A commercial lease agreement is entered into by a property owner and tenant in relation to a commercial property. Meanwhile, a residential lease agreement is for residential properties. A commercial lease is a legally binding contract that outlines the rights and responsibilities of both parties. Commercial lease agreements are generally for a fixed amount of time and involve a set monthly or annual rental amount. It is important that lease agreements be carefully worded so as to avoid any misunderstandings or legal conflicts.
Commercial Lease Agreement Provisions
A typical commercial lease agreement covers a standard set of issues, beginning with the address of the property and its type. Property type is generally a matter of local ordinances in relation to the types of business activity allowed on site.
Terms and Rental Payments
The terms of a commercial lease agreement stipulate how long the agreement is in effect. It can be a fixed amount of time or one that is periodically renewed throughout the life of the lease. In terms of rent, lease agreements stipulate the amount of rent to be paid and whether it is paid monthly, quarterly, or annually.
Allowed Business Activities
Lease agreements normally stipulate the types of business activities that are allowed on the property. This may be subject to both local ordinances and landlord preferences.
Tenants often wish to make improvements to the commercial properties they rent. Most lease agreements stipulate ownership of leasehold improvements in order to avoid conflicts later on.
Security Deposit and Damages
A typical lease agreement stipulates any amount of security deposit due and how said deposit is applied to damage at the end of the lease.
In addition to the above, a commercial lease agreement often includes language addressing:
- lease renewal provisions
- landlord and tenant improvements
- property reassignment and subletting
- tenancy termination
- insurance requirements.
Commercial Lease Rental Arrangements
There are four primary rental arrangements for commercial lease agreements:
1. Base Rent Arrangement
A base rent arrangement is where the tenant agrees to pay a certain amount of base rent excluding additional operating costs. Those additional costs are the tenant’s responsibility.
2. Percentage Lease
This type of arrangement charges the tenant a base rent plus a certain percentage of gross income. Percentage leases are fairly common in retail centres like strip malls.
3. Triple Net Lease
A triple net lease is a lease arrangement under which the tenant agrees to pay all the expenses associated with using the property. This means the tenant pays rent, utilities, and all maintenance and repair costs.
4. Gross Rent Lease
A gross rent lease is an arrangement in which the tenant agrees to pay a base rent plus additional stipulated expenses related to the property itself. For example, the tenant may pay rent and improvement expenses. All other operational expenses are covered by the landlord.
Commercial Lease Agreement Template
If you’re looking for pre-made template of a commercial lease agreement, you can visit Law Depot. They offer an easy-to-use service to create your own lease. It combines a do-it-yourself commercial lease with the guidance of their service.
Insurance provisions are a major factor in any commercial lease agreement. They stipulate the responsibilities of both parties in terms of insurance requirements. It is foolish for either party to enter into a lease agreement if insurance provisions are poorly defined or inadequate.
Tenant Insurance Provisions
As a general rule, commercial lease agreements require tenants to carry comprehensive liability policies. These are policies that cover things like property damage, property loss, bodily injury, and death. Additional insurance might also be required. Landlords might require tenants to insure fixtures, furniture, improvements, tenant inventory, and property mechanics (boilers, glass, etc.).
Landlord Insurance Provisions
As a rule, commercial lease agreements require landlords to carry insurance policies as well. A comprehensive liability policy covering bodily injury, death, and property damage are a must. Additional insurance to cover building mechanics, fire, and acts of nature are typically requested as well.
Commercial lease agreements can be complicated. Therefore, it is wise for both landlords and tenants to employ the services of an experienced attorney before signing any such agreements. Attorneys are the most qualified to recommend any changes that might be warranted.