Attorney Articles | Landlord—Tenant Commercial Leases: Frequently Asked Questions

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Landlord—Tenant Commercial Leases: Frequently Asked Questions

Marriage and Family Therapists often find themselves in the role of Landlord, as well as Tenant in their business practices. Dealing with the legal issues surrounding your landlord-tenant agreements can be confusing, stressful and time-consuming.

By Catherine Atkins, JD, Deputy Executive Director
Updated by Ann Tran-Lein, JD, Managing Director, Legal Affairs
(January 2018)

Article originally published in The Therapist
(March/April 2007)

Marriage and Family Therapists often find themselves in the role of Landlord, as well as Tenant in their business practices. Dealing with the legal issues surrounding your landlord-tenant agreements can be confusing, stressful and time-consuming. Here are some of the most often asked questions surrounding your landlord-tenant questions:

1. What constitutes a landlord-tenant rental agreement or contract?

A rental agreement is a contract, or lease agreement, between a landlord (generally the owner or property manager of a property) and the tenant (the renter of the property). The agreement can be for a “fixed term” (for example, five years) or a “periodic term” (for example, month to month).

Periodic term tenancies (for example, month to month) are rare for professional offices or commercial properties even though some therapists may experience month to month arrangements when subleasing space from another professional. Periodic tenancies are not recommended, as the therapist-lessee could be highly disadvantaged by this kind of contract. For instance, in a month to month periodic tenancy, the therapist-lessee would have only 30 days to find a new space, move, set up the new office, change contact information with the BBS, and advise patients accordingly.

Unlike the residential landlord-tenant rental agreement, the law allows much greater flexibility between parties when negotiating commercial rental agreements.

2. Does the rental agreement have to be in writing? What terms should be in the rental agreement?

If the agreement is for more than one year, the law requires the rental agreement to be in writing. If the contract is for less than one year, technically it does not have to be in writing, but since the relationship between landlord and tenant in a commercial property situation is defined almost entirely by that rental agreement, it is important to have a written document as proof of the terms. It is extremely rare for a commercial landlord to rent space without a written contract.

Because the law leaves the terms of the commercial landlord-tenant relationship to parties to negotiate, all the terms and restrictions should be included in the contract, including whether you can sublease a portion of your space to another professional who is not associated with you, the scope of your financial obligations, and the scope of your maintenance obligations. Be particularly careful of additional financial obligations beyond the base rent. Commercial lease agreements often include add-on charges for taxes, insurance, common area maintenance, signage, utilities, mandatory tenant improvements, restoration to original condition upon move-out and other operating expenses.

At a minimum, the following items should be considered and included in the lease:

  • Description of the premises, including parking, waiting room or lobby, and common areas
  • Permitted use or restrictions of the premises
  • Tenant’s right of access to premises and hours of tenant’s operation
  • The term of the lease
  • The amount of the rent and how/when any increase in rent will occur
  • Party responsible for maintenance and operating costs including utilities , property taxes, insurance (such as premise liability), the security deposit (if required), and Code/law compliance
  • Landlord’s right of entry
  • The right to sublet or assign the lease
  • Provision on termination and breach of the lease

It is especially important that the names of the parties are listed accurately. If you are a corporation, the legal name of the corporation should be listed as the party, not your personal name. This can protect you from being held personally liable under the lease.

NOTE: Make sure to get a copy of the signed rental agreement for your records!

3. Can the tenant negotiate the terms of the rental agreement?

Absolutely! Just like buying a car, it is wise to see if you can get discounts and/or bargain the terms of the contract with the landlord. There is not just one standard lease agreement, and it behooves both parties to seek legal counsel before agreeing to a commercial lease agreement. This is particularly true when the contract will often contain very lengthy and confusing provisions relating to future circumstances, such as what happens if part of the building is destroyed or taken by the government for public purposes. Negotiable terms include, but are not limited to: value of tenant improvements, length of lease term, escalator clauses, objectionable or one-sided terms, total cost of lease, parking, days of accessibility, signage, etc.

4. Can a landlord use the security deposit as rent?

A security deposit is money that can be used by the landlord to repair damages, to remedy tenant’s defaults in the payment of rent, or to clean the premises upon termination of the tenancy. California law governs how the security deposit can be used and when excess must be returned to the tenant. The law also prohibits a landlord from applying the security deposit toward a defaulting tenant's future rent obligations, absent a written agreement to the contrary. When you leave, the landlord must either return the deposit or account for how it was spent.

