A California commercial lease agreement is the written contract that governs rent, use, maintenance, and liability for space leased for business purposes in the state, and California layers several disclosure and procedural rules on top of standard contract terms that you won’t find in most other states. Whether you’re a landlord preparing to lease out a storefront, office, or warehouse, or a tenant about to sign a multi-year commitment, the terms you negotiate now will shape your costs and your exit options for years. The sections below walk through what the lease has to contain, what the law fills in by default, and where the biggest financial exposures sit.
When the Lease Has To Be in Writing
California’s statute of frauds requires any lease for a term longer than one year to be in writing and signed by the party being held to it.1California Legislative Information. California Civil Code 1624 An oral agreement for a five-year office lease is unenforceable. Because most commercial leases run three to ten years, virtually every commercial lease in California has to be a signed written document. If someone signs on behalf of a landlord or tenant as an agent, that agent’s written authority must also exist on paper.
Month-to-month commercial tenancies can technically be oral, but even those should be documented. Without a writing, arguments over the rent amount, permitted use, and who pays for utilities or repairs tend to be unwinnable for both sides.
Required Disclosures
California requires specific disclosures in every commercial lease. Skipping them can give the tenant grounds to walk away from the deal.
Certified Access Specialist (CASp) Inspection
Every commercial lease executed in California must state whether the property has been inspected by a Certified Access Specialist. If an inspection has been completed, the landlord must give the tenant the CASp report at least 48 hours before signing. Deliver it later than that, and the tenant can cancel the lease within 72 hours after signing.2California Legislative Information. California Code CIV 1938
If no CASp inspection has been performed, the lease must include a specific statutory notice telling the tenant they can request one, that the landlord cannot block the inspection, and that the parties need to agree on who pays for the inspection and any resulting repairs.2California Legislative Information. California Code CIV 1938 Repairs needed to fix accessibility violations identified in a CASp report are presumed to be the landlord’s responsibility unless the lease shifts them.
Proposition 65 Warnings
California’s Proposition 65 requires businesses to warn people before exposing them to chemicals known to cause cancer or reproductive harm.3Office of Environmental Health Hazard Assessment. Proposition 65 Warnings Website A landlord who knows listed chemicals are present on the premises, whether from building materials, nearby industrial operations, or sources like enclosed parking structures, has to provide appropriate warnings. These typically appear as posted signs, lease addenda, or separate written notices. For a tenant, a Prop 65 disclosure can signal cleanup obligations or ongoing exposure risks that affect how the space can be used.
Energy Benchmarking
Buildings with more than 50,000 square feet of gross floor area must report energy consumption to the California Energy Commission under the Building Energy Benchmarking Program, and the data becomes publicly available.4California Energy Commission. Building Energy Benchmarking Program Frequently Asked Questions For tenants in covered buildings, the public data is a useful way to sanity-check utility costs before signing. The reporting obligation sits with the owner, but tenants may need to cooperate with data collection, and the lease should say who handles that.
Parties, Premises, Term, and Use
Each party has to be identified by its full legal name. For corporations and LLCs, that means the exact name registered with the California Secretary of State, not a trade name or informal shorthand. Mismatches here cause real problems when it’s time to enforce the lease.
The description of the leased space needs to be precise enough that a stranger could find it. A street address alone rarely does the job in a multi-tenant building. Most well-drafted leases attach a floor plan as an exhibit, marking the tenant’s space and identifying shared areas like lobbies, hallways, and restrooms. That prevents square-footage disputes that ripple into fights over rent and operating-cost calculations.
The term needs a clear start and end date. Renewal options typically require the tenant to give written notice months in advance, and missing the notice window means losing the option. Early termination clauses, where they exist, usually come with steep penalties. A use clause should spell out what business activities the tenant can conduct in the space. Retail tenants in shopping centers often negotiate exclusivity provisions preventing the landlord from leasing nearby space to a direct competitor.
Rent Structure and Escalation
How rent is structured shapes the financial relationship more than almost any other clause. Three structures dominate California:
- A gross lease has the tenant paying a flat monthly amount while the landlord absorbs most operating costs, including property taxes, insurance, and building maintenance. Predictable for the tenant, usually at the cost of higher base rent.
- A triple net (NNN) lease has the tenant paying a lower base rent plus a proportional share of property taxes, insurance, and maintenance. This is the most common structure for freestanding retail and industrial properties, and the tenant’s monthly cost moves as those expenses change.
- A modified gross lease is a negotiated split. One common version has the tenant paying base rent plus a share of taxes and insurance, with the landlord covering structural maintenance. There’s no standard template.
Most multi-year leases also include an escalation clause. The two common approaches are fixed annual increases, often 2 to 4 percent, and adjustments tied to the Consumer Price Index. A CPI escalation typically references the CPI for All Urban Consumers published by the Bureau of Labor Statistics for a specific region, and the lease should name the exact index and measurement period. Landlords prefer CPI because it tracks inflation; tenants should consider negotiating a cap on annual CPI increases to avoid shocks in high-inflation years.
