Commercial Leases FAQ and Facts
Commercial leases are different than residential leases and this article will explain the basics of commercial leases and what you should look for when obtaining one for your business.
Basic Provisions
The terms of most commercial leases will typically be for a year or more. The average lease terms can last from 1 to 10 years long but have been known to be for durations lasting up to 99 years. Best practices dictate that any lease should be in writing but this is especially the case for those that are for more than one year - the statute of frauds could apply. Commercial lease contracts try to make sure that all characteristics of the relationship between landlord and tenant are covered by the agreement. A commercial lease should stipulate what the rights and obligations are for each party and the provisions will try to spell out every detail.
An enforceable commercial lease should contain the following provisions or items:
- names all landlords and tenants
- description of the premises being leased
- street address and building name or number
- list of common areas (hallways, lobbies, elevators and parking areas, etc.)
- the price to maintain common areas
- lease payment amounts and a schedule of any increases
- when and how the payments are to be paid (e.g., check or money order)
- any charges for late payments
- duration - the length, or "term," of the lease
- amount of the security deposit and how it is to be returned
- how utilities are to be paid including when there are multiple tenants
- who pays property insurance
- how and when the lease can be terminated
- whether there is an automatic renewal of the least upon its expiration
- what the tenant is required to fix or maintain
- the exact purpose for which the property is to be used
Prohibited Provisions
There are several items that commercial and residential leases cannot contain:
- Disallow or otherwise discriminate or bar someone from the lease because of discrimination of any kind.
- Eliminate or diminish the landlord obligation to comply with the American with Disabilities Act. Commercial landlords must make the premises accessible to all people, regardless of a disability.
- Give the landlord rights above what state laws allow when it comes to entering the premises of the tenant without his or her permission.
Common Commercial Leases
There are several different types of commercial leases and a specific type may apply to dependent upon the kind of commercial space or location being leased. For example, commercial property in the center of town will not have the same type of lease provisions as commercial property in a suburban area. By their nature, commercial leases can fall and are usually placed under the categories of spaces: (i) retail, (ii) office, (iii) warehouse, (iv) ground and (v) mixed use leases. Other sub headings and typical special requirements are listed below:
- Gross lease – a tenant will be responsible for paying taxes and insurance on the property.
- Net lease – tenant will pay base rent and a percentage of maintenance fees, insurance premiums and other related expenses.
- Triple-net-lease – used for leasing freestanding building, tenant pays fees and other expenses.
- Shopping Center Lease – base rent is paid on square footage. Tenant can be assessed a portion of the property tax and can be required to pay a percentage of gross sales.
- Land Lease – tenant leases bare land and builds on the property. Improvements go to the owner when the lease is over.
Advantages of Commercial Lease
Businesses that do not have enough capital to purchase land and buildings will resort to commercial leasing but it can have advantages. Leasing property can allow the business to grow at a faster speed than when the owner has to come up with sufficient funds to mortgage a property. Commercial leasing also allows more new businesses to start up more quickly, which in turn provides employment for more residents and helps local communities prosper. This may, in turn, result in these residents spending money with the business in the role of a customer. A commercial lease may also be the only way a business can have the location they desire, since property in that area may not be available for sale. Commercial lease payments can be written off as a business expense when doing taxes.
Disadvantages of Commercial Lease
If the lease is a net lease, the tenant must bear the costs of maintenance. If the business fails, terminating the lease may be difficult before the end of the term and there will be the need to consult a commercial real estate attorney for legal advice. Where a business is very successful, the lease payments might be raised to higher levels when it is time to renew. This may give an advantage to the landlord to raise the lease payments.
Differences between Commercial and Residential Leases
Commercial tenants are usually required to pay expenses that a residential tenant does not have to pay. The duration of commercial leases are frequently for longer periods of time too - most residential leases are only up to 2 years long. Laws are different for both residential and commercial leasing and can vary from state to state. In general, the law in the United States is that tenants of a residential lease should be given more protection than those of a commercial lease - the government does not want to see a person ejected from their home without good cause.
More differences include commercial leases not usually being subject to consumer protection laws. Landlords do not have a maximum security deposit cap and there are no rules to protect the privacy of the tenant. There are also no standard forms that are required to be used by the landlord. This adds a burden to the tenant to carefully examine the lease agreement. If you are not sure of all the implications in the lease, have a real estate attorney give you advice after a proper review of your lease.
