Within some commercial leases are provisions which create exceptions to performance under the lease, including the demand for continuous operation or rental payments under force majeure or government taking theories.

LEASE PROVISIONS

Force Majeure
The most common definition of a force majeure event is an “act of God.” Black’s Law Dictionary defines an act of God as “an overwhelming, unpreventable event caused exclusively by forces of nature, such as an earthquake, flood, or tornado.” Simply put, under the force majeure doctrine, “No man is responsible for that which no man can control.” Cal. Civ. Code § 3526.

A force majeure clause in a contract essentially renders contractual performance too difficult or even impossible where an event (or series of events) triggers a force majeure clause, thus suspending, deferring, or releasing a party of their duties to perform without liability. See Cal. Civ. Code § 3531 (“The law never requires impossibilities.”).

In a commercial lease, if a force majeure clause is present, it will generally describe circumstances outside a party’s control that upon occurrence will excuse or delay a party’s performance, for instance, an act of terrorism, earthquake, flood, epidemics, and government action. Depending upon the language in the particular lease, the force majeure clause may permit either the landlord or tenant to terminate or suspend performance, if force majeure is applicable, for a period of time.

Insurance Provisions
In many commercial leases, insurance is required by the landlord, tenant or both. Other considerations landlords and tenants should understand is whose party’s insurance is triggered by closures or disruptions arising from COVID-19. Whose insurance (the landlord’s insurance, the tenant’s insurance or both policies) is triggered may depend on the specific language of the lease.

Additionally, although most businesses interruption coverage does not cover infectious disease, it is important to check with your insurance provider to see if you do have applicable insurance coverage. Due to the increasing time for processing claims and to meet notice requirements from insurance companies, it is strongly encouraged that clients promptly discuss their coverage polices with their insurance providers.

Condemnation/Eminent Domain
Under an eminent domain theory, many tenants and landlords may argue they are entitled to rent relief. Some tenants may contend that government action requiring businesses to close temporarily to prevent the rapid spread of COVID-19 effectively converts leased spaces for “public use” or a benefit to the public, requiring government compensation. Similarly, landlords may file their own eminent domain action to recover if the government has “taken” the property indirectly, because their tenants are impacted due to government action.

If an eminent domain provision is present in a lease, it will often provide the landlord or tenant with the right to terminate the lease in the event of a permanent taking. If government closures related to COVID-19 are deemed takings and last only for a short duration, many tenants may pursue rent abatements under the language of their particular leases.

Doctrine of Frustration of Purpose and Impossibility In the absence of a force majeure clause in a lease, there are other legal theories that may support a defense for nonperformance. The common law doctrine of impossibility may be raised to excuse contractual performance. The doctrine of impossibility is where, “after a contract is made, a party’s performance is made impracticable without fault by the occurrence of an event, the non-occurrence of which was a basic assumption on which the contract was made….” See Restatement (2d) Contracts § 261.

When invoking discharge of performance on a theory of impossibility, the courts will first look to the lease for guidance for any terms or conditions that may limit the use of this doctrine. The courts may also look to the lease to see whether the purpose of the lease is able to be fulfilled, even though the unforeseeable event has occurred.

Frustration of purpose is another similar common law defense to excuse contractual performance. The doctrine of frustration of purpose is available as a defense where contractual performance remains feasible but has become pointless. See Second Restatement of Contracts § 265. To succeed in asserting a frustration defense, the purpose or contemplation of both parties for which the lease was entered into must be frustrated.

Although both doctrines depend on the specific terms of the lease the difficulties presented by COVID-19, along with the associated government actions, these doctrines offer options to parties of a lease where a force majeure clause is not expressly stated in the lease.

As your business confronts the challenges of COVID-19, we are here to help. The following online resources are helpful address and answer questions concerning the impacts of COVID-19. Click on each topic to learn more:

Santa Barbara Public Health

Santa Barbara County Ready – Economic Recovery

California Coronavirus Response

Alcoholic Beverage Control COVID-19 Updates

You likely have many questions regarding how your business can operate and how to handle issues like revenue loss, employee layoffs, etc… as a result of COVID-19. To help you to navigate your business through this time, we have listed a few resources below that we hope you will find helpful.

