Based on the AIR CRE Town Hall held on October 29, 2024, we are providing the following bill summaries and resources for our Members and Contracts users. The summaries cover three California bills discussed during the Town Hall—AB 98, SB 1103, and AB 2992—which will have a significant impact on commercial real estate starting January 1, 2025.
The Legislative Town Hall featured presentations by Skyler Wonnacott, Senior Director of Government Relations at out our legislative advocacy partner, California Business Properties Association (CBPA) and Bryan Mashian, Founder, Mashian Law Group, and AIR CRE’s Contracts attorney. Their insights provided essential clarity on the bills’ provisions and their impact on the industry.
The information outlined below is not intended as legal advice but rather highlights the major provisions of these legislative changes that affect CRE ownership, development, and brokerage transactions. We strongly encourage consulting with your attorney to confirm all details and understand their implications for your specific circumstances.
AB 98 – Warehouse Regulations and Logistics Development
Bill Summary
AB 98 sets statewide design, operational, and environmental standards for logistics and certain manufacturing facilities across California, effective January 1, 2025. The law establishes stringent guidelines on facility design, setbacks, buffer zones, truck routing, zoning restrictions, and housing replacement requirements. The goal is to minimize the impact on air quality and sensitive receptors, defined as: residences, preschool through high schools, daycares, publicly owned parks, playgrounds, and recreational areas or facilities primarily use by children (unless built as a condition of approval for the development of a logistics use), nursing homes and related facilities, and hospitals.
Key Provisions of AB 98
LOCATION AND SETBACK REQUIREMENTS
Starting January 1, 2026:
- New, or expanded logistics facilities over 250,000 sf.: Truck loading bays must be at least 500 feet from sensitive receptors (homes, schools, hospitals, daycare facilities, and public parks).
- New, or expanded logistics facilities under 250,000 sq. ft.: Truck loading bays must be at least 300 feet from sensitive receptors.
- Any new logistics use development facilities are to be sited in locations that minimize adverse impacts on residential communities and enhance transportation efficiency. This is achieved by restricting logistics use development to roadways that are suited to handle the associated traffic and that predominantly serve commercial uses.
BUFFERING, SCREENING AND WAREHOUSE DESIGN STANDARDS
- Starting January 1, 2026, new, or expanded logistics facilities within 900 feet of sensitive receptors must include buffers (e.g., walls, landscaping) and implement noise and light mitigation measures to reduce impacts on neighboring communities.
- They must include all Tier 1 21st century warehouse design elements described in subdivision (g) of Section 65098.
- They must comply with, or exceed, all requirements of the most current building energy efficiency standards specified in Part 6 (commencing with Section 100) of Title 24 of the California Code of Regulations and the California Green Building Standards Code (Part 11 of Title 24 of the California Code of Regulations), including but not limited to photovoltaic system installation and associated battery storage, cool roofing, medium- and heavy-duty vehicle charging readiness, light-duty electric vehicle charging readiness and installed charging stations.
TRUCK ROUTING RESTRICTIONS
- Starting Jan 1, 2026, operators must submit truck routing plans to restrict heavy trucks from traveling near residential areas or sensitive receptors and must limit access to designated roadways.
- By 2028, cities and counties must update circulation plans with specific truck routes that prioritize highways and minimize residential and sensitive receptor impact.
- Enforcement: The Attorney General can impose fines of up to $50,000 per six months for non-compliance, potentially pressuring local governments to ensure adherence.
HOUSING REPLACEMENT REQUIREMENTS
- 2-for-1 Affordable Housing Replacement: Developers must replace each residential unit demolished within the past 10 years on industrially repurposed land with two affordable housing units.
ZONING CONSTRAINTS
- Restricted Zoning: New logistics facilities can only be developed on industrial-zoned land. Rezoning requires meeting additional environmental and traffic mitigation standards.
- Rezoning Criteria: Facilities requiring rezoning near sensitive receptors must also comply with zero-emission vehicle and EV infrastructure requirements.
Implications for the Commercial Real Estate Industry
AB 98 could significantly impact logistics and manufacturing development in California by increasing costs related to compliance with these new mandates. Per CBPA, some businesses are already considering relocating operations to states like Nevada to avoid restrictions, potentially increasing cross-border truck traffic and emissions. Developers and property owners may need to reassess logistics project viability and strategies, as construction and operational expenses are expected to rise.