5. Doesn’t the landlord have to pay for all repairs and maintenance regardless of what the lease specifies?

Unlike residential properties, commercial properties are ruled primarily by the signed agreement. Hence, the landlord has no legal obligation to maintain the leased space or premises, unless the lease specifically puts such responsibility on the the landlord. For example, if the lease agreement states that the air-conditioning or elevator maintenance is the duty of the tenant, the landlord has no obligation to repair any malfunctions.

6. Can the landlord change the terms of the contract?

The parties can mutually change the terms of any contract at any time. The written terms of the contract cannot be changed by only one party.

7. Can a landlord evict a tenant because of their religion or age?

California landlords are bound by the California and Federal anti-discrimination laws. A landlord cannot choose a tenant and/or evict a tenant due to their sex, age, race, color, religion, ancestry, national origin, sexual orientation, or disability. Discrimination or violation of these statutes will likely subject the landlord to considerable punishment and penalties.

8. I want to renew my lease, but the landlord is demanding I pay “key money” in order for him to consider renewing. Is this lawful?

No. “Key money” is described as any payment of money, regardless of the amount, that the landlord demands as a condition for initiating, continuing, or renewing a lease, unless the amount of payment is stated in the written commercial lease. It is unlawful for a landlord or any person on behalf of the landlord to demand “key money.”

9. As a tenant, can I sublet my office space?

It depends on what is stated in the lease regarding subletting. A commercial lease may have a restriction on subletting which requires prior consent from the landlord or an outright prohibition. If this restriction is found in a commercial lease, but does not provide a criteria or standard for consent, California law prohibits the landlord to unreasonably withhold consent. A landlord should respond within a reasonable time to a written request for subletting. If the landlord fails to respond in a reasonable time, it may be construed as an unreasonable withholding of consent.

10. How are commercial leases terminated?

The agreement should outline the length (or “term”) of the lease, as well as how the agreement may be terminated. You may find an “exit clause” which allows the tenant to pay a fair payment to the landlord if one or more specified events occur (e.g. death of the tenant, collapse of the business). Tenants who do not see an exit clause present in the lease may want to consider negotiating with the landlord on such a provision to account for unexpected circumstances.

Month-to-month leases allow the tenant to vacate the property after giving the landlord a thirty-day notice of intent to leave. The notice should be in writing, list the property address, list name of landlord and tenant, list the date the lease will be terminated, and be dated and signed by the party.

For a fixed rental agreement (for example, five years), the lease is automatically terminated at the end of that fixed time period, unless a provision of the lease provides otherwise.

11. As landlord, what do I do to regain possession of my property if the tenant just stops paying rent and disappears?

If the rent is two weeks overdue, and the tenant vacated unexpectedly, it is called “abandonment.” To regain access to the property, the landlord must send the tenant a Notice of Belief of Abandonment. The notice must include: the name of the tenant, the address of the property, the date the lease is ending, specifically state that it is a “notice of belief of abandonment,” and sign the notice. It is essential that the landlord follow the strict letter of the law in an abandonment notice for the landlord’s protection.

The tenant then has fifteen (15) days (if personally served) or eighteen (18) days (if service is by mail) to send the landlord a response telling the landlord that the tenant did in fact not leave the property and pay the landlord the rent that is owed. If the tenant does not respond, the landlord may re-rent the property after the passage of the mandated time period.

Obtaining the overdue rent: Abandonment constitutes a breach of the rental agreement, allowing the landlord to sue for unpaid rent. Once abandonment is established, the landlord can proceed in suing the tenant for overdue rent in either small claims court (up to $10,000 for individuals and sole proprietors; $5,000 for corporations) or civil court (unlimited dollar amount), depending on the amount of damages claimed.

12. As a landlord, can I bring action against my tenant who has breached his lease and stopped paying rent? If so, are there any legal obligations I should be aware of?

California law specifies that a landlord may recover 1) the unpaid rent to the date of termination and 2) any difference between the rent owed going forward minus the rent from a new tenant (if that rent is less) (i.e., if the original lease was $12,000 per month but the new market rent is only $9,000, you can re-rent the property for the $9,000 and collect the difference of $3,000 from the former tenant). You can collect this difference for the remainder of the original lease term.

The law also requires that landlords have a duty to “mitigate damages” when suing their tenants for unpaid rent. This means that the losses sustained by the landlord are not recoverable if those losses could have been avoided by the landlord affirmatively doing things to lessen the damages suffered.

