In a commercial lease agreement, a business rents office space or another business property from a landlord. In simple terms, the term “commercial” refers to leases for business purposes instead of residences. From a small, growing business to a large multinational corporation, anyone can be a commercial tenant.
Commercial Lease Terms Lawyers
- Are Commercial Tenants Protected by Law Outside of the Lease Agreement?
- How Are Commercial Leases Generally Structured?
- Maintenance and Renovations
- Is Looking for a Commercial Lease Substantially Different Than Looking for a Residential Lease?
- What Are Some of the Terms I Should Pay Close Attention to When Determining if the Lease is Right for My Business?
- The Difference Between Commercial and Residential Leases
- Choosing the Right Lease for Your Business
- Should I Discuss a Commercial Lease with a Lawyer before Signing It?
Are Commercial Tenants Protected by Law Outside of the Lease Agreement?
Commercial and residential leases differ in terms of dispute resolution as well. Tenants may be able to rely on local housing laws and consumer protections to help protect their rights. In contrast, a commercial lessee is generally restricted to the rights set forth in the lease agreement.
Some states require landlord disclosures or other lease terms. Generally, these are limited to major public health and safety issues such as asbestos warnings or if the property is being used for illegal activities.
How Are Commercial Leases Generally Structured?
Apart from a flat monthly or annual rent arrangement, there are several types of commercial leases:
- Net lease: The tenant pays all or part of the taxes, insurance, and maintenance costs that would otherwise be borne by the landlord.
- Double net lease: Taxes, insurance, and rent are paid by the tenant.
- Triple net lease: Taxes, insurance, maintenance, and rent are all paid by the tenant.
- Percentage lease: A specified percentage of the tenant’s sales or profits is used to determine rent.
- Fully-serviced lease: This type of lease includes utilities and other services the tenant normally pays separately (common in office buildings with multiple tenants).
Maintenance and Renovations
The landlord is generally responsible for routine maintenance in a commercial lease, such as HVAC repairs or landscaping. However, the lease may place some or all of this responsibility on the tenant.
Cleaning services are an important consideration. A balance must be struck between convenience-especially in office towers where the landlord provides janitorial services to all tenants-and potential security concerns. Including this clause in the lease helps to prevent disputes.
Commercial leases often include provisions for renovations. It may be necessary for office space tenants to move walls, for restaurants to change their layout, and for manufacturers to purchase specialized equipment. However, the tenant must obtain permission from the landlord.
Renovations should also be stipulated in the lease. As a common lease concession, the landlord pays for the initial renovation to make the property suitable for a long-term tenant.
Since they own the building, the landlord usually carries insurance for fires, floods, and other disasters. Nevertheless, some commercial leases pass the cost directly to the tenant instead of including it in the rent.
Generally, tenants want to protect themselves against liability and personal property damage. Landlords may require these policies to protect themselves from being included in a claim against a tenant.
Is Looking for a Commercial Lease Substantially Different Than Looking for a Residential Lease?
Some aspects of a commercial lease make it significantly different from a residential lease. A commercial lease usually lasts longer and is more difficult to get out of than a residential lease. Commercial leases also tend to have fewer consumer protections. In terms of negotiation, commercial leases tend to have more flexible terms that can be worked out between the parties.
It is a big responsibility to lease commercial space — the success of your business may depend on certain lease terms. Before you approach a landlord, you should know how commercial leases differ from the more common residential variety. Before you sign anything, make sure you agree with the basic terms of the lease, such as the rent amount, the length of the lease, and the physical configuration of the space.
What Are Some of the Terms I Should Pay Close Attention to When Determining if the Lease is Right for My Business?
You should examine a number of provisions, including:
- Lease term: You need to consider how long you will want to use the property for your business and what kind of renewal options the lease provides for.
- Rent: Know how much the rent is, the payment method, and if there are any opportunities for an increase in rent.
- Additional Costs: Know what the property taxes are and if you will be responsible for paying for the maintenance of the property.
- Security Deposit: Know how much you will need to put down for a commercial lease deposit and what conditions you need to meet to get your deposit back.
- Modifications: Do any improvements or modifications need to be made for you to conduct business on the property.
- Subleasing: Find out if you can sublease the property to another party.
- Disputes: Set up a system ahead of time for resolving any disputes involving provisions of the lease.
The Difference Between Commercial and Residential Leases
Commercial leases and residential leases are fundamentally different, both practically and legally. Here are some of their main differences:
- Fewer consumer protection laws: Consumer protection laws do not apply to commercial leases. For example, there are no caps on security deposits or rules protecting tenants’ privacy.
- No standard forms: Most commercial leases do not follow a standard form or agreement; each commercial lease is tailored to the landlord’s needs. Due to this, you should carefully examine any commercial lease agreement you are offered.
- Long-term and binding: Commercial leases cannot be easily broken or changed. This is a legally binding contract, and a lot of money is usually at stake.
- Negotiability and flexibility: Commercial leases are generally subject to more negotiations between the business owner and the landlord. Businesses often require special features in their spaces, and landlords are often anxious to obtain tenants and willing to extend special offers.
Choosing the Right Lease for Your Business
Make sure a lease agreement meets the needs of your business before you sign it.
Make sure you can afford the rent and the lease length before applying. If you can avoid it, you probably don’t want to sign a five- or ten-year lease; your business may grow faster than you expect, or the location may not be right. Short-term leases with renewal options are usually safer.
Consider the physical space as well. Whenever your business needs to make changes to the existing space, such as adding cubicles, raising the loading dock, or rewiring for better communications, make sure you (or the landlord) will be able to make those changes.
Some of the less obvious stipulations in the lease may be just as important to your business’s success. Make sure your lease allows you to put up a visible sign from the street if you expect your camera repair business to rely on walk-in customers mostly. Make sure your lease prevents the landlord from leasing space to a competitor if you plan to be the only sandwich shop inside a new commercial complex.
Should I Discuss a Commercial Lease with a Lawyer before Signing It?
Often, business owners miss one or more of the legal formalities in a lease that could have a profound effect later on. It’s important to consult with an experienced real estate attorney before signing a lease for your business. A property lawyer can help you understand all the lease provisions and help you negotiate terms that would be most beneficial to your business.
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