Security Deposits
California Civil Code Section 1950.7 governs commercial security deposits, and the rules are nothing like the residential side.5California Legislative Information. California Code CIV 1950.7 There is no statutory cap on the deposit amount. Landlords routinely require two to six months’ rent depending on the tenant’s financial strength, the term, and the risk profile of the business.
The deposit legally remains the tenant’s property, held by the landlord. The landlord can only apply it to three things: unpaid rent, damage repair, and cleaning costs on termination.5California Legislative Information. California Code CIV 1950.7
Return timelines depend on the size of the deposit and the type of claim. If the landlord’s claim is limited to unpaid rent and the deposit is no more than one month’s rent plus a designated last-month’s-rent payment, the remaining balance must be returned within 30 days of the landlord regaining possession. If the deposit exceeds that threshold, any excess has to be returned within two weeks, with the rest following within 30 days. When the claim covers repairs or cleaning, the remaining balance is due within 30 days of the landlord regaining possession.5California Legislative Information. California Code CIV 1950.7
One thing commercial tenants should know: unlike the residential statute, Section 1950.7 does not expressly require an itemized statement of deductions. Documenting deductions in writing is still standard practice, and the lease itself can and should require itemized accounting.
Maintenance, CAM, Taxes, and Insurance
How maintenance obligations are divided is one of the most negotiated parts of any commercial lease. The typical California default: the landlord handles structural components like roof, foundation, and exterior walls, while the tenant takes responsibility for the interior, including plumbing fixtures, lighting, and HVAC serving only the tenant’s space. But the lease controls, not the default. Tenants who skim the maintenance provisions sometimes discover they’ve agreed to replace an aging roof.
Common Area Maintenance charges, usually called CAM, cover the landlord’s cost of maintaining shared spaces like parking lots, lobbies, and landscaping. The tenant’s share is typically a percentage based on how much of the building’s total square footage the tenant occupies. A tenant leasing 5,000 square feet of a 50,000-square-foot building would pay 10 percent of CAM costs. Look for a cap on annual CAM increases and push for language excluding capital improvements from the CAM pool.
Property taxes and insurance follow the lease type. Under a triple net lease, the tenant pays a proportional share of annual property tax assessments and carries general liability insurance, often with minimum coverage of one to two million dollars per occurrence. The lease should state whether the landlord’s property insurance premium is also passed through. A Proposition 13 reassessment triggered by a sale of the building can dramatically increase the tax bill tenants share, so this clause deserves attention.
Assignment and Subletting
Most commercial leases restrict the tenant’s ability to transfer the lease or sublet. California law gives landlords broad freedom to set the terms of those restrictions, from an outright prohibition to a consent requirement with specific standards.
The protection for tenants: if the lease requires landlord consent but doesn’t specify any standard for granting or withholding it, California law implies a reasonableness standard. The landlord’s consent cannot be unreasonably withheld, and the tenant can force the issue by requesting a written explanation of any refusal.6California Legislative Information. California Code, Civil Code CIV 1995.260 If the landlord fails to provide a reasonable written objection within a reasonable time, the tenant has stronger footing to argue the refusal was unreasonable.
However, a lease that explicitly gives the landlord absolute discretion over transfers is enforceable on those terms. Tenants who anticipate needing flexibility, whether to downsize, merge, or sell the business, should negotiate the consent standard during initial drafting. Once a lease grants sole discretion, there’s little room to challenge a refusal.
Accessibility and Environmental Compliance
Two compliance areas create outsized risk in California commercial leases: disability access and environmental contamination.
ADA and California Accessibility
Federal law requires commercial facilities open to the public to be accessible to people with disabilities, and the Department of Justice sets the enforceable design standards.7ADA.gov. Americans with Disabilities Act Title III Regulations California’s accessibility standards are often stricter than the federal baseline. The lease should clearly allocate responsibility for compliance, including who pays for modifications to restrooms, entrances, parking areas, and interior pathways. CASp inspection reports identify existing violations, and the law presumes the landlord bears the cost of fixing them unless the lease says otherwise.2California Legislative Information. California Code CIV 1938 Tenants who build out their own space are typically responsible for making those improvements compliant.
Environmental Due Diligence
A Phase I Environmental Site Assessment under ASTM Standard E1527-21 is the standard tool for identifying contamination risks before signing.8ASTM International. Standard Practice for Environmental Site Assessments Phase I Environmental Site Assessment Process The assessment reviews historical uses, regulatory records, and site conditions to flag potential problems. Since federal law was amended in 2018 to extend liability protections to commercial tenants, completing a Phase I before taking possession can help a tenant qualify for defenses under the federal Superfund statute if contamination later surfaces. The assessment has to be performed by a qualified environmental professional. For properties with industrial histories, or near gas stations, dry cleaners, or manufacturing sites, skipping this step can leave a tenant liable for cleanup costs reaching into the millions.