Legislative Background
AB 98 was introduced in a “gut and amend” format just four days before the end of the 2024 legislative session, passed by a narrow margin, and reached approval without input from much of the business community or local government organizations. CBPA is conducting a legal analysis of the bill and anticipates that clarifications and amendments may be necessary to refine its provisions.
Town Hall Q&A
Please note that some answers below have been edited from what was stated in live event and video to reflect corrections by CBPA in their understanding of the legislation’s language.
Q: Can you please clarify what you mean by the 10-year look-back to replace housing? If the apartments were built 20 years ago, used for 15 years, and then abandoned five years ago, does there still need to be a two-for-one rebuild?
A: Yes. If it was abandoned five years ago, they’re going to go back to when it was last used as a residence. So, if it’s only been abandoned for five years, absolutely, you will have to replace it at a two-to-one ratio. If it’s abandoned for more than 10 years, then you’re in the clear from the 10-year look-back.
Q: Does the legislation pertain to any property that might build a warehouse or just the ones that are in close proximity to sensitive adjacent property owners?
A: It applies to all. Please read the bill language and speak with your attorney to confirm how it will impact your specific project.
Q: Can you discuss the new truck route requirements? How does this impact truck access to existing industrial developments?
A: Local cities are going to be required to redo all their circulation plans. It would be advisable to check in with your local governments to see how their revised circulation plans might impact your properties.
Q: Will AB 98 apply to any property requiring a building permit for a remodel?
A: Yes, if the remodel involves a warehouse.
Q: What if the original owners have sold the property and left—does the look-back rule still apply?
A: It doesn’t matter if someone else bought it. If there was a residential dwelling on the property in the last 10 years, the two-for-one housing replacement requirement applies.
Q: Does AB 98 affect facilities under 250,000 square feet?
A: Yes, it does, but with different setback requirements than for facilities over 250,000 sf.
Q: Is the 250,000 square-foot threshold per building or per project? Can multiple smaller buildings be built on the same site?
A: The 250,000-square-foot limit applies per project, not per individual building.
SB 1103 – Commercial Rent Control and Leasing Regulations
Bill Summary
SB 1103 introduces a range of new protections for Qualified Commercial Tenants (QCTs) in California, effective January 1, 2025. The bill is designed to support smaller businesses by enforcing requirements on landlords regarding lease translations, operating cost allocations, rent increases, and termination notices.
WHO QUALIFIES AS A QCT?
- Microenterprises: Small businesses with 5 or fewer employees, including the owner, and limited access to traditional business loans.
- Restaurants: Defined as businesses with fewer than 10 employees.
- Non-profits: Organizations with fewer than 20 employees.
QCTs must provide self-attestation of their status in writing to landlords annually, unless the lease term is less than one month. Landlords are only required to provide the protections if they receive written attestation from the QCT.
Key Provisions of SB 1103
TRANSLATION REQUIREMENTS
- For all new or renewed leases, signed after January 1, 2025, landlords must provide a full translated version of the lease in Spanish, Chinese, Tagalog, Vietnamese, or Korean if any portion of the lease negotiation with the QCT was conducted in that language.
- Non-compliance by the landlord allows the QCT to rescind the lease, though the English version remains the legal document.
BUILDING OPERATING COST FEES
- Landlords cannot charge QCTs a fee for building operating costs unless costs are:
- Proportionally allocated based on rational metrics.
- Documented with detailed cost information, which must be provided upon the QCT’s request.
- Any changes in cost allocation methods must be disclosed in writing to QCTs, who can use non-compliance as a defense in eviction cases.
RENT INCREASE NOTICE REQUIREMENTS
- Applies only to month-to-month tenancies:
- For increases up to 10%: Requires 30 days’ notice.
- For increases over 10%: Requires 90 days’ notice.
- Rent increases are not effective until the notice period has passed.
TERMINATION NOTICE REQUIREMENTS
- Landlords must give 60 days’ notice to terminate a month-to-month tenancy with a QCT.
- For QCT tenancies of less than one year, 30 days’ notice is required.
- QCTs can terminate with 30 days’ notice, and any lease provisions waiving these rights are considered void.
