The Commercial Lease: What You Should Know

The Commercial Lease: What You Should Know

People shaking hands, commercial real estateCommercial leases differ from residential leases in ways that may impact business operations. A commercial attorney who is familiar with complex language and commercial lease terms can explain important differences.

Commercial leases and residential leases are written differently, and those differences can impact business operations and success. Here are some important distinctions:

  • Commercial leases have fewer consumer protection laws. Laws don’t require caps on security deposits or rules that protect a tenant’s privacy.
  • Most commercial leases are not based on a standard lease form. Leases are customized for tenant needs, but generally written to favor the landlord’s needs.
  • A commercial lease is a legally binding contract with specific lease terms. It is difficult to make changes or break the lease after it is signed.
  • Commercial real estate leases are generally subject to more negotiation. Since commercial leases involve larger rents and longer lease terms, landlords are often willing to extend special offers.

Critical Lease Terms

Understanding key points in the lease before signing it is essential for business operations and future growth. It’s critical to understand and agree with important lease terms such as the amount of rent, the length of the lease, and the configuration of the physical space. A commercial attorney can review a lease and negotiate favorable terms with a landlord before commitments are finalized.

Rent

Monthly rent, as well as required security deposit, should be clearly stated. It’s essential to know if the lease is a gross lease that includes property taxes, insurance, and maintenance costs in the rent, or a net lease where those costs are charged separately. The rent should also note any allowable increases or escalations and how increases will be calculated.

Length of the Lease

The length of the lease should clearly state the beginning date and maturity date. Since most commercial leases are written for longer terms, 5 to 10 years, renewal options, sublet options, and expansion options are important. The lease should also state termination specifics, including notice requirements, penalties for early termination, and whether disputes can be mediated or arbitrated.

The Physical Space

It’s important to understand the specifics of the space that’s rented and how the landlord measures the space, including common areas such as hallways, rest rooms and elevators. If improvements or modifications are part of the lease agreement, it’s critical to know who’s paying the bill, the tenant or the landlord, and who owns improvements when the lease ends. Generally, that is the landlord.

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