What is a Commercial Lease Agreement?

Owning and leasing commercial property to businesses can deliver high returns. There are several types of commercial real estate. These properties can be lucrative, so a commercial lease agreement is typically more complex than a residential lease. Investors and property owners must understand the details before negotiating and signing contracts. Read on to learn more about commercial leases.

Commercial Lease Agreement: What You Need to Know

A commercial lease agreement is a contract between a commercial property owner and a business tenant using the property. The lease outlines terms like rent amount, the term of the lease, and the various obligations of both parties.

Types of Commercial Leases

You’ll find various lease types throughout the commercial real estate industry. Here are some common leases:

• Gross Leases: These leases involve the tenant paying a base rent and the landlord covering all property expenses. This arrangement can simplify the financial agreement but usually results in higher rent for the tenant.
• Single Net Leases: These leases require the tenant to pay the base rent and property taxes. They are less common but are helpful in some circumstances.
• Double Net Leases: Under these leases, the tenant pays property taxes and insurance while the landlord covers maintenance. They’re attractive because they balance expenses between the two parties.
• Triple Net Leases: The tenant pays rent and most operating expenses with this lease type. The tenant will cover taxes, insurance, and maintenance, while the owner may handle major repairs. These are good for landlords as they deliver predictable returns with few worries about fluctuating costs.

Important Lease Terms

Commercial leases include various terms that outline financial and other responsibilities. Understanding these terms is critical for creating and negotiating lease agreements.

• Base Rent: This covers the basic rent amount the tenant pays. The terms may also outline annual rent increases.
• Lease Term: The lease term specifies the length of the lease, typically three to five years in most standard leases.
• Security Deposit: Property owners must protect their investment with a security deposit. The owner typically holds the deposit in an escrow account and returns it to the tenant, pending an inspection.
• Rent Payments: This term covers the payment schedule and penalties for late payments. Monthly and quarterly payments are standard in commercial leases.
• Property Description: The lease agreement should describe the property, including its size, location, and any shared areas like lobbies or parking lots.
• Use Clause: This limits the tenant’s permitted use of the space to ensure compliance with zoning laws. For example, it may outline that the client may only engage in retail activities in a retail space.
• Maintenance: The agreement should specify which party is responsible for maintenance and outline maintenance requirements and obligations.

These are some common basic lease terms. Depending on the property owner’s and tenant’s needs, you may need various other terms.

Do you need help with commercial lease agreements? Click here to contact the Shuffler Commercial Real Estate team. We know commercial leases and can help you negotiate favorable terms. Reach out now to learn more.

Thanks for visiting!