A Commercial Lease Agreement serves as the cornerstone for a successful business arrangement between a property owner (landlord) and a business operator (tenant). This legal document delineates the terms, rights, and obligations that both parties must adhere to for the smooth operation of a business on a rented property. In this blog, we'll explore the key aspects of a Commercial Lease Agreement, different types, and what elements to include in this critical document.

Table of Contents

• What is a Commercial Lease Agreement?
• What to Include in a Commercial Lease Agreement?
• Sending a Commercial Lease Agreement
• How to Write a Commercial Lease Agreement
• Frequently Asked Questions
• Commercial Lease Agreement Sample

What is a Commercial Lease Agreement?

A Commercial Lease is a legally binding document that outlines the agreement between a landlord and a tenant regarding the use of a commercial property for business purposes. It specifies the base rent, potential additional fees (such as operating costs, taxes, maintenance, and parking), and the rights and responsibilities of both parties.

Different Types of Commercial Lease Agreements

What to Include in a Commercial Lease Agreement?

Essential Elements:

• Landlord and Tenant Information: Clearly identify the parties involved.
• Term: Define the duration of the lease.
• Demised Premises: Specify the rented space and its details.
• Real Property: Outline the entire property, including common areas.
• Base Rent and Operating Costs: Detail the costs associated with leasing, including any shared operating expenses.
• Security Deposit: Establish an amount to ensure the tenant's commitment.
• Property Use and Occupancy Details: Clearly define the purpose and restrictions of the rented space.
• Improvements: Clarify responsibilities and costs for any modifications or alterations.

Additional Considerations:

• Utility Services: Define who covers services like sewage disposal.
• Insurance and Damage: Address scenarios involving property damage.
• Dispute Resolution: Specify how disputes will be handled, whether through mitigation, arbitration, or litigation.
• Business Failure and Eminent Domain: Outline procedures if the tenant's business fails or if eminent domain comes into play.
• ADA Compliance: If applicable, ensure compliance with the Americans with Disabilities Act (ADA).

Sending a Commercial Lease Agreement

Sending your meticulously crafted Commercial Lease Agreement marks a pivotal step in establishing a successful Business Partnership. Optimize the process by converting the document into a secure PDF, ensuring the preservation of its formatting and content during electronic transmission. The convenience of email facilitates a swift exchange, allowing parties to review the terms at their own pace. This digital approach not only expedites the signing process but also aligns with contemporary business practices, minimizing delays and administrative burdens.

Whether you choose a digital or traditional route, emphasize the importance of a thorough review. Encourage open communication to address any queries promptly. Sending the agreement as a PDF allows for a paperless exchange while maintaining the document's legal integrity. On the other hand, a printed document for in-person signing adds a personal touch to the transaction, fostering a sense of commitment and collaboration. Whichever method aligns with your preferences, the key is to ensure a smooth transition from document creation to agreement execution, laying a solid foundation for a prosperous landlord-tenant relationship.

Remember, clarity, transparency, and responsiveness are vital elements in this phase of the leasing process. This approach not only fosters trust but also sets the stage for a positive and cooperative business journey.

How to Write a Commercial Lease Agreement

Before you write your commercial lease agreement, indicate the state you are contracting in.

Step 1 – Write the Effective Date

Effective Date. Provide the effective date of the commercial lease agreement.

Step 2 – Fill in Landlord and Tenant Information

Landlord Information – Enter the landlord’s full name or company name, whether the landlord is an individual or entity, and the landlord’s address.
If the landlord is a company, provide the full name and title of the company’s representative who will sign the agreement.

Tenant Information – Provide the tenant’s full name or company name, whether the tenant is an individual or entity, and the tenant’s address.

If the tenant is a company, write the full name and title of the company’s representative who will sign the agreement.

Step 3  – Identify Premises

Demised Premises – Specify the type of commercial property being leased. You can write one in if none of the options provided describe the property type.

If the commercial building or complex has a name, give that name (e.g., Westfield Mall). Provide the street (physical) address of the commercial property.
Include a suite number if applicable.

You can also choose to include a map of the property, which will attach to the end of the agreement as Exhibit A.

Size of Premises – Enter the approximate number of square feet of property. You can calculate the square footage by multiplying the length by the width. Provide the approximate percentage of the property about the total leasable area in the building or complex.

