A commercial lease agreement is a document used to rent any property (such as an office, store, or warehouse) that a tenant will use to do business.
Entering into a commercial lease agreement gives the tenant the legal right to use the property to operate almost any kind of business in exchange for agreed-upon rent.
Learn more about what are commercial lease agreements and what are they good for.
What is a Commercial Lease Agreement?
A commercial lease is a legal document that outlines the rights and responsibilities of a landlord who owns a business property and a tenant who wants to rent the space to use for business purposes.
The agreement identifies the base rent the tenant owes each month as well as other possible fees like operating costs, taxes, maintenance, and parking.
As long as the tenant meets all the requirements outlined in the commercial lease agreement, they’ll be free to use the property to conduct business.
What are the Different Types of Commercial Lease Agreement?
There are four main types of commercial lease agreements based on how the tenant pays base rent and operating expenses.
Full Service or Gross Lease
In a full service or gross lease, the rental rate includes all property operating expenses. Operating expenses such as utilities and maintenance and real estate taxes are already factored into the rent.
However, the landlord can add clauses to reserve the right to pass down any future increases in operating expenses to the tenant.
Net Lease
In a net lease, none of the operating expenses are included in the rental rate. Therefore, in addition to the base rent, the tenant must also pay its pro-rata portion of the three “net” operating expenses – property taxes, property insurance, and common area maintenance (CAM).
CAM also includes common area utilities and operating expenses as well. The different types of net leases include:
- Triple Net Lease – the tenant pays a portion of the property taxes, property insurance, and CAM
- Double Net Lease – the tenant pays a portion of the property taxes and property insurance
- Single Net Lease – the tenant pays a portion of the property taxes
Modified Gross Lease
A modified gross lease (or modified net lease) is a hybrid of a gross lease and a net lease. In a modified gross lease, the operating expenses are negotiated and shared between the landlord and the tenant.
Usually, the tenant is responsible for the base rent and CAM, and the landlord handles the property taxes and property insurance. Sometimes, the tenant pays base rent only at the beginning of the lease and then pays a portion of the operating expenses later.
Percentage Lease
In a percentage lease, the tenant pays the base rent on the property and a monthly percentage of the gross revenue from the business operating the rented space. This type of lease is typically used for retail businesses.
Commercial Lease Agreement Sample Form
The following is an example of a commercial lease agreement:
Commercial Lease Agreement
Download your free template to get started or easily create a custom form (with step-by-step instructions) using our commercial lease agreement document builder.
How to Write a Commercial Lease Agreement
When writing a commercial lease agreement, it’s important to know how you want to divide expenses and responsibilities between the landlord and tenant.
A commercial lease agreement form should identify the following basic elements:
- Landlord: (also called the lessor) the party that owns the commercial property and wants to rent it out
- Tenant: (also called the lessee) the party that wants to rent the commercial property to operate a business
- Term: the number of years or months the tenant will rent the space, which can range from an agreed-upon start and end date; an agreed-upon time period in months or years (i.e., 5 years); a periodic tenancy such as a month-to-month timeframe; or an automatic renewal in which the lease continues to renew until one party sends notice to terminate or end the lease
- Demised Premises: (also called the leased premises) the physical space the tenant is renting (like a retail store in the mall), including a property map with details about the size and whether the tenant has access to services like parking, cleaning, security, snow removal/landscaping, and heating/air conditioning
- Real Property: the entire property owned by the landlord (like the shopping mall where the store is located), which includes shared common areas such as walkways and parking lots that other tenants will use
- Base Rent: the starting cost of leasing the space on a monthly, annual, or periodic basis
- Operating Costs: landlords may ask tenants to share the cost of operating the entire building and maintaining common spaces, including real property taxes, utilities, and collective advertising costs. This is either a fixed flat fee or a designated percentage based on the tenant’s footprint or store size
- Security Deposit: an amount of money given to the landlord to demonstrate the tenant’s good faith efforts not to break the lease early or damage the property
- Property Use and Occupancy Details: a clear description of what the tenant can use the property for (i.e., food services) as well as what is not allowed in the rented space and common areas such as smoking, after-hours noise, or dumping garbage
- Improvements: the types of modifications and alterations that can be made to the premises and who is responsible for the costs. For instance, if a tenant plans on operating a restaurant that requires improvements or construction, the agreement should clarify who is responsible for funding and overseeing the construction project
Your commercial lease agreement form should also address the following:
- Who should pay for utility services such as sewage disposal?
- What happens if a fire or other disaster causes substantial or partial damage?
- Where should disputes be handled (i.e., jurisdiction) and which laws govern?
- Whether the parties to the lease should mitigate, arbitrate, or litigate in court.
- When can the landlord inspect or examine the premises to make repairs?
- What will happen to the lease if the tenant’s business fails?
- How will the tenant and landlord handle instances of eminent domain if the government takes all or part of the premises for public purposes?
Does ADA apply to commercial leases?
Yes, if the commercial property tenant is operating a business open to the public and hires more than 15 people, the Americans with Disabilities Act (ADA) (42 U.S. Code § 12183) applies and requires that doors be widened and ramps be installed.
Learn more about who’s responsible for ADA compliance, and be sure to memorialize your decision in writing.
How to Send a Commercial Lease Agreement
After you’ve finished writing your commercial lease agreement, save it as a PDF to finalize it and email it to the other party to sign. You can also print it out to have the tenant sign in person.
Frequently Asked Questions (FAQs)
Depending on where you live, the length of the lease term, and the rental value of the property, a commercial lease may not have to be in writing to be enforceable. However, even if it’s not required by law, we recommend always using a written lease agreement to help protect you if a dispute arises.Does a commercial lease have to be in writing?
Even if you can legally rent a business property without a lease agreement in your state, you take a big risk by not creating a written commercial lease agreement. The agreement helps you clearly define all the terms of the lease and have proof of exactly what you and the other party agreed upon in case a dispute arises. Keep in mind that in many situations, it’s illegal to run a business out of a rental property using a residential lease agreement. If you have any questions about the terms of your commercial lease agreement, talk to the other party or seek legal advice.Do I Need to Get a Commercial Lease Agreement? What Happens if I Don’t?
The most common commercial lease is the percentage lease, which is often used in shopping and strip malls. This type of commercial lease charges the tenant base rent plus a percent of their monthly sales.What is the most common type of commercial lease?