Is There a Rent Increase Limit on a Business Property in California?

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In California, businesses protect themselves through shrewd lease negotiation, not rent control.
In California, businesses protect themselves through shrewd lease negotiation, not rent control. (Image: George Doyle/Stockbyte/Getty Images)

Residential rent control is extensive in California: over two dozen cities have enacted local ordinances limiting rent raises and restricting evictions. Similar protections in the Golden State are not extended to commercial tenants. In fact, state law prohibits California cities from enacting local commercial rent control.

Legal Prohibition

Chapter 2.6, Section 1954.27 of the California Civil Code flatly prohibits any public entity in the state from enacting or enforcing commercial rent control. This section took effect January 1, 1988. It not only prohibited enactment of new commercial rent control ordinances but also prohibited enforcement of any ordinances that may have been enacted prior to this date. The law makes no changes to the authority of local governments to regulate commercial property through zoning, taxing and other legislative means, all of which may affect rents. The law also does not prohibit local governments from adopting regulations requiring minimum standards for notice to commercial tenants, such as for tenancy termination at the end of a lease.

Purpose

The purpose behind the commercial rent control prohibition, according to Section 1954.25 of the legislation, was, broadly, to protect the economy. The legislature wrote that commercial price controls "discourage expansion of commercial development and entrepreneurial enterprise." The legislature found the issue of commercial rent control was one of statewide concern because it could affect overall economic conditions in the state.

The Lease

Unlike a residential lease in California, a commercial lease commonly extends beyond one year. It is not uncommon to see 10-year commercial leases. This is because the commercial lease is the principal means by which a tenant controls rent. A lease may also include rules and a methodology that applies to determining rent for subsequent leases. Because there are no commercial rent controls in California, it is vital for the commercial tenant to fully understand the terms of the lease and to negotiate terms that will allow the business to survive a lease expiration.

Different Residential Laws

Residential landlord tenant regulations in California are very different from business regulations. California residential tenant landlord law carries many rights that favor and protect a tenant: those mandating standards of habitability, allowing a statutory right to deduct repair costs, requiring longer notice periods for rent increases beyond 10 percent, limiting security deposits and prohibiting excessive late fees. None of these rules apply to commercial tenancies in California.

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