Common Areas – Indicate whether or not the demised premises includes common areas.

Parking Spaces – State what kind of parking privileges the tenant may use, if any. If parking privileges exist, specify whether or not they include any parking spaces or only a specific number.

You can also write additional information, such as where the parking spaces are located, whether or not the tenants can assign or sublet their parking spaces, and whether or not tenants must pay a fee to park.

Storage Facilities. Specify whether or not the tenant has the right to storage facilities. If yes, describe the storage facilities and state whether or not the tenant must pay a fee for storage.

Step 4 – Describe Lease Terms

Term of Lease – Provide the start and end date for the lease term. The term is the length of time the tenant will rent the space.

Renewal – Indicate whether or not the tenant may renew the lease. If yes, state the number of years for the renewal term.
Also, specify whether or not the rent will increase if renewed. If yes, state whether the base rent will increase by a percentage or dollar amount.

Lastly, provide the number of days before the end of the lease that the tenant must give the landlord written notice of renewal.

Step 5 – Note Rental Terms

Base Rent. Specify the dollar amount of the base rent (starting cost) and how often the tenant will pay the rent (i.e., monthly or annually).

Additionally, state the day of the payment period that rent is due (i.e., 1st day of the month or 5th day of the quarter) and the payment method.

Operating Cost. Indicate whether or not the base rent includes any portion of the building’s operating costs. If not, state the monthly amount the tenant must pay for a proportionate share of the operating expenses.

Specify the maximum percentage of the total operational costs for the tenant’s share and the percentage of the expenses reserved for significant repairs and renovations.

If the tenant underpays their share of the operating costs, specify the days the tenant must pay the amount due.

Step 6 – Choose the Tax Option

Taxes. State whether or not the tenant is responsible for real estate property tax and assessment payments. If yes, specify whether or not the base rent includes the real estate property taxes.

Step 7 – Discuss Past Due Payments

Past Due Payments – Provide the grace period (number of days) before a late charge is due if the tenant is late with rent payments. Specify whether the late charge will be a percentage of the monthly rent or a dollar amount per day.

Additional Late Charges – You can choose whether or not to charge interest in addition to the late fee if the rent is more than a certain number of days late.

Step 8 – Note Security Deposit

Security Deposit – Write the total dollar amount of the security deposit the tenant shall pay the landlord. Specify whether or not the security deposit will accrue interest.

Remember that some states and cities require landlords to pay interest on security deposits.

Step 9 – Enter Holdover Details

Holding Over – If there is a holdover (the tenant stays on the property past the end of the lease term), the landlord may charge a specific amount over the base rent for the period past the expiration of the lease term.

State the number of times the base rent is due immediately.

Step 10 – Describe the Use, Occupancy, and Condition of the Premises

Use and Occupancy. Enter the commercial or business purpose and the tenant’s use of the property.

Specify whether or not the landlord will provide janitorial services. Indicate whether or not the tenant agrees to these statements by selecting the appropriate and relevant statements.

Additionally, If the tenant agrees to the statement regarding no smoking within a certain distance from the property, state the length in feet.

Condition and Acceptance of Premises. The tenant has a specific number of days after moving in to notify the landlord of any defects discovered on the property. State the number of days the tenant has to provide notice.

Step 11 – Indicate Property in Demised Premises

Right to Leasehold Improvements. Choose whether or not the tenant may make improvements to the property. If yes, state whether or not the tenant may remove their trade fixtures and equipment at the lease end.

Fixtures and Furnishings Provided by Landlord. Specify whether or not the landlord will provide any fixtures or furnishings. If yes, state the fixtures and furnishings supplied. You can write on any of your own.

Personal Property Taxes of Tenant. Specify whether the landlord or tenant will pay the personal property taxes on the fixtures and furnishings.

If the tenant is responsible for the taxes and needs to pay back the landlord for such taxes, state the number of days the tenant has to pay after receiving notice from the landlord.

Step 12 – Enter Repairs and Maintenance Details

Landlord’s Obligation to Repair and Maintain. Choose the items the landlord must repair and maintain on the property. You can write any other items.

Also, state whether or not the tenant is responsible for the costs of any maintenance, repairs, or replacements the tenant’s actions cause.

Tenant’s Obligation to Repair and Maintain. State the items the tenant is responsible for repairing and maintaining on the property. You can write any additional items.