Click on each of the topics below to learn more:

– Commercial Leasing in Crisis

– ABC Guidelines Based on License Type

– ABC Announces 30-Day extension on Annual License Renewal Fees and Late Renewal Penalty Fees

– Small Business Administration (SBA) Coronavirus Disaster Assistance

– Small Business Administration (SBA) Guidance for Businesses and Employers

– U.S. Chamber of Commerce Small Business Emergency Loan Guide

– Frequently Asked Questions Regarding Small Business Coronavirus Disaster Loans

– Tax Deadline Extensions, Access to Emergency Loan Capital, and Business Webinars

If you would like to receive more information about the topics listed above, or have any other questions, we are available to assist you with your legal and business needs:

inquiry@compassfirst.com | 805.222.0292

Stay safe & take care.

Regulatory Tools and Policies

– Fundamentally review/revamp zoning and permitting process to be more flexible to accommodate market and changing retailer and customer dynamics.

– Prioritize Economic Development within the City and work with other business organizations to clarify their roles.

– Identify beneficial retail categories and streamline permit process.

– Provide easy permits for temporary Pop-Up users.

– Facilitate infill housing or live/work space in back of vacant buildings along State Street.

– Incentivize a blend of residential, office, and hotel reuse of vacant commercial buildings.

– Expand community outreach efforts to get broad feedback on land use issues.

– Consider Specific Plan for zoning strategy/higher density on targeted sites.

– Facilitate development of new workforce housing, including micro units, between Chapala St. and Anacapa St. and utilize surplus parking spaces in City parking structures to meet onsite requirement and reduce development costs

– Encourage more creative office uses along State Street (e.g. Impact Hub, The Sandbox, and cowork zones).

– Work with MTD to expand evening bus services for State Street workers and visitors.

– Encourage window displays to avoid dead zones with 100 feet of frosted glass.

– Encourage UCSB to open a satellite campus downtown.

– Establish an Adaptive Reuse Zone with less restrictive building permit rules.

– Facilitate outdoor dining permits to yield major increase in restaurant sales.

– Encourage rooftop public dining areas along State Street.

– Provide process to allow for live music/amplified sound after 10 PM to attract customers in evenings.

Infrastructure Investment

– Provide free waterfront shuttle service on State Street.

– Improve image through public infrastructure improvements.

– Consider creation of pedestrian mall for 2-3 blocks on State Street, requiring closure of portion of State Street to vehicular traffic.

Marketing and Outreach

– Increase special events – facilitate and standardize the event permit process.

– Educate residents, City Council, and jurisdictional bodies on importance of State Street’s economic health to generate revenue for critical public services – +5 years of declining sales can cause a snowball effect, creating blight throughout the entire State Street corridor.

– Educate landlords/businesses and City on experiential, destination, and omni-channel retail trends and blended use so City can resolve “anti-business” reputation and image through marketing/branding and implementation.

– Increase local Santa Barbara resident patronage through special events and promotions.

– Consider concept of monthly or more frequent community events in Downtown (Consider using De la Guerra Plaza and other public spaces to host arts and music events).

– Create more experiences for shoppers (e.g. “Pop Ups”, entertainment, breweries, etc.).

The Kosmont team will present their findings to Council and the community at a public hearing on Thursday, July 25 at 4 PM at City Hall, Council Chambers, followed by public comment and Council discussion.

CLICK HERE to view the full report from santabarbaraca.gov.

CLICK HERE to view Santa Barbara Independent’s article on Kosmot Companies recommendations:  “Report Describes Santa Barbara Unfriendly to Business, Suffocated by Red Tape.” 

By signing this Executive Order, Governor Newsom also extended the cap on rental increases that automatically goes into effect during a state of emergency. Such anti-price gouging laws are intended to keep landlords and vendors from charging more in times of hardship (i.e. increasing the price of water when supplies are limited or charging higher rent to people displaced from their homes).

Penal Code §396 states that “Upon the proclamation of a state of emergency… it is unlawful for any person, business, or other entity, to increase the rental price… by more than 10 percent.”

