Understanding The Basic Commercial Lease

The standard commercial lease is a written agreement allowing a business tenant specific use of property in exchange for rent paid to a landlord

. In many ways, this agreement is similar to the one some individuals enter into for their place of residence. The rental agreement details the responsibilities and rights for both parties as well as the term of the tenancy.

Like any rental contract, the amount due the landlord will be specified as will the due date for each payment. Some agreements are for a fixed term with a beginning date and a fixed final date. The agreement expires automatically on the end date without notice from either party. The two parties may also agree to terms that automatically renew after a specified period until one side or the other terminates the lease with proper notice.

The base rent is the amount a tenant pays for the use of the space. Many shopping mall owners will negotiate percentage leases with their retail clients. In addition to paying the base rent, these tenants add a certain percentage of their gross profits. In other words, the rental payment will be less when business is slow.

Landlords who negotiate a gross rent agreement collect the base rent only. They assume financial responsibility for operating expense and certain costs associated with property maintenance. Depending on what the two sides agree to, expenses may include electricity, natural gas, water and trash service. Some landlords will cover certain taxes and insurance.

Triple-net leases are the most common and are written for warehouse, industrial and retail properties. The lessor collects rent for the property but assumes no other financial responsibility. The tenants assume responsibility for all maintenance, repairs and other operating expenses.

The landlord has the right to specify how the property will be used by the tenant. The tenant must have written permission to use the property for any purpose other than what is specifically written into the rental agreement. In other words, the tenant cannot suddenly decide to run a coffee shop after signing a rental agreement to operate a clothing store.

One big difference between a standard residential rental contract and a commercial lease is the degree of negotiation that occurs between the tenant and lessor. The protection laws governing residential agreements, including tenant privacy rights and security deposit caps do not apply. Business owners who are not familiar with the laws in this area should seek professional assistance when negotiating a rental agreement.

by: Levi Wright

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