Default, Remedies, and Eviction
California gives landlords two distinct paths when a commercial tenant breaches, and the lease itself determines which are available.
Terminating and Suing for Damages
Under the default rule, if a tenant breaches and abandons, or the landlord terminates the right to possession, the lease ends. The landlord can then sue for unpaid rent earned before termination, the gap between lost rent and what the landlord could reasonably have earned by re-leasing, the present value of future rent losses for the remainder of the term, and other losses the breach caused.9California Legislative Information. California Code CIV 1951.2 The tenant can cut the recovery by proving the landlord could have avoided some of the rental loss, which is why landlords should document their re-leasing efforts.
Keeping the Lease Alive After Abandonment
California also allows a landlord to keep the lease in effect after the tenant abandons, continuing to collect rent as it comes due rather than terminating and suing. This remedy is only available if the lease specifically includes it and the tenant has a right to sublet or assign subject only to reasonable restrictions.10California Legislative Information. California Code, Civil Code CIV 1951.4 Landlords who want this option need to draft the lease with both pieces in place: a Section 1951.4 clause and assignment or subletting rights that aren’t overly restrictive.
The Eviction Process
When a commercial tenant won’t leave voluntarily, the landlord has to follow California’s unlawful detainer process. For unpaid rent, the landlord serves a three-day notice to pay or surrender possession. The three-day count excludes weekends and court holidays, and the notice must state the amount owed and provide payment instructions, including where and how to pay.11California Legislative Information. California Code of Civil Procedure 1161 For other lease violations, the landlord serves a three-day notice to fix the problem or vacate. If the breach can’t be cured, a three-day notice to vacate without a cure option is appropriate.
If the tenant doesn’t comply, the landlord files an unlawful detainer lawsuit. Commercial unlawful detainer cases move faster than most civil litigation, but they still require proper service, a court hearing, and a judgment. Once the court rules for the landlord, the sheriff’s office handles the physical removal. Self-help evictions, like changing locks or cutting utilities, are illegal in California and can expose the landlord to significant liability.
Personal Guarantees
Landlords leasing to small businesses, startups, or newly formed entities routinely require one or more of the business owners to personally guarantee the lease. A personal guarantee means that if the business can’t pay, the landlord can go after the individual guarantor’s personal assets. In California, a creditor holding a personal guarantee can sue the guarantor directly without first pursuing the business entity, which makes guarantees a powerful enforcement tool.
A valid guarantee has to be in writing and signed by the guarantor. If the guarantee is signed at the same time as the lease, the lease itself provides sufficient consideration. Pay attention to scope: some guarantees cover the full term and all obligations, while others are capped at a dollar amount or burn off after a few years of on-time payment. Corporate officers who sign a guarantee in their individual capacity cannot later claim they were signing only on behalf of the company.
If the Tenant Files for Bankruptcy
Federal law takes over when a commercial tenant files bankruptcy. The bankruptcy trustee has 120 days from the filing date to decide whether to keep or reject the lease, with one possible 90-day court extension. If the trustee doesn’t act within that window, the lease is automatically rejected and the tenant must surrender the space.12Office of the Law Revision Counsel. 11 USC 365
To keep the lease, the trustee has to cure existing defaults or provide adequate assurance of a prompt cure, compensate the landlord for actual losses from the default, and show the ability to perform going forward.12Office of the Law Revision Counsel. 11 USC 365 If the lease is rejected, the landlord can file a damages claim, but federal law caps it. The cap is the greater of one year of gross rent or 15 percent of the remaining lease term, not to exceed three years of rent. Courts typically include pass-through expenses like taxes, insurance, and CAM in that calculation. Pre-rejection rent already owed is a separate claim not subject to the cap.
Signing, Notarizing, and Recording
Once terms are finalized, every signer has to have documented authority to bind their organization. For a corporation, that’s usually an officer authorized by the board. For an LLC, it’s typically a managing member or manager. A tenant who isn’t sure about the landlord’s signing authority can reasonably ask for the corporate resolution or operating agreement provision authorizing the signature.
A commercial lease does not need to be notarized to be enforceable between the parties. Notarization becomes necessary only to record a memorandum of lease with the county recorder, because California requires instruments to be formally acknowledged before recording.13California Legislative Information. California Government Code 27287 Recording puts the public on notice that the tenant has an interest in the property, which is valuable protection if the building is sold during the term. A new owner who buys with notice generally has to honor the lease.
At signing, the tenant typically delivers the first month’s rent and the full security deposit. Both parties should retain a fully executed original or a high-quality scan. The lease becomes enforceable once all signatures are in place and the initial payments are verified.