There is no standard procedure to mitigate damages; the landlord need only use a reasonable and good faith effort to avoid suffered losses. The courts usually consider it appropriate that the landlord take reasonable steps to release the property, which is demonstrated by doing such things as listing the property with a broker, putting an ad in the paper or on an on-line service, and taking other steps to seek a new tenant. If the landlord is unable to rerent the property, or can only rent at a lesser rate, to calculate the damages suffered, the landlord should calculate the amount of rent that would have been due under the lease agreement, subtracting any rent obtained from the next tenant. The burden of proof that the landlord failed to mitigate damages falls on the tenant. This means that the tenant must prove that the landlord did not take reasonable steps to find another tenant.

13. What do I, the landlord, do if the tenant stops paying rent, but is still using the property?

If a tenant stops paying the rent or does not have the rent, and remains in the property, the tenant has breached the rental contract. The first thing to do is to turn the breach into a default. Most commercial leases state that if a tenant fails to pay the rent after written notice from the landlord, the breach becomes a default and the landlord can then sue for damages and eviction of the tenant. The steps the landlord must take are:

1) Serve the tenant a “Notice to Pay Rent or Quit” (meaning pay the rent or move out). Review the terms of your lease to see how much notice must be given. The notice should be for the number of days required under the lease, but never any less than three days. Some commercial leases call for five, seven, ten or even fifteen days’ notice. The notice must be in writing, dated, and signed by the landlord. The notice must include: the name of the tenant(s), the address of the property, the amount of back rent owed, the dates on which the overdue rent was due, specifically state that the rent must be paid in full within the time of the notice or the tenant must move out, the place where the tenant may pay the rent, and the general business days of the week and hours when such place is open for business.

2) Properly serve the Notice on the tenant. The landlord shall use: a) personal service (have notice delivered to the tenant personally); substituted service (left with someone at the tenant’s property who is over eighteen and a second copy mailed to the tenant by certified mail, return receipt requested); or by “nail and mail,” posting (nailing the notice to the door) and by mailing a second copy to the tenant by certified mail, return receipt requested).

3) If the Notice expires and the tenant has not responded to the notice and remains in the property, the landlord may begin the eviction or “unlawful detainer” process (see discussion on unlawful detainer below). If the tenant suddenly abandons the property in response to the Notice to Pay Rent, the landlord can commence an abandonment action (see Question No. 11). If the tenant pays the overdue rent, the matter is closed.

NOTE: In a commercial lease, if the tenant makes a partial payment of rent, the landlord can take the partial payment and still commence the unlawful detainer action, as long as the landlord gives actual written notice to the tenant that they are proceeding with the unlawful detainer action.

14. What is an Unlawful Detainer?

Unlawful detainer is another way of saying eviction. This is the remedy the landlord has if the tenant has not lived up to his/her obligations under the rental contract or has refused to move out after the expiration of the lease. For example, breaches of the lease such as failure to pay rent, failure to vacate upon proper notice, violation of lease agreement terms (for example, subletting when it is not permitted by the lease), nuisance , or use of the property for illegal purposes can support an unlawful detainer action.

In an unlawful detainer action, the landlord can ask for the following damages: unpaid rent and additional rent charges, court costs, attorney’s fees if allowed under the rental agreement, the cost of repairing any damages, and potentially a penalty fine for malice if the tenant purposefully did not give up the property to be spiteful.

15. How does a landlord begin the unlawful detainer process?

Notice: Before commencing an unlawful detainer action, the landlord must first give proper notice to the tenant. This will be through a “Notice to Pay Rent or Surrender Possession” (see Question No. 13.) or a “Notice to Perform Covenant or Surrender Possession,” which is used when a tenant breaches a non-payment related term of the contract, such as “no subletting.”

NOTE: If the tenant has breached both monetary and non-monetary terms of the contract, landlords are advised to serve two separate notices, one for the rent items and one for the non-rent items.

Unlawful Detainer Complaint: Once the notice period is up, and if the tenant has not complied with the terms of the Notice, the landlord can file an Unlawful Detainer Complaint in court to evict the tenant and get a judgment to collect the overdue rent if applicable.

If the owner of the property is an individual, group of individuals, or a personal trust, the owner may file a complaint with the local court, have a summons issued requiring the tenant to respond to the Complaint, and arrange to have both the Summons and Complaint served on the tenant properly.