Breaking or changing a commercial lease is much more difficult than a residential lease, primarily because of the lengthy terms of commercial leases. This makes it necessary that you are very careful to understand all the term, conditions and consequence before signing any commercial lease. There may also be the need for lengthy negotiations between the landlord and prospective tenant on a commercial lease. The intended business may have special needs or want to have special features included in the lease so close attention to details involved is important.
Conclusion - Get it in writing!
Before signing any lease, whether commercial or residential, both a landlord and tenant are best served by having the lease in writing. This protects both parties as it allows each to review the terms, remove or add clauses that may be necessary, and is a document that can prevent disputes later about the agreed upon terms. Given the longer and more complicated nature of commercial leases, it is highly advisable that any business owner have their commercial lease reviewed by an experienced real estate attorney.
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22 Comments on “Commercial Leases FAQ and Facts”
I need some advice. I had to break my lease in the city of Binghamton, NY. I gave 30 day’s notice as stipulated by my contract.
My landlady says she is entitled to keep my deposit if she cannot find someone to occupy the residence for the remainder of my lease. My contract does not mention the deposit at all. What is the fact of the matter? Is my landlady within her rights, or not?
Try The Law Forums here for good results. With regard to your question, it’s impossible to answer directly without seeing your lease agreement. Does your lease say that you can terminate the lease agreement by providing 30 days notice? Is the lease for a longer term with this provision? Without seeing the terms of your residential lease, it’s impossible to say who is right and who is wrong.
We had a commercial lease. Due to back rent, we were in default and asked to leave the premises. Now the mall management wants to settle thru a collection agency. This agency said if we reach an agreement, we will release from the lease. He said they have a form to show us that we are released. My question is: is this form sufficient evidence to indicate we have been release from this lease? Should I have reviewed by an attorney?
Best to post in our free legal advice forums in full. In short, without seeing the form and lease, it’s impossible for me to answer. It’s always best to get important documents reviewed by an attorney, especially if the dollar figure is high. What you need to do if you’re doing this yourself is to (1) make 100% sure that there is a “novation” of some sort - that the lessor has sold this debt to a collection agency or has provided them with the power to extend this release to you, and (2) read through the document carefully to make sure that it not only releases you of the debt, but also any and all other claims.
Our landlord is only returning $158.94 of the $750 deposit we paid him. We have before and after video showing that we left the house in much better condition than it was when we moved in. He is saying that they had to get stains out but my before video shows the stains were already there. He’s also claiming a dryer vent which you can clearly see is missing in the before video as well. What can I do to get the rest of my money?
Can my landlord charge me a $250 fee (for advertising) to find a subleasor when they never advertised the apartment and I found the subleasor?
Hi,
Can a person who does noy own a building make a lease with an existing tenant? The building is bankrupcy and the person who wants to buy the building made a lease and included in the lease “…The Landlord presently has a contract to purchase the Leased property. Such contarct is pending approval form the bankruptcy court. If he can’t purchase the property, he will refund the deposit.”
No deposit has been given, but a lease has been signed.
The lease appears to favor the landlord:
-Since the person does not own the buiding, is this lease valid?
The person wanted the lease to take to the bank to get a loan to buy the building.
-With the exception of fixing the roof, some painting, the tenant will be responsible for all other repairs, cleaning, utilities, The “owner ” will pay the taxes.
-The tenent has been operating a good business at the location for more than ten years and is on a month to month lease.
-Could the new owner give the tenant some months without rent for signing a lease to help the “new owner” get a loan to buy the building?
- The default option seems unfair to the tenenat. For example, it states that if the tenant defaults, the landlord is entitled to all of the tenants property. 2. The tenant has ten das to cure ant default condition. 3. The tenant cannot enter into any loan or lease agreement without the Landlord’s permission. 4. The landlord may transfer its interest in the building without consent of the tenant.
Finally, can the tenent cancel since the “new onwer does not own the building?
Thank You.
I have not seen your lease and don’t know your state but a landlord generally should not be allowed to charge fees which are not earned or used.
If your landlord isn’t returning a security deposit, I would probably send a demand letter, certified return receipt, noting that if the money is not received I would report them to the state or city housing department and will sue them in small claims court.
Hi,
Thank you. The property is in NC. Can you review the lease?
If you’re looking to hire an attorney, try the case review on the home page. If you are looking for people to generally provide you with input on your case and lease, try the law forums.
