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Commercial Lease

A commercial lease agreement is a legal document that permits a tenant to rent a property for business purposes, detailing the rights and responsibilities of both the landlord and tenant. The agreement typically includes terms regarding rent, operating costs, and property usage.

Key Components of a Commercial Lease Agreement

  • Landlord: The owner of the commercial space.
  • Tenant: The business renting the commercial space.
  • Term: The duration of the lease, including start and end dates.
  • Demised Premises: The specific space being rented, including size and amenities.
  • Real Property: The entire property, including shared areas.
  • Base Rent: The initial rental cost.
  • Operating Costs: Shared expenses for property upkeep.
  • Security Deposit: Funds to ensure lease compliance.
  • Usage: Permissible uses of the property and any restrictions.
  • Improvements: Terms for property alterations.

Commercial Lease Payment Structures

There are four primary types of payment structures in commercial lease agreements:

Full Service or Gross Lease

  • Landlords Pay: All property operating expenses.
  • Tenants Pay: A rental rate that includes all operating expenses, with potential clauses for future increases.
  • Common Uses: Often used in office buildings and some retail spaces.

Net Lease

  • Landlords Pay: Structural maintenance of the building.
  • Tenants Pay: Base rent plus a pro-rata share of property taxes, insurance, and standard area maintenance (CAM).
  • Types of Net Leases:
    • Triple Net Lease: Tenant pays property taxes, insurance, and CAM.
    • Double Net Lease: Tenant pays property taxes and insurance.
    • Single Net Lease: Tenant pays property taxes.
  • Common Uses: Common in commercial real estate, especially for single-tenant properties.

Modified Gross Lease

  • Landlords Pay: Generally property taxes and insurance.
  • Tenants Pay: Base rent and sometimes CAM, with specifics negotiated.
  • Common Uses: Versatile across various commercial properties.

Percentage Lease

  • Landlords Pay: Similar to other lease types, may include structural maintenance.
  • Tenants Pay: Base rent plus a percentage of gross revenue from their business.
  • Common Uses: Primarily in the retail sector, especially in malls.

Types of Commercial Property

  1. Industrial Space: Properties for manufacturing, storage, or shipping.
  2. Office: Categorized into Class A, B, and C based on appearance, age, and amenities.
  3. Retail: Properties where businesses sell goods or services, including shopping centers and stores.

How to Lease a Commercial Property

Step 1: Decide on a Leasing Strategy and Market the Property

Choose a method for marketing the property, such as hiring a broker or using online platforms.

Step 2: Screen Potential Tenants

Request documentation to assess tenant reliability, including credit reports and financial statements.

Step 3: Negotiate the Rent and Agree to Terms

Discuss rent and draft a letter of intent outlining significant terms.

Step 4: Finalize Rent and Property Expenses

Set commercial rent and clarify who bears property expenses.

Step 5: Draft the Commercial Lease and Measure the Available Space

Ensure the lease meets legal requirements and accurately reflects the property size.

Step 6: Lease Signing and Occupancy

Complete the leasing process with the signing of the lease.

Additional Clauses in Commercial Lease Agreements

  • Custom Terms: Tailored clauses for specific arrangements.
  • Utilities: Clarification on utility responsibilities.
  • Disaster Management: Procedures for handling property damage.
  • Dispute Resolution: Defined methods for resolving disputes.
  • Inspection and Repairs: Conditions for landlord access.
  • Business Failure: Lease fate if the tenant’s business fails.
  • Eminent Domain: Handling of government requisition situations.
  • Commission Rates: Typically range from 4-6% for the first five years, decreasing thereafter.
  • Hazardous Waste Compliance: Tenants must comply with environmental regulations.
  • Americans With Disabilities Act (ADA): Requires accessibility for individuals with disabilities in commercial properties.

ADA Compliance in Commercial Leases

The ADA applies to commercial properties open to the public and employing more than 15 people, requiring both landlords and tenants to ensure accessibility.

How to Write a Commercial Lease Agreement

Step 1: Write the Effective Date

Indicate the effective date of the agreement.

Step 2: Fill in Landlord and Tenant Information

Provide full names and addresses for both parties.

Step 3: Identify Premises

Specify the type and address of the commercial property, including size and parking details.

Step 4: Describe Lease Terms

Outline the lease term, renewal options, and any rent increases.

Step 5: Note Rental Terms

Specify base rent and payment frequency.

Step 6: Choose the Tax Option

State tenant responsibilities for property taxes.

Step 7: Discuss Past Due Payments

Provide details on grace periods and late charges.

Step 8: Note Security Deposit

Specify the amount and any interest provisions.

Step 9: Enter Holdover Details

State terms for holdover situations.

Step 10: Describe Use, Occupancy, and Condition of the Premises

Outline permitted uses and janitorial services.

Step 11: Indicate Property in Demised Premises

Specify rights to make improvements and any furnishings provided by the landlord.

Step 12: Enter Repairs and Maintenance Details

Outline landlord and tenant responsibilities for repairs.

Step 13: Discuss Insurance and Indemnification

Specify insurance requirements for both parties.

Step 14: Address Signage

State approval requirements for exterior signs.

Step 15: Choose Utility Services

Specify utility responsibilities for both parties.

Step 16: Document Access, Surrender, and Assignment

Outline rights regarding fixtures and subleasing.

Step 17: Discuss Damage to Premises

Provide details on responsibilities for substantial and partial damage.

Step 18: Enter Eminent Domain Details

Specify conditions under which the lease can be terminated due to eminent domain.

Step 19: Fill in Default Information

Outline rights and responsibilities in the event of default.

Step 20: Write Miscellaneous Details

Specify governing law and dispute resolution methods.

How to Send a Commercial Lease Agreement

Finalize the agreement by saving it as a PDF and emailing it for signatures or printing it for in-person signing.

FAQs

A commercial lease agreement is a legal document that allows a tenant to rent a property, such as an office or store, for business purposes. It outlines the rights and responsibilities of both the landlord and the tenant, including terms related to rent, operating costs, and property usage.

There are four main types of commercial lease payment structures: Full Service or Gross Lease, Net Lease, Modified Gross Lease, and Percentage Lease. Each structure varies in how operating expenses are handled, with some including all expenses in the rent and others requiring tenants to pay additional costs.

To screen potential tenants, request a completed commercial lease application, a photocopy of their driver’s license, bank references, credit reports, and previous landlord references. Additionally, ask for personal and corporate financial statements, a business plan, and prior tax returns to assess their reliability.

A commercial lease agreement should include details such as landlord and tenant information, lease term, premises description, rental terms, operating costs, security deposit, and usage guidelines. It may also contain clauses for improvements, utilities, dispute resolution, and insurance requirements.

The ADA requires commercial properties to ensure accessibility for individuals with disabilities, impacting both landlords and tenants. If a tenant operates a business open to the public and employs more than 15 people, they must comply with ADA standards, which may involve modifications to the property.

Leasing a commercial property involves several steps: deciding on a leasing strategy, screening potential tenants, negotiating rent and terms, finalizing rent and property expenses, drafting the lease, and completing the lease signing and occupancy process.

Percentage leases are primarily used in the retail sector, particularly in malls and shopping centers. In this arrangement, tenants pay a base rent plus a percentage of their gross revenue, aligning the landlord’s income with the tenant’s business success.

Landlords are typically responsible for structural maintenance of the building, while tenants are responsible for maintaining the leased space and any repairs caused by their actions. Specific obligations should be clearly outlined in the lease agreement.