Commercial Lease Agreement

Commercial Lease Agreement

Alternate Names:

A Commercial Lease Agreement is also known as a/an:

• Commercial Property Lease

• Business Lease

• Industrial Lease

• Commercial Real Estate Lease

• Office Space Lease

What is a Commercial Lease Agreement?

A Commercial Lease Agreement is a contract used when renting business property to or from another individual or company. It gives the tenant (also known as a lessor or renter) the right to use the property for business purposes during the term of the lease in exchange for payment to the landlord.

Generally, a commercial lease covers the landlord and tenant information, which can include a guarantor, the rent, the duration of the lease term, and any pertinent information which constitutes as a term of the lease.

You should use a commercial lease if you:

• Own an office building, retail, or restaurant space and wish to rent work space to other businesses and individuals

• Own a warehouse, industrial (like manufacturing buildings or factories) or other commercial space that you would like to lease to another business

• Own other non-residential property that can be used for commercial spaces like self-storage facilities, medical clinics, and hotels

• Are a tenant leasing commercial space from a landlord

What are the different types of commercial leases?

Although each commercial lease can vary, there are several general terms (defined below) that can help you understand more about the different types of commercial leases:

In a gross lease, the tenant is responsible for rent payments only; the landlord is responsible for all other payments related to the property.

In a net lease, the tenant is responsible for rent payments, and one or all of the following expenses: property tax, property insurance, and property maintenance.

Is it important to refer to the terms of your particular lease to ensure that you understand which party is responsible for each cost.

What are the types of lease terms for commercial properties?

There are different types of terms that you can choose from when creating your Commercial Lease Agreement.

Fixed End Date Lease: This type of lease specifies the exact end date of the tenancy. This is beneficial to both parties as the length of the lease is predetermined, the rent cannot be increased during that period, and no changes may be made to the lease unless the landlord includes a clause in the lease and the tenant agrees.

Fixed Number of Weeks/Months/Years: This type of lease specifies a time period for the lease in terms of weeks, months, or years. A tenancy may last for whatever period the landlord and tenant agree upon. The landlord may not increase rent or change any of the lease terms unless it was specified in the agreement.

Periodic Lease: A periodic tenancy can be made up of weeks, months, or years and will continue until either party terminates the lease. The most common type is the month to month tenancy. A landlord can generally increase rent and make changes to the terms if he or she provides proper notice (e.g. 30-60 days) to the tenant.

Automatic Renewal Lease: A lease based on an automatic renewal means that the lease continues on the agreed upon terms until either the landlord or the tenant gives notice to terminate the contract. An automatic renewal allows the contract to continue on the same terms as previously negotiated even after the term has ended.

For example, if a renter was on a 12 month lease with an automatic renewal, the lease could continue to be binding and valid even after the 12 months if both parties are in agreement. If neither party objects, the lease would simply renew for another 12 month period.

What are a landlord's responsibilities with commercial property?

When leasing an office, retail space, restaurant, or industrial space, landlords (or lessors) have a number of different issues to keep in mind, including:

Property Specifications: It is up to the landlord to ensure that commercial use is permitted on the property and the property will satisfy the specific type of commercial use for the tenant's activities. For example, one generally cannot operate a restaurant in an office type building unless very specific building codes and bylaws have been satisfied.

Property Use: The landlord must decide and permit how the tenant will use the property for their business. The tenant needs to specify what type of business they will be running (real estate, finance, etc.).

Exclusive Use: The landlord must choose if the tenant will be allowed exclusive use, which means the tenant would be the only party in that building to conduct their type of business. An example would be only allowing one coffee shop in the strip mall.

Lease Terms: Commercial lease terms may follow a weekly, monthly, yearly, or longer term that may either be on a fixed renewal or a periodic tenancy.

Operating Costs and Utilities: The tenant can either pay a percentage of the utilities and operating costs, or a fixed rate on top of their rent. It is up to the landlord to choose the cost distribution, and whether the tenant will pay the landlord or if the tenant will pay the utility companies directly.

Taxes: Some landlords require that the tenant pays a share of the property tax. The amount, whether it will be a percentage or a fixed portion, is up to the landlord.

Parking: When parking is available, it may either be free, included in the rent, or charged as an additional fee.

Improvements: Sometimes a tenant will require that certain improvements be made to the property in order to assist them in properly conducting their day-to-day business. A landlord needs to approve these changes and, depending on what they are, pay for and complete them. Improvements can transfer to the tenant at the end of the lease and generally depreciate in value during the term of the lease.

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