Santa Barbara landlords are therefore unable to charge more than 10% higher than their rent levels that existed in December of 2017.  This rental cap is scheduled to remain in effect until December of this year, 2019.  Unless of course, the state of emergency is extended once again.

Violating this price-gouging law constitutes a misdemeanor, punishable by up to one year in jail and $10,000 in fines, per incident.  For owners of large multi-family apartment complexes, these fines can quickly add up.

Lack of awareness of the law is not a defense.  An apartment owner in Santa Rosa recently settled for nearly $60,000 in fines and penalties, once price gouging violations were brought to his attention.  The matter was quickly remedied with existing tenants.

Coupled with these “state of emergency” price caps, is the new City of Santa Barbara Ordinance No. 5885, recently passed in May of this year.  This requires local landlords to offer written leases to their tenants of at least one year, with offers going out or before September 9, 2019. Landlords will be violating Penal Code §396 if these leases include rent increases higher than the 10% cap.

So, without officially instituting rent control, Santa Barbara has implemented a cap on rental increases for the next year.  This may have been intentional or unintentional, if City Council was unaware of the interaction with state law when this was passed.

The headwind from Sacramento is pushing for tenant rights in a tightening residential market.  And residential landlords should take notice.

Selling the “potential” of low rental prices is becoming less of a benefit for income property, as the upside is now being capped.  And with Assembly Bill 1482 now on the table at the state level, which caps rental increases statewide at 7% annually, all indications are that rent control is here to stay.

Understanding First-Year Tax for California LLCs

Almost every registered California LLC and foreign LLC must pay a minimum annual franchise tax of $800. The tax cannot be prorated for partial years, so an LLC is required to pay the entire $800 in the first and last years of operation, even if the duration of operation is shorter than a full year. However, the tax can be waived for tax-exempt nonprofit LLCs, LLCs with S Corp tax status, and LLCs under the exclusive ownership of deployed U.S. Armed Forces members that do not perform any business activity for short durations of time during a calendar year.

The LLC tax is imposed for the privilege of being able to do business in California. It will continually accrue every year until the LLC is dissolved, regardless of whether it is active or inactive. The tax is variable and applicable or not depending on the total income of the LLC for each fiscal year. While most LLCs operate on a calendar year basis, others may opt for a different fiscal year.

Every non-corporation LLC that is conducting business in California or has filed a certificate of registration or an article of organization with the Secretary of State is required to file Form 568, which is also known as the Limited Liability Company Return of Income. In addition, they must pay the minimum annual franchise tax of $800 and the LLC fee, if applicable. LLCs that are exempt from the minimum franchise fee and the LLC fee but required to report income from California must file Form 565, or Partnership Return of Income.

Every LLC that is conducting business or has established or registered to conduct business in California is required to complete and submit Form 3522 to the California Franchise Tax Board on a yearly basis. In most cases, LLCs in California must file this form.

An LLC with gross receipts of at least $250,000 for the year must report a fee on Form 568 and pay the $800 annual franchise tax. In addition, an LLC with California non-residents as members is required to submit Form FTB 3832. LLCs must know that there is a distinction between the $800 annual franchise tax and the LLC fee. The annual franchise tax is included in line 3 of Form 568, but there is a credit for it in line 6 of the same form.

When Is the Annual LLC Tax Due?

The annual franchise tax is due on April 15 for LLCs operating on a calendar year basis and 15th day of the fourth month for those that use a fiscal year. If the due date is a weekend or public holiday, it will be moved to the following business day. Additionally, payments submitted or mailed and tax returns filed on April 18 will be regarded as timely.

An LLC’s first taxable year starts when it submits its Articles of Organization to the California Secretary of State. A foreign LLC’s first taxable year starts at the time of its organization in another state. In the event that the 15th day of the fourth month of the taxable year of an existing foreign LLC has passed before it registers with the Secretary of State or starts doing business in California, the annual franchise tax must be paid right after it registers with the Secretary of State or starts doing business.

When Should an LLC Use Form 3522?