Implications for Commercial Real Estate
This bill mandates greater transparency and fair practices in lease agreements with smaller commercial tenants. Landlords should review lease templates and compliance processes to align with the new requirements, ensuring that all communications, particularly with QCTs, adhere to SB 1103 standards.
Legislative Background
SB 1103 originally began as a commercial rent control bill, modeled after residential rent control policies and operational standards. This initial framework aimed to regulate commercial real estate practices without significant adaptation for the sector’s specific dynamics. The bill was introduced without consultation with the commercial real estate (CRE) sector, and there were no substantive negotiations with industry representatives during its development despite outreach by CBPA and coalition of over 25 industry groups.
Town Hall Q&A
Q: Can a tenant become a QCT during the lease by reducing employees?
A: Per Mashian: there is nothing in the statues that addresses this, but presumably there’s nothing in the statute that’s addresses it, but I think that once, uh, the tenant does become qualified as a QCT, they can give the notice because the statute says you can give the notice annually, 1034 with the exception of the notice, that needs to be given for the lease translation before the lease is signed. All the other ones they can be given annually.
A: Per CBPA: My interpretation of it is that they can identify as a QCT at any point during their lease, provided they submit the written notice and self-attestation regarding their employee count. Um, and then it would go into effect at a qualifying action and requires them to retest annually. So, which enables them to qualify mid lease if they meet that criteria.
Q: Are LLCs included or is the matter going to be settled in the courts?
A: The statute only uses the threshold of the number of employees, regardless of business entity type.
Q: If it goes into effect Jan 2025, does it apply to any leases expiring Jan 1, 2025 or later for which we are providing lease extensions now, before Jan 1, 2025?
A: If you have a lease that expires Jan 1, 2025 and you extend that lease today, starting Jan 1 2025, then I think to be on the safe side, you should assume that the new statue applies.
Q: RE: NNNS: the statute limits a LLC charging “fees” unless requirements are met. In our world, “fees” are distinct from NNN reimbursements. What did the legislature mean by “fees”?
A: Reimbursements are not barred – you can recoup your taxes, insurance, utilities, janitorial, etc. fees. However, what the statute specifically addresses is fees – management or administrative fees – that the landlord charges to collect those reimbursable operating expenses.
Q: Are landlords responsible for notifying tenants about SB 1103?
A: No. Even if the landlord suspects that a tenant qualifies as a QCT. It only impacts the landlord or owner if the tenant qualifies as a QCT and self attests.
Q: Can we offer a mutual acknowledgement or waiver in the Leases that the Lessee has waived this requirement?
A: No, the legislature is very clear that this is a matter of public policy and waivers are invalid. You cannot contract around this.
Q: To quality as a micro-enterprise, the entity must generally lack sufficient access to loans, equity, or other financial capital. Do you have guidance for determining the standards a tenant must meet to qualify?
A: The statute does not explain what it means. Need to wait for case law or if there are any regulations that come up.
Q: Does the term employee include Independent Contractors?
A: I don’t think so. I think it’s just, it’s either full or part-time employees.
Q: Does tenant provide attestation 1st before we have to follow the rules?
A: Yes, the tenant must provide self-attestation before any of this law applies.
Q: Has this law already passed, and applies to the entire state of California?
A: Yes, it has been passed and signed by the Governor, and it applies throughout the state.
Q: Does the number of employees in a non-profit apply to the entire organization if the non-profit has more than one site, i.e. charter schools that may operate under different site names but be under the umbrella of a large management corporation?
A: I think it’s based on the entity, not physical locations.
Q: Will whoever is negotiating the lease, or lease renewal be required to provide the current or existing tenant notice of the new QCT provisions? Similar to the RCJC for residential?
A: No. The onus in on the tenant to self-attest.
Q: If Holdover is called out in the lease as 150% or 200% of last month’s rent, would a 90-day notice be considered with the inclusion of this information within lease agreement?
A: Let’s distinguish what is a holdover vs what is a month-to-month tenancy to answer this.
Let’s say you have a five-year lease:
- Option 1: The landlord wants the tenant to stay. The tenant stays after the fixed term has expired, sends a rent check and the landlord cashes it. That is a month-to-month tenancy.
- Option 2: The landlord does not want the tenant to stay. However, the tenant doesn’t vacate at the end of the five-year fixed term. That’s a holdover.
