Renting a commercial space is a big responsibility. Anytime you are renting a commercial space to a tenant, you're going to need to have them input information and signed a commercial Lease agreement prior to them actually having access or moving to the building.
What is a Commercial Lease Agreement?
A commercial lease is a contract between the landlord and the business for the rental of property. Items such as security deposits, taxes, expenses, obligations for repairs, construction of the premises to be leased and more are also covered in this type of lease. Commercial Lease is often referred as Business Lease.
This type of agreement permits the usage of the property for any commercial purpose that brings monetary benefits. Property like shop and office comes under the commercial category. Along with several clauses the agreement has everything written on it like the property's address, start and finishing date of the agreement, renewal and termination provisions of the agreement in any circumstances. The fixed rent as well as the advance if paid is also clearly stated in the commercial lease agreement. A good lease agreement can protect the rights and investments of both the tenant and the landowner.
Commercial Lease Agreements vs. Residential Lease Agreements
The variations and the scope of negotiation in the lease terms make the commercial lease agreement more complicated than the residential leases. A proper understanding of the lease terms, rights and responsibilities holds utmost importance before signing a commercial agreement. There are significant differences between a residential and commercial lease. Commercial lease offers:
- Fewer legal protections: Consumer laws applicable to residential lease agreement don not cover commercial leases. State laws provide less protection against deceitful landlord practices to the business people.
- Varied terms: A landlord can use a standard form in many cases for the residential leases whereas no such scope is present in commercial leases due to the varied needs of the tenant.
- Negotiable terms: Commercial lease terms are usually negotiable with terms like rent amount, rent increases, the length of the lease, the ability to assign a lease, and allowable improvements subject to change.
- Longer terms: In comparison to the residential leases the duration offered in the commercial lease agreement are often for several years.
Important Commercial Lease Agreement Terms:
It is important to make sure that the terms and conditions will meet the needs of the business before signing the lease agreement. Commercial lease generally includes the following terms:
- Rent Amount: The rent amount will be calculated by the Landlord based on the square footage of the space.
- Rent Increase: A clause for the annual percentage-based rent increase should be mentioned in the lease agreement.
- Security deposit: The lease should verify the amount of the security deposit and the terms regarding its return.
- Length of the lease: A short-term lease with an option to renew is a better alternative than a lengthy term.
- Improvements: The scope of improvements and modification to the original property should be mentioned clearly, which party will pay for the improvements and whether it is the responsibility of tenant to return the unit to its original condition should be clearly mentioned in the agreement.
- Description of the property: A proper description of the property under lease should be present in the agreement.
- Use clause: This clause is necessary to define the activity the tenant can engage in the premises. These clauses are in place to protect the property from damage and limit the liability of the property owner. If possible, ask for a broad usage clause just in case the business expands into other activities.
The terms and condition of the lease should be spelled out very carefully. This lease is very prone to disputes in court. The more specific the terms and condition of the lease are the less are the chances of dispute later on. You can take help from law firms like SOR Solicitors to make sure that all the formalities with the lease agreement are smoothly performed.