California LLCs should file Form 3522 if:

• The California Secretary of State has accepted their articles of organization

• They have received a certificate of registration from the Secretary of State

• They are conducting business in California

What Information is Required in Form 3522?

In order to complete Form 3522, an LLC is required to provide the following information:

• Term of fiscal year

• Name of LLC

• DBA (Doing Business As)

• Full address

• Phone number

• EIN (Employer Identification Number)

• Secretary of State file number

• Amount of payment

How to File a Form 3522

Filing a Form 3522 is relatively simple. Steps include:

• Make your check or money order payable to the Franchise Tax Board.

• Include the California Secretary of State file number, and the Employer Identification Number (EIN), and what year’s FTB 3522 on the money order or check.

• Detach the payment voucher.

• Put your payment and voucher in an employer and send to: Franchise Tax Board, P.O. Box 942857, Sacramento, California 94257-0531.

• There is also an option to make the payment online, and if you go that route, there is no need to send in the Form 3522.

What Is the Penalty for not Filing the Annual Tax?

LLC annual tax payments are due by the 15th day of the 4th month after the beginning of the taxable year. If you do not pay by the due date, there will be a late-payment penalty plus interest assessed for failure to make the annual LLC tax payments. Penalties are calculated from the due date to when you make your payment.
If you cannot file the form in time, you may be eligible to file for an extension. The Franchise Tax Board has set extension dates based on your business type. LLCs are granted an automatic six-month paperless extension from the initial due date. It’s important to note that the automatic extension does not extend the payment due date. If you don’t pay your LLC fee or non-consenting member taxes by their original due date, the company should use a Payment Voucher for Limited Liability Companies, or FTB 3537.

Basics of Minimum Franchise Tax

California is one of many states that has a franchise tax levied against corporations and various other business types that wish to do business within California. All corporations, active or inactive, are subject to the minimum franchise tax, even if they have been operating at a loss for under 12 months or are filing a short-term return.

During its first year of business, a corporation is required to pay a certain portion of its net income. This is standard for all corporations, whether they are organized or incorporated in California, a foreign corporation qualified to conduct business, or they do business in California without being incorporated or qualified under the state’s laws.

There are several scenarios where the first year’s franchise tax can be waived:

• First-Year Exemption — California will waive the franchise tax for brand new corporations that have incorporated or qualify in the state since January 1, 2000. Corporations are instead liable for required franchise tax on the business’s net income. This exemption is not applicable to any corporation that is not qualified by the California Secretary of State, or those that attempt to reorganize just to get out of paying the required minimum franchise tax.

• “Short Accounting Period” 15-Day Rule — Corporations whose taxable year is 15 days or less don’t need to file provided they meet two criteria: They incorporate within the last 15 days of the current tax year, and they do not conduct any business during that time. They won’t need to file a tax return, so this short business period is not considered the company’s first tax year. Because the next tax year will be considered to be the company’s first tax year, it will be exempt from this year’s minimum franchise tax.

• Tax-Exempt Status — In some cases, the California Franchise Tax Board or the California Constitution may expressly grant tax-exempt status. California realized this was not immediately obvious to businesses, so to entice new companies to incorporate in California, they offered a waiver of minimum franchise tax for the first year of incorporation.

Why Some Businesses Avoid Incorporating in California

For many years, California had a reputation of being tax unfriendly towards businesses. This idea came about thanks to other states who wanted to pull businesses away from California. People believed it was unfriendly and started incorporating their businesses in states regarded as being more tax-friendly to companies.
This issue with this theory is that many states, California included, tax businesses based on where they conduct business, not what state they file documentation with. There is typically very little savings recognized by incorporating in another state and then doing business in California. Officials realized this was not immediately obvious to businesses so to entice new companies to incorporate in California, they offered a waiver of minimum franchise tax for the first year of incorporation.
This exemption is limited to California business corporations and does not apply to any business that incorporates in a different state or any other type of entity. The reason for this is because it is aimed at businesses to bring their corporations back to California rather than another state who is looking to improve its own tax base.

CLICK HERE to view full article at www.upcounsel.com

Fifty years after the Jan. 28, 1969, oil spill in the Santa Barbara Channel, the region is on the verge of another upheaval — the wholesale removal of aging oil infrastructure.