If you are signing a lease as an LLC, should it include a business owner’s name? The Landlord signed only using the name of the LLC, but includes the name of the LLC (business) and the owner’s name:
Landlord listed as: Green, LLC and the business owner is listed as:
Yellow Street, LLC, Bob Smith.
Secondly, in the default clause he states: “If default the Landlord is entitled to all of Yellow Street’s property as well as property of guarantor to pay damages and balances owed.”
Thank you.
The business is in NC.
For best results, try The Law Forums. There is a person who signs the lease and is an authorized signator of the landlord. With regard to the property clause, it sounds like it was written in by a non-lawyer and would seem to me to be far overreaching. It’s also impractical for other reasons since how would the landlord know whether property in the leased premises is the property of the lessee (you) or the lessee’s clients? With the personal guarantee too, I’d take this to a lawyer.
Thank you for a speedy helpful reply. I will act on your suggestions. You are great!
Based on your commnts, I reviewed the signature line of the lease again and there is an additional signature lined signed by the business owner that reads: I, Bob Smith hereby personally guarantee the full performance of all terms of this lease.
Doesn’t this clearly states personally responsibilty beyond the signing on behalf of the LLC? Bob Smith has signed for the LLC and personally guarnteeded the lease.
Based on our commuication the Tenant has agreed to meet with a lawyer. Thank you for the opportunity to ask questions and for providing great feedback! !!! Enjoy your day.
I am a full-time student and i have mortgage that i have to pay within the 10th every month and my tenet is not paying her rent on time for three months she always pay at the end of the month and whenever i go ask for the rent she makes up excuses and complains that she will stop paying the rent ,so is there any suggestions please write me back or call me 347-227-5500
The landlord gave me a notice to vacate and the next day accepted my check for an additional month rent.
Must he give me another notice to vacate at the end of the month or does the old notice apply?
I own my old land lord about $40.000 in back rent I was a tenant for 10 years the rent was $4000 a month so about one year of not paying bussiness turn real bad so I try to sale with no luck was not making any money but I held on to try to sale un able to make the rent hope to sale then pay from the sale potiancial buyer back out came to found out my lease expired 6 years back my former landlord sold the building the new landlord did not look into who lease need to be renewed so I was paying for six years with out a lease lost my buyer he refuse buy the business with out a lease in place already…I just pulled out of the place and lost every thing I invested so much in that place lost everything I do not even have one thousand let alone forty thousand they taking me to court do they have any right with out a lease….how do I get out of this…please help ….
I am about to lease my single family home. It has a pool and jacuzzi but no childproof fencing around it. A couple wants to lease the house but they have a 1, 2 and 4 year old. I expressed great concern over the fact there was no fencing and they said they were very good parents and watch their babies at all times. Regardless, things do happen, good parents or not. I won’t be leasing to these people because there is just too much risk as far as I’m concerned. But my question is this… because there is no fencing around my pool, am I liable as the landlord in the event a child living in my rental drowns becasue I dont have fencing?
Shannon
Hi, I am a veterinarian, 4 years out of school, I signed a lease for a space(vet clinic) in a shoping center, the space has a tenant that is movinng out 2 months later, the tenant is not using the space but is paying for the rent for 2 more months, I went with the land lord broker to see the space a month ago and liked the space the way it is, the broker told me that everyghing will stay the same as far as cabinets and counters and skinks and so forth, I went back to the space with the tenant to buy an x ray machine to be left behind, and saw the space all torn down, all the cabients and counters, and sinks are gone, I went and stopped the deposit check immediatly and send a letter to the landlord with cancelation about 4 days after the signed lease. the land lord asked me to go with them to see the space and see if they can do anything to bring it back to the way it was, I told them I have only one day to do that, but they could not do it that soon, am I in trouble?. I never got position or keys of space, I was suppose to get in the space in 2 months. someone is trying to serve me with a subpoena, most likely the landlord since I dont have anything else going on,
Regarding the late paying tenant, do you have a late fee in the lease? If you don’t, you should and if she pays late, you charge her for the “privilege!”
With regard to notices, typically they are demands which can be “cured” which you may have done. Technically you have breached your lease and probably did not pay after a three day notice to vacate. In such an instance, at least from my experience, the landlord usually can go after the tenant to evict. Acceptance of rent may trigger a different result but I don’t know your state or the details of your case. Your best bet is to discuss the matter with your landlord and determine whether all is fine or you are in an adversarial position.