Legal Alerts

New $1 Surcharge on Business Licenses & New Commercial Lease Language

SB 1186, recently signed by Governor Brown, amends a number of provisions related to accessibility lawsuits and requirements, including those of the Americans with Disabilities Act (ADA).

Of particular interest to local agencies and commercial property owners are the following changes:

• Local Agencies: Beginning January 1, 2013 (and expiring on December 31, 2018 unless extended), SB 1186 requires cities and counties to impose a $1 state surcharge on new and renewed business licenses “or equivalent” instruments or permits, and to provide applicants with information regarding accessibility requirements. Local agencies are permitted to retain 70% of these funds for accessibility programs and administrative costs. The balance of the funds must be remitted quarterly to the state.
• Commercial Property Owners & Lessors: Beginning July 1, 2013, commercial property owners must include a statement in all leases regarding whether or not the building has been inspected by a certified access specialist (CASp), as well as the outcome of that inspection. CASp are state-certified accessibility experts.

While SB 1186 predominately relates to accessibility lawsuit reform - it is the latest in a series of laws enacted to regulate accessibility lawsuits – the focus of this legal alert is on the provisions mandated on our public agency and business clients.          

Local Agencies – Imposition & Use of $1 Surcharge

There are a number of issues and questions related to this portion of SB 1186:

• Equivalent Instrument or Permit: Initially, it is unclear what qualifies as an equivalent instrument or permit to a business license. Many local agencies do not actually require a business license per se. Given that any local authorization to do business within that jurisdiction, including a tax certificate or permit, is likely a business “instrument,” it is advisable to impose and collect the surcharge regardless of whether or not the city requires a formal “business license.”
• Local Agency Use & Reporting of 70% of Surcharge: As stated, the local agency can retain 70% of the $1 surcharge. A maximum of 5% may be used for administrative costs, and the balance must be used to fund increased CASp services for the public and ensuring compliance with construction-related accessibility requirements. Since the 5% is not a blanket authorization, agencies should ensure that they are documenting these costs, which includes staff time spent on administering the program. The remaining funds must be used for construction-related accessibility programs. While there is no clear definition in the statute, this would include funds spent to hire or retain a CASp. Under existing law, cities and counties must hire or retain CASp building inspectors and plan checkers (at least one CASp-certified building inspector must have been retained by 2010 and full compliance is required by 2014). It would also include general programs to increase construction-related accessibility compliance. It is unclear if funds can be used on only one of these activities, but SB 1186 notes that the “highest priority” must be given to hiring and retaining CASp for public use. Agencies again should document these expenditures, as they must provide an annual report by March 1st to the Legislature and the chairs of certain legislative committees regarding their collection and use of the funds.
• Local Agency Remission & State Use of 30% of Surcharge: The local agency must remit the remaining 30% of the funds to the Division of State Architect (DSA) within 15 days of the end of each quarter. DSA is required to use the funds for accessibility programs, including CASp services. DSA is also required to create a standard reporting form for local agencies to use when remitting their quarterly 30%. This form will be posted on DSA’s website.
• Prop 26: The $1 surcharge is termed a “fee” in AB 1186. Pursuant to Proposition 26, any change in state statute which results in any taxpayer paying a higher tax must be imposed by an act passed by not less than 2/3 of all members of both houses of the state legislature. Here, the surcharge would fall within the definition of a tax under Proposition 26. Since it was adopted with a 2/3 vote of the Legislature, it is not likely subject to challenge under Proposition 26.
• Local Agency Notification Regarding Accessibility Requirements: The following language must be provided to applicants for new and renewed business licenses “or equivalent” instruments or permits:

“Under federal and state law, compliance with disability access laws is a serious and significant responsibility that applies to all California building owners and tenants with buildings open to the public. You may obtain information about your legal obligations and how to comply with disability access laws at the following agencies: The Division of the State Architect at www.dgs.ca.gov/dsa/Home.aspx. The Department of Rehabilitation at www.rehab.cahwnet.gov. The California Commission on Disability Access at www.ccda.ca.gov.”

Commercial Property Owners – Lease Language:

There are also a couple of issues and questions related to this portion of SB 1186:

• Lease Language: Again, commercial property owners and lessors must include a statement within any lease or rental agreement regarding whether or not the building has been inspected by a CASp and the outcome of that inspection. That is, whether the property has or has not been determined to meet all applicable construction-related accessibility standards pursuant to Civil Code Section 55.53.
• Is a Public Agency Also a Commercial Property Owner or Lessor? The statute does not define “commercial” property, but it seems that the intent was for it to apply to property being used for commercial purposes. Thus, arguably it could apply to situations where agencies’ lease space within community centers and other similar buildings for related businesses (i.e., a snack bar, coffee shop or other commercial tenants). Similarly, it could apply if an agency leases surplus property to a commercial tenant.

For more information regarding the impact of this legislation, please contact municipal attorneys Jeff Ballinger or Joshua Nelson, real estate attorneys Mike Grant or Peggy Hosking, or your Municipal Law or Business Services attorney.

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