Landlords that lease commercial property in Seattle need to be aware of major changes to the Municipal Code.  Seattle recently enacted Ordinance 126982, which introduces significant regulations for commercial property lessors within the City. Here’s what you need to know:

The ordinance went into effect on January 29, 2024, and has been codified into Seattle Municipal Code Section 6.104.

SMC 6.104  et seq. applies to all new commercial leases within the City of Seattle that are intended to generate a profit and are used for commercial or retail purposes. However, it exempts leases for:

• Residences;
• Lodging;
• Office space;
• Research and development laboratories;
• Medical practices;
• Medical clinics,
• Medical dispensaries;
• Farming or cultivation

Federal, State, Tribal, County, or local government’s acting as landlords are also exempt from the limitations of SMC 6.104  et seq.

Starting January 29, 2024:

1. Security Deposits and Letters of Credit:

Letters of credit and security deposits for any new leases are limited to the total value of the first month and last month of base rent.

2. Personal Guaranties:

The maximum personal guaranty allowed in any new commercial lease is restricted to the first two years of base rent payments plus the total cost of tenant improvements funded by the landlord.

SMC 6.104.040 – 6.104.050 directs the Director of Finance and Administrative Services to prepare a summary of the new limitations, but requires the landlord to distribute the summary to existing commercial tenants by August 15, 2024.

A summary of the limitations can be found at:

https://www.seattle.gov/documents/Departments/FAS/RegulatoryServices/Commercial-Lease-Requirements.pdf

Violations, Penalties, and Private Right of Action:

Under SMC 6.104.070, it is a violation for lessors to enter into, or require another party to enter into, any commercial lease agreement that includes or requires a security deposit, letters of credit, and/or a personal guaranty that exceed the limits established in SMC 6.104.030.

Landlords violating SMC 6.104 are subject to the following penalties:

• $500 for the first violation, and $1,000 for each subsequent violation within a five-year period. Each day a lessor commits a violation may be considered a separate violation for which a civil citation, and associated penalty, may be issued (SMC 6.104.080.F).
• Tenants suffering financial injury from violations can bring civil actions against lessors, potentially receiving compensation, attorney costs, and other legal or equitable relief.
• Courts may award up to $20,000 in liquidated damages if actual damages are hard to prove.

For Further Consideration

Ordinance 126982 as codified in SMC 6.104 was presented as a comprehensive effort by the City of Seattle to make commercial leases more equitable and accessible for small businesses. However, the new regulations are likely to cause intense scrutiny by landlords of a tenant’s ability to maintain a viable business now that the landlord cannot rely on a guaranty or a letter of credit for security.

Landlords must familiarize themselves with these regulations to ensure compliance. For detailed information and updates to their commercial leases, landlords are encouraged to direct their questions to Harman Bual or any member of Lasher’s team.