. Tenants pay their own telecommunications costs and repair their own premises. Landlords are responsible for all other repairs. This can be subject to negotiation, for example, whether a particular roof repair is considered building maintenance or a tenant responsibility. Aside from pre-approved cosmetic alterations, a tenant is restricted contractually from making alterations to premises without the review and consent of landlord. Reasonable changes to interior finishes are often negotiated, providing they do not affect the base, shell or core of the building.

Insurance

Are the landlord and tenant bound by any insurance requirements?

The landlord insures the base, shell and core of the building. In additional to casualty insurance and liability insurance for common areas, landlords typically carry earthquake insurance, and some carry terrorism insurance. Some landlords, as part of the purchase of a property, buy environmental liability insurance. Tenants also carry their own personal property insurance. Failing to carry such insurance or make timely payments can result in termination of the tenant’s lease.

Termination and eviction

What rules and procedures govern termination of the lease by the landlord and the tenant’s eviction from the property?

Subject to notice and cure provisions and unlawful detainer procedures, a landlord can force a tenant to vacate if they are in breach of their lease. The county sheriff handles the actual eviction. An uncontested unlawful detainer can typically result in a court order for eviction in 60 days, while successful contested detainers can take six months.

Law stated date

Correct as of

Please state the date of which the law stated here is accurate.

December 20, 2019