2026 Commercial Construction & Real Estate Law: What’s Changing and Why It Matters
Beginning January 1, 2026, a series of new state and local laws will materially impact how commercial construction projects are paid, permitted, designed, leased, insured, and transacted. While many of these changes are technical, their downstream effects on cash flow, schedules, compliance risk, and asset performance are significant.
Below is a closer look at the most consequential updates shaping the 2026 commercial construction and real estate landscape—and what stakeholders should be thinking about now.
Construction Payment & Retention Rules Tighten
New legislation under SB 440 and SB 61 introduces stricter timelines and stronger enforcement mechanisms around construction payments. Owners will be required to formally respond to payment claims within 30 days, with undisputed amounts paid within 60 days. Failure to comply carries meaningful penalties, including 2% monthly interest on late payments and expanded rights for contractors to suspend work for nonpayment.
Retention rules are also changing. The allowable cap is being reduced from 10% to 5%, and general contractors may no longer withhold more retention than what the owner withholds upstream. Together, these provisions shift the balance toward predictability and transparency—but they also require updated payment workflows and tighter internal controls.
Faster Dispute Resolution and Streamlined Permitting
The same legislation reshapes how construction disputes are handled. Written responses to claims will now be mandatory within 30 days, and mediation is required before litigation, reinforcing early resolution and reduced legal escalation.
On the permitting side, San Diego is moving toward faster tenant improvement approvals. Office TI projects under 20,000 square feet may qualify for same-day permits through the city’s Professional Certification Program, provided plans are certified by licensed architects or engineers and submitted digitally. For projects planned correctly, this could materially shorten preconstruction timelines.
Title 24 Energy Standards Increase
California’s Title 24 energy standards will see another step change in 2026, particularly for renovation and alteration work. Cool roof reflectance thresholds will rise to 80–85, continuous insulation requirements are being updated, and projects that alter more than 50% of a space or exceed 2,000 square feet will trigger compliance.
While these standards introduce additional upfront coordination and cost considerations, they also deliver measurable benefits. Energy savings are projected in the 20–30% range, with improved tenant comfort, operating efficiency, and long-term asset value.
Commercial Tenant Protections Expand
Commercial leasing will see heightened scrutiny under SB 1103 and AB 628. Qualified tenants will gain the right to audit operating expenses, with landlords required to provide itemized documentation. Noncompliance carries serious exposure, including attorney fees and potential treble damages.
Notice requirements around rent increases and non-renewals are also tightening, extending advance notice periods depending on lease terms and increase thresholds. Separately, AB 628 will require functioning stoves and refrigerators in applicable commercial units beginning January 1, 2026, applying to new, amended, or renewed leases.
For owners and managers, this is less about new construction and more about recordkeeping, lease language, and operational discipline.
Fire Zones, Disaster Recovery, and Risk Planning
Expanded High and Very High Fire Hazard Severity Zones designated by CAL FIRE will introduce new defensible space requirements and disclosure obligations. These designations may also affect insurance availability, premiums, and financing terms—particularly for assets near urban-wildland interfaces.
In the event of disasters, SB 610 clarifies recovery obligations. Units contaminated by disasters are presumed untenantable, rent must pause during remediation, and landlords are required to fully remediate before tenants may return. These provisions underscore the need for proactive risk planning rather than reactive response.
Real Estate Transactions Face New Oversight
Real estate transactions will also change in 2026. Buyer representation agreements must now be signed before property showings and are limited to 90-day terms. Listings that include digitally altered images must include clear disclosures, and unsolicited offers in designated fire zones will be prohibited, with penalties reaching $25,000.
At the federal level, FinCEN reporting requirements take effect March 1, 2026, mandating seven-day disclosures for all-cash real estate purchases involving LLCs or trusts—adding another layer of compliance to deal structuring.
Planning Ahead
While each of these changes targets a specific area—construction, leasing, energy, risk, or transactions—the common theme is earlier planning and tighter coordination. Payment structures, design decisions, lease administration, and transaction timelines will all benefit from proactive adjustment well before 2026.
The firms that treat these updates as strategic inputs—rather than last-minute compliance hurdles—will be better positioned to manage risk, protect schedules, and preserve asset value.