A commercial lease agreement can be used to rent any kind of property that is not used for people to live in it. This means that your tenants will have business needs that must be met as well as rules and regulations that they must follow based on the zoning of the property. Your own requirements for the way that the location is cared for and operated will also need to be included in the details of your lease agreement. Just looking at a commercial lease agreement template might not give you enough information to go on to write your own.
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Commercial Lease Agreement Templates
What is a commercial lease agreement?
A commercial lease agreement is used to rent any property. This might be an office, a store, a warehouse, or some other kind of property where business is done. Tenants will do business at this location, and you will need to meet their needs while they will need to comply with your demands and requirements for the use of your property. Commercial lease agreements define the relationship between the tenant and the landlord carefully so that both parties know what the requirements are for the relationship.
The commercial lease agreement or a commercial property lease template gives tenants the legal right to use the property and to operate their business so long as their business is a lawful one. The tenant just has to agree to pay rent and to comply with your requirements for the way that they do business on your property.
There are four main kinds of the commercial lease agreements that you might need to use to rent a property to a tenant. You should be aware of these different form types so that you can be sure that you are using the right kind of form for the situation at hand.
- Full-Service or Gross Lease. This arrangement is made when the rental rate includes all the property operating expenses as well as utilities and maintenance. Real estate taxes are almost always included as well as part of the rent. The landlord will need to reserve the right in this kind of agreement to pass down any kind of future increases in costs to maintain and own the building to the tenant.
- Net Lease. This agreement does not include any of the operating costs in the rental rate. This means that there is base rent, and then the tenant pays all other costs pro-rata on top of the base rent. This is the “operating cost” to use the property, and it can vary as taxes and local costs increase. Common area maintenance is also included in this part of the costs. The CAM will also include utilities and operating expenses.
There are different kinds of net leases. The Triple Net Lease allows the tenant to pay a portion of the property tax, the property insurance, and the CAM. With a Double Net Lease, the tenant will pay a portion of the property taxes and property insurance. When a Single Net Lease is signed, the tenant just pays for a portion of the property taxes.
- Modified Gross Lease. In this leasing style, the tenant’s cost is a hybrid of the gross lease and a net lease style agreement. The operating expenses are negotiated and split between the tenant and landlord in this arrangement. This means that in most cases, the tenant pays for base rent and CAM, and the landlord takes care of the property taxes and property insurance.
- Percentage Lease. In a percentage lease, the tenant pays the base rent for the property and then a monthly percentage of the gross revenue from their business that is housed in the building or space. This is usually only used for retail businesses and is not suitable for many other business types.
Business Lease Agreements
What should be included in a commercial lease agreement?
No matter the rest of the details of the commercial lease agreement that you are drafting, you will need these basic items to be included in your document for it to be binding and enforceable.
- Landlord. This is also the person who is the lessor. This is the party who owns the commercial property and wants to rent it to someone else to use for their business.
- Tenant. This person is also called the lessee. This is the person who rents a commercial property to do business out of it.
- Term. This is the number of years or months that the tenant agrees to rent the space and pay for it. You can use this part of the contract for an agreed-upon duration, or you might just indicate that this agreement will be renewed from month to month. Most of these contracts renew automatically if no one breaks the contract, but you do not have to set up your commercial lease agreement in this way.
- Demised Premises. This is a description of the physical space that the tenant is tenting. This might be retail space in a mall or an entire building that a business is operating out of. There will need to be a property map that gives the details of the property’s design and arrangement. This part of the commercial lease agreement will also indicate the parking, the cleaning requirements, what security is in place, and any rules about landscaping maintenance, snow removal, and heating and air conditioning.
- Real Property. The entire property might be owned by the landlord or just one unit in a larger building might be the space that is offered for rent. Commercial properties often have shared common areas like walkways and parking lots that other tenants will use.
- Base Rent. This is the amount of the base rent. This is the cost to use the space alone without any other cost considerations. Even if you are just charging a flat rate for your rent, part of this total amount will be your base rent, and you need to indicate that in this section of the document.
- Operating Costs. Landlords often ask tenants to share or split the total operating costs for the whole of a large building that has many common spaces. If you are the only renter, you will be charged for these fees and costs without splitting them with anyone else. This is often charged as a flat fee, but you can also pro-rate these costs in any way that you choose.
- Security Deposit. This is the amount that is given to the landlord in good faith that the lease will not be broken early and that the property will not be damaged. The deposit is often used to hold the property before moving into it.
- Property Use and Occupancy. The use of the property and the total occupancy that it can bear are built into the agreement that a tenant signs for a good reason. These items are often laid out by county or state law and cannot be altered or ignored. Rules about the way that the business will be operated might also need to be in place in locations that serve food. Items like garbage removal and after-hours noise might be called out here too.
- Improvements. Changes to the property and modifications must be made with the permission of the owner, and they might also be done at the cost of the tenant. Many renters of commercial property do not need to make changes to it in order to rent it out. They might also not want you to make changes to the property if they cause the property to be hard to rent to others later.
Simple Commercial Lease Agreements
How to review a commercial lease agreement
This can be the hard part of the process, as reviewing your own document can be almost impossible. You should consider having a legal expert look at the document that you have created to be sure that it can be used for the intended purpose and that it is legally enforceable. Make sure that you also include any references to laws that need to be included to make it clear which state or county laws can be enforced if the contract is not followed by the tenant or the property owner.
You can also have someone that you work with look at the document, but this will only be useful if they are familiar with the commercial lease agreement and what is required. Consider the following when you are looking over your document and trying to decide if it is legally binding and correctly made.
- Who should pay for the utility services and the garbage and sewage disposal?
- What will happen if there is a fire or some other disaster that takes place and causes damage to the property that must be repaired?
- Where would disputes be handled? This will be the jurisdiction and laws that are used to govern the business and the property itself.
- Whether or not the parties in the lease can arbitrate or litigate in court.
- When can the landlord inspect or examine any damage done to the premises and require that repairs be made?
- What will happen to the lease if the tenant’s business fails?
- How will the landlord and tenant deal with any instances where eminent domain is involved, and the government takes all or part of the premises for public purposes?
Some people also worry about ADA compliance in relation to the lease that they are offering to tenants. Under the ADA’s guidelines, if a commercial property is open for business and hires more than 15 people, the doors have to be widened, and ramps have to be installed. These are national guidelines, and they cannot be ignored even if this would mean prohibitive costs for the business or landlord.
ADA considerations and compliance are important, and you and your tenants have to meet the needs of this protected class of people if the property does not already meet these demands. This is something that most landlords try to make sure is in place before they rent out a property to a commercial business, but some spaces are so small that these considerations are never made since the use of the location will not require these changes.