Seven platforms out of 19 in the channel have shut down operations and will likely be removed, starting in the 2020s, together with their piers, pipelines and onshore processing plants in Carpinteria, Goleta and Gaviota.

The oil companies themselves will bear most of the cost, billions of dollars overall. At the same time, the state Legislature has been forced to budget tens of millions because former owners have disappeared into history or declared bankruptcy.

The first task at hand is to plug dozens of offshore oil wells with cement, an expensive and time-consuming task

This year off Summerland, the State Lands Commission will be working on so-called legacy oil wells that were drilled in the late 1890s and are leaking oil onto the beach.

Off the Rincon this winter, Chevron Corp. will begin plugging wells at platforms Gail and Grace. And off Goleta, ExxonMobil will start plugging two wells in the surf zone at Haskell’s Beach, and 30 offshore wells at Platform Holly, starting in February and April, respectively.

“It’s an unusually happy moment to see change,” said Anne Wells, planning manager for the city of Goleta. “It’s something our entire community is witnessing. We’re moving in the direction of a coastline that’s free of our 1930 oil and gas history, into a new era of a natural coastline. I have to pinch myself.”

Untested waters

Platform Holly, installed in state waters two miles off Goleta in 1966, is slated to be decommissioned within five to seven years, state reports show; no platform of comparable size has ever been removed on the Pacific Coast.

And at least six more offshore oil platforms — Harvest, Hidalgo, and Hermoso off Point Conception, Habitat off Carpinteria, and Grace and Gail off the Rincon and Ventura County — may be removed around the same time. These platforms range in age from 32 (Gail) to 53 years old (Holly).

“Oil’s been here for a long, long time,” said Fred Shaw, a Carpinteria councilman who remembers the spill of 1969. “We’re used to looking at the rigs, but wouldn’t it be nice if they went away? The majority of the town would just prefer that that oil development wasn’t here.”

Decommissioning, though, will be a gargantuan task. The platforms were installed in water hundreds of feet deep, they weigh thousands of tons, and onshore disposal options are limited. The question of whether to leave the platform legs in place underwater – the “rigs-to-reefs” option – will have to be hashed out during environmental review.

Bringing a specialized vessel to the channel from Asia or the Gulf of Mexico to lift the platforms out of the water is a daunting proposition. The state estimates that the mobilization alone will cost operators between $11 million and $49 million before the vessel even begins work. Multiple operators may want to piggyback and reduce their costs.

“We could be looking at some fairly significant removals,” said John Zorovich, deputy director of county Planning & Development in the energy, minerals and compliance division. “I think that’s the direction we’ll probably be going in the next 10 to 15 years.”

Plugging the oldest wells

For residents such as Nora McNeely Hurley, it’s about time. From her home on the bluffs above Summerland Beach, she can see oil leaking into the surf zone from the legacy, or “orphaned,” wells that were abandoned after the drilling frenzy of more than a century ago.

“You see dolphins and whales and birds, and people in and out of the water,” Hurley said. “Little do they know how polluted it is. Directly out from our house are two wells leaking that deliver an iridescent film over the beach. It kills me it’s been going on for such a long time.”

Last year, at a cost of $1.2 million, State Lands plugged a legacy well that was spewing globs of black oil onto the sand. The two leaks that Hurley spotted had first been observed in 2016, and now they’re visible again. A stench of oil hangs in the air.

Because of the complexities of plugging legacy wells, it may be possible to work on only one per year, said Sheri Pemberton, a spokeswoman for State Lands. The agency also needs to conduct a geophysical study off Summerland Beach, she said.

“There are seeps along that stretch of coast that may become more active as we plug and abandon leaking wells,” Pemberton said. “We are committed to doing our best to ensure that oil on the beach is not coming from a legacy well.”

In Goleta, the two wells on Haskell’s Beach near The Ritz-Carlton Bacara are remnants of the Ellwood Oil Field from the 1930s, before drilling at the water’s edge was banned. After these wells are plugged, Exxon will remove the rusting rectangular caissons around the wellheads.