If the owner of the property is a corporation or limited liability company, the owner must be represented by an attorney to file the Summons and Complaint.
If the tenant does not answer the Complaint, does not appear at court, or does not contest the eviction, the landlord may ask the court to issue a default judgment against the tenant to regain possession of the property and to get a judgment for any monies due.

16. How does the landlord “serve” the tenant the unlawful detainer summons and complaint?

Similar to, but not the same as the Notice to Pay, the landlord may either use:

1) Personal Service (served by someone other than the landlord, including a process server); or

2) Substituted Service (after attempting personal service two or three times with no success, serve an adult on the tenant’s property the summons/complaint and mail a copy to the tenant, certified mail, return receipt requested).

17. How does the tenant respond to the unlawful detainer process?

After the tenant is properly served with the unlawful detainer summons and complaint, the tenant has five days to respond if personally served, and fifteen days to respond if served by substituted service. After the tenant responds to the landlord’s Complaint, the landlord may ask the court to set the matter for trial within twenty days by filing a request for a trial date. If the tenant does not respond within the above time frame, the landlord will be able to evict the tenant (see Question No. 15).

NOTE: It is not acceptable for the tenant to simply talk to the landlord personally, following the service of the unlawful detainer action, and/ or write the landlord a letter explaining why he/she has broken a lease term. The tenant must respond in writing through the proper court procedures.

18. What happens after the unlawful detainer matter goes to court?

After the trial, the judge (or possibly a jury) will find for either the landlord or the tenant. If the tenant wins, the matter ends unless there is the issue of attorney’s fees to be determined, which will be determined by the judge after the trial. If the landlord wins, the court will order the landlord have possession of the property, plus any damages (monies) awarded to the landlord. The landlord may then obtain a writ from the court, which is a document that directs the local Sheriff to go to the property and evict the tenant.

19. Instead of filing an unlawful detainer action, can’t I just change the locks?

No. California law demands that you must legally evict the tenant. Therefore, make sure to go through the unlawful detainer process and don’t physically remove the tenant, remove their property, lock the tenant out, or change the locks to the premises.

20. What do I, as tenant, do if the landlord breaches a term of the lease agreement?

If the landlord breaches any term of the lease agreement, it is wise to at least attempt to informally resolve the issue before taking the next step of lawsuit. Also, make sure to check your contract. It is likely that there is a clause that demands that a tenant notify the landlord of any breached term, allowing the landlord the opportunity to fix the defect before the tenant can sue. However, if there is no requirement as discussed above and/or informal requests to remedy the breached contract fail, like with any contractual agreement, one can sue the landlord in court for breach of contract. The tenant can proceed in either small claims court (up to $10,000) or civil court (unlimited dollar amount), depending on the amount of damages claimed.

21. Should I hire an attorney to review my lease agreement?

Although there is no legal obligation to have an attorney review your lease, CAMFT highly recommends that you work with an attorney in drafting a lease to make sure that you have not violated any California or federal law, or before signing a lease to verify that your rights are being protected.

iThe questions and answers submitted in this article are general landlord-tenant principals and are intended to be an overview of landlord-tenant law. Unique circumstances or fact patterns could potentially alter the steps taken with your particular landlord-tenant issues, therefore CAMFT highly recommends seeking legal advice from an attorney if you find yourself in a legal dispute regarding your landlord-tenant contract.

ii Cal. Civ. Code §1950.7

iii Cal. Civ. Code §1950.8

ivCal. Civ. Code §1995.260

v Cal. Civ. Code §1995.260

viCalifornia law does not require landlords to follow the § 1951.3 procedures discussed to retake possession of an abandoned unit. With that said, it is unwise to ignore the statutory notice procedures, as the landlord could potentially be opening themselves to a self-help eviction lawsuit.

vii Cal. Civil Code § 1951.2(a)

viii Cal. Civil Code § 1951.2(c)

ix The amount due is for rent only and is not to include late fees, etc.

x A nuisance is an act: injurious to the public’s health or wellbeing; offensive to the senses; that interferes with the free use of property; or that is illegal. Landlords should be careful before utilizing a knee-jerk reaction and serving a 3-Day notice for nuisance. A warning will likely suffice and if the misconduct continues, an unlawful detainer action will be justifiable.

xi The author gratefully acknowledges the assistance of Sarahann Shapiro, Esq., an experienced commercial real estate attorney, in writing this article. Contact and background information for Ms. Shapiro is available on her firm web site at