Commercial Lease Agreement

What is a commercial lease agreement?

A commercial lease agreement is a document outlining the responsibilities of a landlord and tenant when a commercial property is being rented. A commercial lease agreement acts as a legally binding contract which allows a business the right to occupy the Landlord's property for business or commercial activities in exchange for paying rent. For more information about commercial lease agreements, please refer to the guide Leasing a Commercial Space: Find the best fit for your business.

What are the different types of commercial lease?

Commercial leases generally fall into two categories. The first type of commercial lease is when a business rents a portion of a landlord's building that houses multiple commercial tenants. The second type of commercial lease is when a business rents an entire building from a landlord. This document can be used for either of these situations.

What is the difference between a commercial lease and a residential lease?

Though both documents are meant to facilitate a landlord and tenant arrangement, they are used in different situations. A commercial lease is used when the tenant plans to do business in the space they are renting. A residential lease agreement is used when the tenant plans to live in the space they are renting. Each type of lease includes provisions specific to each of these purposes.

Is it mandatory to have a commercial lease?

No, it is not mandatory to have a commercial lease agreement. A landlord and tenant are free to enter into a rental relationship without creating a formal contract memorializing the arrangement. However, using a written commercial lease agreement is highly advisable because it protects both the landlord and the tenant. By making each party's rights and responsibilities clear and upfront in writing, potential misunderstanding is avoided.

What is a "security deposit"?

A security deposit is money paid from the tenant to the landlord at the start of the lease. This money is often the equivalent of one month's rent and is meant to be used by the landlord to cover any damages that happen to the property through the fault of the tenant. At the end of the lease, if there is no damage, the security deposit is returned to the tenant.

What is "exclusivity"?

In the context of a commercial lease agreement, exclusivity is when the landlord agrees not to rent to any other tenants who have a similar type of business to the tenant making the lease. For example, if the tenant is a coffee shop, an exclusivity clause would specify that they be the only coffee shop that is allowed to operate on the premises. The landlord would be barred from renting any other spaces on the premises to other coffee shops without prior written consent from the tenant.

What is "liability insurance"?

Liability insurance covers any legal fees or other losses that arise from injuries that happen on the premises and result in a lawsuit against the business. A commercial lease may require that the tenant maintain a certain amount of liability insurance.

What must a commercial lease agreement include?

A valid commercial lease agreement must contain at least the following mandatory clauses:

• Contact information: The commercial lease agreement should include the name and contact information for all the involved parties, including the landlord and the tenant.
• Premises details: The commercial lease agreement specifies the address of the premises that is being leased. It should also describe the premises, including the square footage, the common areas such as hallways, restrooms, and elevators as well as how the landlord measures the space (some measurement practices include the thickness of the walls).
• Important dates: The commercial lease agreement lays out when the lease is set to begin and end.
• Payments: The commercial lease agreement outlines how much the tenant will pay, when those payments will be made, and how those payments will happen. The commercial lease agreement also states how much the tenant will pay as a security deposit.
• Property insurance: The commercial lease agreement specifies who will be responsible for obtaining and maintaining property insurance that will be used in case of any damage to the premises or the tenant's property. The lease states the minimum amount of property insurance coverage the tenant is required to have.
• Maintenance: The commercial lease agreement describes which party will be responsible for maintaining different parts of the premises, such as the electric, plumbing, and heating/air conditioning.
• Utilities: The commercial lease agreement assigns responsibility to each party who will be responsible for paying the individual utilities, such as gas, water, and electric.

In addition to the above mandatory information, the following information may also be included:

• Rent increase: The landlord has the option of including a provision that the rent will increase over the term of the lease, for example a flat dollar amount increase each year.
• Use restrictions: The commercial lease agreement may describe the specific ways in which the tenant is allowed to use the premises. For example, this includes operating hours, types of business conducted, or any other details about what the premises may be used for.
• Exclusivity: The commercial lease agreement can include a provision stating that the landlord will not rent out any other areas of the building to businesses that are similar to the tenant's business. For example, if the tenant is a coffee shop, an exclusivity clause would specify that they be the only coffee shop that is allowed to operate on the premises. The landlord would be barred from renting any other spaces on the premises to other coffee shops without prior written consent from the tenant.
• Furnishings: If furnishings are included with the rental, the commercial lease agreement can include a list of the furnishings that are included.
  
  

What can the duration of a commercial lease agreement be?

There is no maximum or minimum amount of time that the commercial lease agreement can last. However, most commercial lease agreements are for a period of years, as businesses generally try to stay in the same place for as long as possible.

What should be done once the commercial lease agreement is finished?

When the commercial lease agreement is written and all the relevant information has been included, both the landlord and the tenant should sign and date the document. The parties should each keep a copy of the agreement for reference and in case of future dispute. The signing does not need to be witnessed, and the document does not need to be notarized for it to go into effect.

Which laws are applicable to commercial lease agreements?

Commercial lease agreements are governed by a combination of federal, state, and local laws. The Americans with Disabilities Act, a federal law, mandates that all public buildings be accessible to people with disabilities. Commercial spaces must have accommodations, such as wheelchair ramps and larger bathrooms, to comply with this law. Environmental protection laws, such as the Clean Air Act and the Clean Water Act, govern environmental standards. In a commercial space, this may affect things such as waste disposal or manufacturing practices.

Local zoning laws impact how spaces may be used. Only buildings that are zoned for commercial use may be used to conduct business. There can also be restrictions on the types of businesses that are allowed to operate in a particular space. Local laws usually control building and safety codes that dictate structural requirements, occupancy limits, and fire safety.

A commercial lease agreement is a binding contract that will be upheld in a court of law in any state. When there is a written agreement, courts generally uphold the terms of the agreement. In contrast to many of the common and implied protections contained in a residential lease and the associated laws, these protection laws do not exist for commercial leases. Therefore, the commercial lease itself must contain the entirety of the agreement and the terms that the parties agree to be bound by.

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