“The day they actually start demo-ing down the caisson walls is going to be a big day for celebration for this community and beyond,” said Wells, Goleta’s planning manager. “These wells are right in the surf zone, and we saw what happened in Summerland.”

Passing the buck

According to a Jan. 10 State Lands report to the Legislature, Exxon expects to spend as much as $350 million to plug 32 wells and remove Platform Holly. Plugging the offshore wells, one at a time, will take up to three years, and the platform cannot be removed until that work is finished.

Exxon sold Platform Holly to Venoco Inc. in 1997. But in 2017, two years after the Refugio Oil Spill, Venoco declared bankruptcy and quitclaimed its offshore leases to the state, leaving behind a meager $22 million bond for decommissioning.

A break in the Plains All American Pipeline, which transported Venoco’s crude to refineries, caused the spill, dumping 123,228 gallons of crude into the ocean at Refugio Beach. The pipeline remains shut down.

“Venoco walked away,” said Linda Krop, chief counsel at the Environmental Defense Center, a Santa Barbara-based nonprofit group. “Now they’re leaving us and other oil companies to clean up their mess.”

Onshore, Exxon contends it is not liable for removing Venoco’s former oil and gas processing plant at Haskell’s Beach, the Ellwood Onshore Facility. Negotiations are ongoing; the state’s position is that the company has the responsibility to assume nearly all the costs related to the decommissioning work.

But taxpayers are already shouldering some of the expense. Under an agreement with the bankruptcy court, the state report says, State Lands is operating the onshore plant and Platform Holly at a cost of $1.2 million per month so that Exxon can safely plug the platform wells. Without somewhere to ship the oil and gas, the pressure in those wells would build up dangerously.

State Lands estimates it will cost up to $83 million to keep the plant and Platform Holly running for three years. That’s equivalent to half the $160 million in revenues from royalties and rents that Venoco generated for the state there.

Goleta Mayor Paula Perotte is hoping her city will someday be able to create a park on the 4 acres where the former Venoco plant stands, a stone’s throw from Haskell’s Beach.

“That’s the goal,” Perotte said. “It would be the city’s first park on the beach. We all want that facility to be gone.”

Venoco’s bankruptcy also included platforms Gail and Grace, which lie in federal waters; and the Carpinteria Oil & Gas Plant. The plant is located on 55 acres on the Carpinteria Bluffs near a nature preserve, overlooking a harbor seal rookery.

Chevron, the company that sold the project to Venoco in 1999, has assumed responsibility for both onshore and offshore decommissioning. Looking ahead, the City of Carpinteria is considering whether to rezone the blufftop property for a park.

“A lot of us would hope that somehow we could acquire that space, which is really desirable, and create a parklike atmosphere along there,” Shaw said.

A 19th century bill comes due

Just up the coast in Summerland, no oil company can be held liable for the offshore legacy wells that are leaking onto the beach.

The wildcatters that stampeded the area in the late 1890s are long gone. In a kind of Gold Rush for oil, they erected the first offshore oil development in the United States — 14 wooden drilling piers and 400 shallow wells — and abandoned the mess after a big storm in 1902.

In a 2018 report to the Legislature, State Lands estimates there are 200 “high priority legacy oil and gas wells that could, depending on their condition, leak oil into the marine environment …”

Of these, 192 are off Summerland and eight are off Goleta, near Haskell’s Beach.

In 2017, the Legislature authorized $20 million through 2028 to identify and plug legacy wells and remove coastal hazards, including old steel pilings and jetties.

State Sen. Hannah-Beth Jackson, D-Santa Barbara, authored the legislation. Hurley’s family foundation, the Manitou Fund, donated more than $100,000 to Heal the Ocean, a Santa Barbara nonprofit group, partly to address the legacy wells. Heal the Ocean commissioned dive and aerial surveys, and the aerial photos helped swing the vote.

“We may not ever be able to cap all of the legacy wells,” Jackson said last week.

“They’re all inexcusable, but some are creating greater problems close to shore. The bill for the last hundred years is finally coming due, and it is sadly not being paid by those who have defiled the landscape, the seascape and the coast. It will be paid by taxpayers.”