The difference is when the landlord is consensually agreeing to let a tenant remain in possession on a month-to-month basis, versus a holdover tenant is when a tenant remains in possession against the will of the landlord – without the landlord’s consent. This law does not apply to a holdover tenant.
Q: Do these rules apply to subtenancies?
A: Yes.
Q: Any chance AIR CRE is going to develop lease forms for QCT tenants?
A: At this point, no. We are not creating self-attestation forms because currently the statute does not prescribe a form. It is up to the QCT to decide that they want to do the self-attestation to perform this. If something changes over time and the Contracts Committee feels that we should make any adjustments, then we will address is then and will inform our Contracts users.
Q: If a landlord has retained 3rd party property management, is that reimbursable or does it fall under the statute as a fee to landlord?
A: Most property management companies not only just manage the facilities, they also do the accounting and the bookkeeping. So, if part of their fees are for collecting CAMs, that portion would likely be considered a fee under the statute.
If the Property Management company is purely providing security, janitorial, etc services, and they do not provide CAM collection, then their fees arguably would not fall within the statute.
Q: What happens if a landlord sends a CAM EC to a tenant, and then the tenant self-attests, after receiving the CAM EC?
A: The self-attestation notice must be given before the statute obligations are triggered. So, in this situation it seems that the tenant is too late.
Q: Must we add language in all lease renewals regarding CA civil code section 827?
A: No.
Q: Can you explain the new translation requirements?
A: If any part of lease negotiations happens in a non-English language—such as Spanish, Chinese, Vietnamese, or Korean—then the entire lease must be translated into that language. Even if negotiations were mostly in English but involved some Spanish, the lease must still be translated. If there’s any error in translation, the tenant can rescind the lease at any time.
Q: What are the new rent increase and notice period rules?
A: For month-to-month leases, landlords must provide specific notices for rent increases and lease terminations. These provisions only apply to month-to-month tenants, not standard long-term leases.
Q: Is there a cap on the management fee you can charge to recover operating expenses?
A: The statute is silent on any cap on fees.
Q: Can a landlord call the management fee and an administrative fee, so the new law doesn’t apply?
A: No. Changing the name of the fee does not change the nature of the fee, which the landlord is charging to recover its operating expenses from a QCT. If the landlord wants to charge a fee, the landlord must comply with the law’s requirements, regardless of what the landlord calls the fee.
AB 2992 – New Requirements for Buyer Broker Agreements
Bill Summary
AB 2992 was introduced in response to the Burnett Spitzer antitrust lawsuit against the National Association of Realtors (NAR) and certain brokerages, which led to a substantial settlement over commission-sharing practices. Effective January 1, 2025, AB 2992 aims to provide greater transparency in real estate transactions by mandating a written buyer broker representation agreement for all property sales, excluding leases, rental agreements, state and federal land, or loan brokerage services. The law applies to all property types in California, including office, retail, industrial, multifamily, and single-family properties.
Key Provisions of AB 2992
BUYER BROKER REPRESENTATION AGREEMENT
- Brokers representing buyers must secure a signed representation agreement “as soon as practicable,” with a safe harbor deadline no later than when a buyer submits an offer.
- The agreement must authorize the broker to act on the buyer’s behalf, outline the broker’s compensation, list the services provided, state when compensation is due, and specify the agreement’s termination date.
DURATION AND RENEWAL LIMITATIONS
- The agreement cannot exceed three months (90 days) unless the buyer is a corporation, LLC, or partnership. Agreements with these entities can extend beyond the standard term and include renewal options, but renewals must be documented in writing.
COMPENSATION TERMS
- AB 2992 mandates that compensation be clearly defined in the agreement, though it does not require the buyer to directly pay it. The agreement can specify compensation as a percentage, fixed fee, or hourly rate, as agreed upon by the parties.
- The compensation amount and structure are negotiable and should be agreed upon by both parties.
ENFORCEMENT AND COMPLIANCE
- Failure to comply with AB 2992 renders the agreement void and unenforceable, potentially affecting the broker’s ability to collect a commission. Non-compliance may also lead to disciplinary action from the Department of Real Estate.
NEW BUYER FORMS AND RESOURCES
- AIR CRE is preparing exclusive and non-exclusive versions of the buyer broker agreement, which will be available by January 1, 2025. Further outreach will ensure brokers understand these new requirements and their responsibilities under the law.
