It is important that to understand what commercial leasing is. A commercial lease is first and foremost a contract. It is a contract between a landlord (usually the owner of the property) and the tenant (usually the person/company that will be renting the property). Many businesses choose to rent the property out of which they operate their business, as it requires less capital up front. A commercial lease agreement tends to be much more complicated than a residential lease and there are fewer “governmental” protections for the commercial tenant compared with the residential tenant. You need to understand the terms and know the responsibilities and the rights of each party before you enter into any commercial lease.
Commercial Lease Terms
You should ensure that the lease terms are going to meet the needs of your business before you do any commercial leasing. Some terms you want to include are as follows:
- Rent– in most cases the basic rent will be calculated based upon the square footage of the property. You will often be required to pay additional rent to cover such things as repairs, taxes, insurance, and utilities (often called “CAM” for common area maintenance charges, or “TMI” for taxes, maintenance and insurance).
- Term – the length of the lease. Commercial leases will often last for 2 or more years and in some cases can last decades when options to renew are taken into account.
- Security deposit – if a deposit has been paid, the lease needs to indicate what amount will be paid toward the first month, and how much will be held for a security deposit and how this deposit is going to be used, topped up or returned.
- Improvements – a lease should also set out what types of modifications or improvements will be made to the property and which party will be paying for them.
- • Property description – The lease needs to clearly describe the property, and the tenant’s rights to any other areas such as parking, common areas, pylon sign or a kitchen.
- Signs – You should ensure that the lease sets out what rights you have/need vis a vis signage. Do you need signs on the building, inside, on the pylon sign? You should check with local zoning requirements to see what you can and cannot do in terms of signs.
A use clause will define the activities that the tenant can engage in when on the property. This helps to protect the property from damage and it limits the liability of the owner. You should consider an exclusivity clause to restrict the landlord from renting the property to a competitive business, especially if you are in a retail complex. You should ensure you understand your right to sublet and/or assign the lease. This is critical because the tenant has an obligation to pay the rent, even if the business is relocated or it fails.
Get Professional Help
You should speak to a lawyer about commercial leasing before you sign either an offer to lease or a lease, as they can help you understand commercial leasing and your rights.