View the full article HERE. 

Section 6829 of the Revenue and Taxation Code provides that the State Board of Equalization (BOE) may pursue collection action against certain corporate or limited liability company personnel for any unpaid corporate sales and use tax liability. Section 6829 states in part:

A) Upon termination, dissolution, or abandonment of a corporate business or limited liability company, any officer, member, manager, or other person having control or supervision of, or who is charged with the responsibility for the filing of returns or the payment of tax, or who is under a duty to act for the corporation or limited liability company in complying with any requirement of this part, shall be personally liable for any unpaid taxes and interest and penalties on those taxes, if such officer, member, manager, or other person willfully fails to pay or to cause to be paid any taxes due from the corporation or limited liability company pursuant to this part.

B) The officer, member, manager, or other person shall be liable only for taxes which became due during the period he or she had the control, supervision, responsibility, or duty to act for corporation or limited liability company described in subdivision (a), plus interest and penalties on those taxes.

C) Personal liability may be imposed pursuant to this section, only if the BOE can establish that the corporation or limited liability company had included tax reimbursement in the selling price of, or added tax reimbursement to the selling price of, tangible personal property sold in the conduct of its business, or when it can be established that the corporation or limited liability company consumed tangible personal property and failed to pay the tax to the seller or to report and pay use tax.

For more information you may download a copy of Regulation 1702.5, Responsible Person Liability, or contact your VENTURA field office at www.boe.ca.gov/info/phone.htm.

Listed below are a few key points that we feel important to highlight regarding current California Employment Law:

• As of January 1st, 2018 the minimum wage in California is $11.00/hour for employers with 26 or more employees, and $10.50/hour for employers with 25 or fewer employees. Some localities have enacted higher minimum wage rates.

• Misclassifying an employee as an “independent contractor” can result in fines from $5,000 to $25,000 per violation plus unpaid payroll taxes.

• You must keep records of all employees for the past 4 years. This includes: name, address, job type and last four numbers of their Social Security Number. For minors under 18, you must also list their date of birth.

• Failure to have workers’ compensation insurance may lead to a fine of at least $1,500 per employee.

• Drug testing of job applicants is allowed in California. An employer must provide applicants with notice of the drug testing requirement.

• Tips must be counted as separate from wages.

• An employer cannot deduct any credit card processing fees from a tip left to an employee through a patron’s credit card. Therefore, the full tip left by the customer must be given to the employee and the employer must pay the full cost of the processing fee.

• Workers must receive:
  • • • A paid 10 minutes break for every 4 hours of work.
      • An un-paid meal break of at least 30 minutes if they work 5 or more. However an employee can agree to skip meal breaks if the workday is 6 hours or less.

• A California employer may not make, adopt or enforce any rule, regulation or policy preventing an employee from being a whistleblower. 

Explore the resources provided to learn more about California Labor Law:

https://www.dir.ca.gov/letf/loh_Employer_bro_15_restaurants_P_press_singles.pdf

https://www.worklawyers.com/tip-gratuity-laws-california/

https://labor.ca.gov/laborlawreg.htm

BY RICK WEINBERG, California Business Journal

California is one of the worst-hit states when it comes to Department of Labor prosecutions, according to a new Fair Labor Standards Act lawsuit research tool released by TSheets, an employee-time tracking app, and Lexology, a legal research platform.

Private lawsuits have risen 456% since 1995, while Department of Labor investigations have collected more than $1.1 billion in back wages since 2009. These are alarming statistics for business owners, and new FLSA regulations set to take effect on December 1, 2016 are likely to cause a new wave of prosecutions when the overtime threshold doubles to more than $47,000.

Here are the California-related labor statistics:

• Total number of successful wage and hour prosecutions by the Department of Labor (DOL)  in California is 10,176 — this is 8.5% of the national total, putting California second behind Texas.
• Total cost of all wage and hour prosecutions by the DOL in California, in back wages and fines, is $162,711,709 (this excludes legal fees)
• Average cost per prosecution to each business affected is $15,989 (excluding legal fees)
• Top three worst affected industries are manufacturing (2,812 prosecutions, costing businesses $35,865,145), healthcare (1,541 prosecutions, costing businesses $25,097,433), and food services and accommodation (1,430 prosecutions, costing businesses $16,336,6620)

The new Fair Labor Standards Act lawsuit research tool is geared to help business owners gain new insight into steeply rising wage and hours lawsuits brought under the Fair Labor Standards Act.