Implications for Commercial Real Estate
This statute changes the prior model by allowing buyers to select and negotiate terms with their broker, moving away from previously fixed compensation structures. AB 2992’s primary goal is to foster transparency and fair competition in real estate transactions, ensuring all parties clearly understand brokerage agreements and compensation terms.
Legislative Background
The bill was sponsored by Nguyen (D-Elk Grove) and requires formal buyer-broker representation agreements in real estate transactions, setting clear expectations for agents and protecting buyers through standardized practices. This bill had no registered opposition.
Town Hall Q&A
Q: We have a comment from an attendee quoting CAR, which suggests that AB 2992 focuses on transparency and consumer protections in the residential sector and does not extend these requirements to commercial property transactions. What’s your take on that, Bryan?
A: That is incorrect. AB 2992 applies to all property types—commercial and residential. While it may have undergone several iterations in the legislative process, the final version is applicable to all real property transactions, not limited to residential.
Q: Does it apply on sale currently in progress but will close after Jan 1, 2025?
A: I don’t think so.
Q: Can the buyer’s broker still get paid by the seller either directly or through the seller’s broker?
A: That’s correct. Yes, they can.
Q: CAR has a Broker Representation form – can you use that form?
A: You can use the CAR form, or you can use the AIR CRE form that is being created now and will soon be added to the AIR CRE Contracts application.
Q: Do you have to get an extension if the 90 days expires during the escrow period?
A: Under the AIR CRE agreement, that is in the process of being prepared, once the transaction enters escrow within the 90-day term, the broker is protected for that specific deal, even if it closes after the 90 days.
Q: Can the buyer representation agreement be included as a provision in each purchase offer?
A: Yes, it can be. However, that is the latest permissible point to obtain the buyer’s signature on the representation agreement. It is encouraged to get it signed “as soon as practicable.”
Q: Are business opportunities Included?
A: Not unless they include real estate. If it’s strictly a business transaction without real property, it does not apply.
Q: It seems like the law also pertains to leases in excess of 1 year?
A: No, it doesn’t. This is only for a buyer-broker agreement. Not a tenant-broker agreement. It is only for purchase and sale agreements. Not for leases and not for loans.
Q: In a case of dual representation, if a buyer does not agree to sign the broker representation agreement, is the broker in violation of AB 2992 if they are paid a full fee from the seller?
A: The law requires that the broker must still have a signed agreement with the buyer, even in dual agency situations. Being a dual agent doesn’t negate the requirement for a buyer broker agreement. You need a listing agreement with the seller and a buyer agreement with the buyer.
Q: How do we handle a buyer that offers as an individual and the vests as a new LLC?
A: The buyer broker agreement that AIR CRE is preparing will cover “buyers, successors, and assigns,” including affiliated and related companies, to account for such scenarios.
Q: Does the new Buyer-Broker agreement still include a 180-day “protection period” like listing agreements?
A: Yes, the new AIR CRE buyer broker agreement will include a similar protection period. If a buyer purchases a property introduced during the initial agreement term within 180 days, the broker will still be eligible for commission.
Q: If the buyer broker agreement hasn’t been signed yet, does the AIR CRE Purchase and Sale agreement cover this?
A: No, these are two separate documents. The purchase and sale agreement is between the buyer and seller, while the buyer broker agreement is solely between the buyer and broker, as required by the legislature.
Q: If a Letter of Intent states the seller will pay the buyer’s broker’s fee, is a buyer broker agreement still necessary?
A: Yes, the buyer broker agreement is still required, regardless of who pays the broker’s fee.
Q: Can multiple properties be included in one buyer broker agreement document?
A: Yes, if it’s the same buyer for all properties, I think they can be covered under one agreement.
Q: If a lease includes a purchase option, does the buyer broker representation agreement apply when the purchase option is exercised?
A: Yes, the AIR CRE broker-buyer agreement would apply if there’s an option to purchase. However, it does not cover the lease itself, only the purchase component, if exercised.
Support CBPA
AIR CRE is committed to informing our Members and Contracts users about key legislation impacting the commercial real estate industry in California. As new information on these bills becomes available, we will distribute it to everyone via email, Town Halls, social media, and videos. Please stay active when legislative issues arise. We highly encourage all Members and Contracts users to support CBPA in their efforts to influence and educate our leadership in Sacramento on the topics that are critical to the commercial real estate industry.
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