Commercial Landlords – Pay Attention:
Commercial Landlords – Pay Attention:
Effective January 1, 2025, landlords leasing commercial space to certain “qualifying commercial tenants” (“QCTs”) QCTs include office, industrial, retail and restaurants that are (1) microenterprises with five or fewer employees (full or part-time, including the owner) and generally lack access to financial capital; (2) restaurants with fewer than 10 employees; and/or (3) certain nonprofit organizations with fewer than 20 employees.
QCT Tenant Protections
To qualify for the new protections, the tenant must send a written notice (“QCT Notice”) to the landlord stating it is a QCT, and the notice must self-attest to the number of employees the tenant has, which triggers a twelve-month period following receipt of the QCT Notice for QCT protections. Tenants can trigger successive new twelve-month periods by delivering a new QCT Notice to the landlord each year.
Limitations on CAMs for Qualified Tenants
QCT limitations apply only to (1) leases executed or tenancies that commence or renew on or after January 1, 2025; (2) week to week, month to month, or other periodic tenancies of less than a month; or (3) leases executed or tenancies commencing before January 1, 2025, that do not address Common Area Maintenance Expenses (“CAMS”). “CAMs” generally mean costs that are incurred on behalf of a tenant for the operation, maintenance, or repair of the real property, including, but not limited to, maintenance of common areas, utilities that are not separately metered, and taxes or assessments charged to the landlord pursuant to property ownership. The QCT protections limit how the landlord allocates CAMs to the QCT tenant that gave the QCT Notice.
To charge a QCT CAMs, the landlord must:
1. Allocate CAMs proportionately per tenant by square footage or another method substantiated through the landlord’s supporting documents provided to the tenant.
2. Limit CAMs to those incurred within the previous 18 months or be reasonably expected to be incurred within the next 12 months based on reasonable estimates.
3. Give the prospective QCT before lease execution a notice stating that the QCT may inspect supporting documentation regarding CAMs upon written request.
4. Provide within 30 days of a written request the QCT with supporting documentation of the CAMs and how they were allocated and CAMs may not include expenses that a tenant paid directly to a third party or expenses where the landlord is reimbursed by a third party, tenant or insurance.
5. Not alter the method or formula to allocate CAMS during the course of a tenancy that increases a QCT’s share of CAMs, unless first notifying the QCT in writing of the change, along with supporting documentation of the basis for the alteration, which generally means a dated and itemized quote, contract, receipt, or invoice from a licensed contractor or a provider of services that includes: (1) a tabulation showing how the costs are allocated among all the tenants; and (2) the landlord’s signed and dated attestation that the documentation and costs are true and correct.
New Notice Requirements for Rent Increases and Terminations
For rent increases that are not already expressly delineated in the lease, a landlord must provide a QCT with at least 30 days’ written notice for rental increases under 10% and 90 days’ written notice for rental increases of over 10%. The rent increase notice must also include QCT rights information.
For any month-to-month tenancies that last longer than a year, the landlord must provide the QCT with 60 days’ notice of termination, however, the QCT still has the right to terminate the month-to-month tenancy on 30 days’ prior notice. This results in a mis-match in the notice period requirements.
Translation Requirements for Non-English Leases and Negotiations
For any new or renewed leases with a QCT from January 1, 2025, where the lease is negotiated (orally or in writing) in Spanish, Tagalog, Chinese, Vietnamese or Korean, landlord must translate the entire lease into that language and provide it to the QCT at the time the lease is executed.
These QCT changes require landlords to reassess leasing practices and documentation. Noncompliance gives QCT tenants defenses to eviction, rescission, punitive and/or treble damages and the potential for a criminal enforcement action. For additional information regarding commercial leases, enforcement and liability avoidance, contact dawn@eppscoulson.com.
Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney. It is likely considered advertising. Epps & Coulson, LLP encourages you to call to discuss these matters as they apply to you or your business. Epps & Coulson, LLP has staff licensed in France and affiliated Counsel offices in New York and Connecticut with lawyers also admitted in Connecticut, District of Columbia Massachusetts (pending), New Jersey, Hawaii, European Union, England and Wales, France (Paris Bar) and Sweden.
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