Edward Costelloe, Managing Director of Lexology, says: ”We are excited about the opportunity to give our subscribers insight into the potential FLSA liability their clients may be exposed to. The FLSA research tool will be a valuable resource to business owners, HR professionals and legal professionals. It will make FLSA compliance more transparent and potentially cheaper.”

Matt Rissell, CEO of TSheets, adds, “The FLSA is relevant to almost every employer in the U.S. and with the looming overtime regulations estimated to affect at least four million employees, businesses everywhere need to act today to get the insight they need to prepare and protect themselves. Our research shows that four out of every five Labor Department investigations leads to a prosecution. These costs can be devastating — but so could the overtime costs that are about to hit. If you don’t know how many hours your salaried employees beneath the threshold are working, it’s time to find out — as soon as possible.”

Keri Nelson, executive director of the Rockford, IL, Habitat for Humanity says, “We were honestly shocked to find out that many of our salaried staff members were putting in way more than 40 hours a week. That information gives us the power to make an informed decision about how to comply with the new FLSA regulations while keeping our employees whole.”

Interactive FLSA wage and hours research tool here.

Also see: the research tool (scroll to “The Data in Context” and “Trends in the Data”).

Additional article: “What You Need to Know About FLSA Wage and Hour Lawsuits,” which is based on a discussion between three leading labor law attorneys and covers why FLSA lawsuits have been on the rise, what companies can do about them, and what impact the new overtime regulations will have.

CLICK HERE to view full article.

Gross Lease: In this type of lease, the rent is all-inclusive. The landlord will pay for most expenses that are associated with the property from the rent that he/she receives from the tenants. This typically will include taxes, insurance, maintenance, janitorial services and sometimes utilities. It is important for the potential tenant to inquire what type of janitorial services will be provided and how often, as well as what utilities are provided. Also, if any utilities will be billed back to the tenant in the case of excessive consumption. If so, a cap should be clarified on the lease. In a gross lease the tenant will still be responsible for their own insurance and taxes.

This is a great lease for the tenant as it allows them to budget each month without having any unforeseen costs arise. The landlord focuses on the building so that their tenants can focus on managing and growing their businesses.

Net Lease: In a net lease, the landlord charges a base rent for the space plus additional cost for building maintenance and operations which may include: real estate taxes, property insurance, common area maintenance, utilities, landscaping, parking, etc…

Triple Net Lease: The most popular type of Net Lease is a Triple Net (NNN) where the tenant pays the base rent plus all or part of the three “nets” associated with the building – property taxes, insurance and common area operating expenses. The tenant is also responsible for paying for their own utilities, insurance and taxes.

Triple Net Leases tend to be more landlord friendly which is why it is important for the tenant to carefully review all fees and work to negotiate caps on the amounts that they can be billed annually.

The benefits to a Triple Net Lease are that the building expenses are made transparent to the tenants, and the base rent tends to be lower than in a gross lease as the tenant is responsible for more of the building operating costs.

Absolute Triple Net Lease is a more binding and strict NNN lease. Tenants carry all of the risk for the building such as costs of rebuilding after a natural disaster or continuing to pay rent even if a building has been condemned. The tenants have ultimate responsibility for the building regardless of circumstances.

When evaluating and negotiating options for a commercial lease be sure to compare the different lease options with all expenses in mind. While a NNN Lease may seem more appealing because of the lower base rent, the additional building operating costs will determine the true monthly rental rate. Market forces should however tend to even out leases across similar spaces, regardless of their type. Be sure to read over your lease carefully and clarify what expenses you will be responsible for so that you can have a more accurate idea of how much to budget for each month. Any potential additional charges should be identified and caps negotiated, whenever possible.

Contact us for assistance with lease negotiation and execution.

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inquiry@compassfirst.com