Remodeling. State whether or not the tenant must obtain the landlord’s permission before painting, remodeling, or installing equipment, wires, or displays.

Liens. Specify the number of days after actual notice of the filing of a lien; in the event, the landlord files a lien on the property, the tenant has to release the lien.

Step 13 – Discuss Insurance and Indemnification

Tenant’s Public Liability and Property Damage Insurance. The tenant must buy public liability and property damage insurance for the leased property. State whether or not the tenant must add the landlord as an additional insured on the policy.

Write if the policy will have a minimum aggregate policy or a limit of liability per occurrence.

Specify the minimum aggregate amount or minimum liability amount per occurrence. Also, state the required maximum deductible dollar amount.

Certificate of Insurance. Indicate the number of days the tenant has to provide written notice to the landlord that the insurance policy is facing cancelation.

Landlord’s Insurance. State whether or not the landlord’s property insurance on the building includes operating costs.

Step 14 – Address Signage

Exterior Sign. State whether or not the landlord must approve the tenant’s exterior business sign before installation. Specify whether the landlord or tenant is responsible for the cost of the business sign.

Other Signs. Note whether or not the landlord must approve any other signs, banners, or advertising visible from the outside of the property before installation.

Step 15 – Choose Utility Services

Utilities. Specify the utilities the tenant must pay. You can write any other utilities not listed. Also, note the utilities the landlord will pay. You can write any utilities not listed.

Step 16 – Document Access, Surrender, and Assignment

Fixtures and Equipment Installed by Tenant. State whether tenants, upon lease end, can remove the trade fixtures and equipment they installed.

Assigning and Subletting. Specify whether or not the tenant can sublease the property with the landlord’s prior approval.

Step 17 – Discuss Damage to Premises

Substantial Damage. Provide whether or not the cost of repair or replacement for substantial damage in the event of a fire or another disaster is measured by a percentage or dollar amount.

Specify the amount that the replacement value must exceed the cost of repairs.

Additionally, state the days after fire or disaster, the parties have to end the lease.

Partial Damage. State whether or not the landlord or tenant is responsible for repairs in the event of partial damage due to fire or another disaster.

Also, specify the days after receiving insurance payments; if fire insurance proceeds are insufficient to repair the premises, the landlord must end the lease.

Step 18 – Enter Eminent Domain Details

Condemnation of Demised Premises. State the percentage of the property or common area that must be taken if a part of the property is subject to eminent domain for the landlord to end the lease early.

Additionally, specify the number of days after the receipt of the compensation; in the event, the landlord is insufficiently compensated, the landlord has to end the lease early.

Step 19 – Fill in Default Information

Rights in the Event of Default of Tenant. Specify the number of days after receipt of the landlord’s written notice the tenant has to pay rent or fix a problem.

Default of Landlord. State the number of days after receipt of the tenant’s written notice the landlord has to fix a problem.

The landlord must make a reasonable faith effort to start fixing an issue that would reasonably take longer than a specific number of days. State the number of days to cure the problem.

Step 20 – Write Miscellaneous Details

Governing Law. Choose the state’s laws that will govern the construction of this commercial lease agreement.

Dispute Resolution. Note whether the tenant and landlord will resolve disputes if there are any disputes through court litigation, binding arbitration, mediation, or mediation then arbitration.

In conclusion, a well-crafted Commercial Lease Agreement is essential for fostering a positive landlord-tenant relationship. It provides a solid legal foundation for business operations and helps mitigate potential conflicts. Ensure that your agreement covers all relevant aspects and consider seeking legal advice to address specific concerns. If you have questions about ADA compliance, be sure to consult the Americans with Disabilities Act and document your decisions accordingly.

Frequently Asked Questions

What are the main types of Commercial Lease Agreements?

There are four main types:

• Full Service or Gross Lease: Includes all operating expenses in the rental rate.
• Net Lease: Requires the tenant to pay additional operating expenses.
• Modified Gross Lease: A hybrid where operating expenses are shared.
• Percentage Lease: Involves a base rent plus a percentage of gross revenue, commonly used in retail.

Can a Commercial Lease Agreement be customized?

Yes, commercial lease agreements can and should be customized to address specific needs. Consider adding clauses on improvements, lease transferability, and rent structure to suit the unique aspects of your agreement.

Commercial Lease Agreement Sample