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 a commercial lease agreement gives the tenant the right to use the property to operate almost any business in exchange for agreed-upon rent.
Supplemental Forms
Our Commercial Lease Application helps you gather the necessary information to determine if an applicant will make an excellent commercial tenant.
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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.
IMPORTANT
Depending on the individual lease agreement, some tenants will be responsible for more of the operating costs and upkeep of the business property than others.
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 Agreements?
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
The rental rate includes all property operating expenses in a full-service or gross lease. Operating expenses such as utilities, 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 standard 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 part of the property taxes and property insurance
- Single Net Lease – the tenant pays a part of the property taxes
Modified Gross Lease
A modified gross lease (or modified net lease) is a hybrid of gross and net leases. In a modified gross lease, the landlord and the tenant negotiate and share the operating expenses.
Usually, the tenant is responsible for the base rent and CAM, and the landlord handles the property taxes and 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.
Types of Commercial Property
Here are the main types of commercial spaces:
1. Industrial Space
Industrial real estate mainly encompasses properties used for making, storing, or shipping goods, and they generally fall into three categories: manufacturing, storage and distribution, and flex space.
Many industrial properties can have multiple uses. For instance, a company might use a single large facility for assembling and distributing products and researching product improvements. In such cases, the property is usually classified based on its primary function.
Industrial spaces need to be well-located for transportation and have ample room with flexible layouts, high ceilings, and loading docks. They must also meet zoning and regulatory requirements, offer security and accessibility, and adapt to changing needs.
2. Office
Office spaces are categorized into three classes, known as Class A, Class B, and Class C, depending on their appearance, age, amenities, and building infrastructure.
A prime location near transportation and business districts is essential. Moreover, the availability of amenities like parking, fitness centers, and modern technology infrastructure enhances the appeal of office spaces.
3. Retail
Retail properties are places where businesses sell goods or services to consumers. They come in various forms, such as shopping centers, malls, stores, and restaurants.
They must be strategically located near target customers, have an enticing storefront, and offer an efficient layout with ample space. Access to high foot traffic, excellent visibility, convenient parking, and accessibility features are essential for attracting and accommodating shoppers.
Moreover, staying updated with retail trends and providing security, favorable lease terms, and a diverse tenant mix contribute to retail spaces’ overall appeal and success.
What to Include in a Commercial Lease Agreement
When writing a commercial lease agreement, knowing how to divide expenses and responsibilities between the landlord and tenant is essential.
A commercial lease agreement form should identify the following essential 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 period of months or years (i.e., five 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
On top of these basic terms, you can add clauses specific to your agreement with your landlord/tenant as needed, such as whether improvements or modifications to the premises are allowed, if the lease can be transferred or assigned to another tenant, and how to structure rent increases.
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 operates 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 doors to be widened and ramps installed.
Learn more about who’s responsible for ADA compliance, and memorialize your decision in writing. [1]
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.
How to Write a Commercial Lease Agreement
Before you write your commercial lease agreement, indicate the state you are contracting in.
Step 1 – Write the Effective Date
Effective Date. Provide the effective date of the commercial lease agreement.
Step 2 – Fill in Landlord and Tenant Information
Landlord Information – Enter the landlord’s full name or company name, whether the landlord is an individual or entity, and the landlord’s address.
If the landlord is a company, provide the full name and title of the company’s representative who will sign the agreement.
Tenant Information – Provide the tenant’s full name or company name, whether the tenant is an individual or entity, and the tenant’s address.
If the tenant is a company, write the full name and title of the company’s representative who will sign the agreement.
Step 3 – Identify Premises
Demised Premises – Specify the type of commercial property being leased. You can write one in if none of the options provided describe the property type.
If the commercial building or complex has a name, give that name (e.g., Westfield Mall). Provide the street (physical) address of the commercial property.
Include a suite number if applicable.
You can also choose to include a map of the property, which will attach to the end of the agreement as Exhibit A.
Size of Premises – Enter the approximate number of square feet of property. You can calculate the square footage by multiplying the length by the width. Provide the approximate percentage of the property about the total leasable area in the building or complex.
Common Areas – Indicate whether or not the demised premises includes common areas.
Parking Spaces – State what kind of parking privileges the tenant may use, if any. If parking privileges exist, specify whether or not they include any parking spaces or only a specific number.
You can also write additional information, such as where the parking spaces are located, whether or not the tenants can assign or sublet their parking spaces, and whether or not tenants must pay a fee to park.
Storage Facilities. Specify whether or not the tenant has the right to storage facilities. If yes, describe the storage facilities and state whether or not the tenant must pay a fee for storage.
Step 4 – Describe Lease Terms
Term of Lease – Provide the start and end date for the lease term. The term is the length of time the tenant will rent the space.
Renewal – Indicate whether or not the tenant may renew the lease. If yes, state the number of years for the renewal term.
Also, specify whether or not the rent will increase if renewed. If yes, state whether the base rent will increase by a percentage or dollar amount.
Lastly, provide the number of days before the end of the lease that the tenant must give the landlord written notice of renewal.
Step 5 – Note Rental Terms
Base Rent. Specify the dollar amount of the base rent (starting cost) and how often the tenant will pay the rent (i.e., monthly or annually).
Additionally, state the day of the payment period that rent is due (i.e., 1st day of the month or 5th day of the quarter) and the payment method.
Operating Cost. Indicate whether or not the base rent includes any portion of the building’s operating costs. If not, state the monthly amount the tenant must pay for a proportionate share of the operating expenses.
Specify the maximum percentage of the total operational costs for the tenant’s share and the percentage of the expenses reserved for significant repairs and renovations.
If the tenant underpays their share of the operating costs, specify the days the tenant must pay the amount due.
Step 6 – Choose the Tax Option
Taxes. State whether or not the tenant is responsible for real estate property tax and assessment payments. If yes, specify whether or not the base rent includes the real estate property taxes.
Step 7 – Discuss Past Due Payments
Past Due Payments – Provide the grace period (number of days) before a late charge is due if the tenant is late with rent payments. Specify whether the late charge will be a percentage of the monthly rent or a dollar amount per day.
Additional Late Charges – You can choose whether or not to charge interest in addition to the late fee if the rent is more than a certain number of days late.
Step 8 – Note Security Deposit
Security Deposit – Write the total dollar amount of the security deposit the tenant shall pay the landlord. Specify whether or not the security deposit will accrue interest.
Remember that some states and cities require landlords to pay interest on security deposits.
Step 9 – Enter Holdover Details
Holding Over – If there is a holdover (the tenant stays on the property past the end of the lease term), the landlord may charge a specific amount over the base rent for the period past the expiration of the lease term.
State the number of times the base rent is due immediately.
Step 10 – Describe the Use, Occupancy, and Condition of the Premises
Use and Occupancy. Enter the commercial or business purpose and the tenant’s use of the property.
Specify whether or not the landlord will provide janitorial services. Indicate whether or not the tenant agrees to these statements by selecting the appropriate and relevant statements.
Additionally, If the tenant agrees to the statement regarding no smoking within a certain distance from the property, state the length in feet.
Condition and Acceptance of Premises. The tenant has a specific number of days after moving in to notify the landlord of any defects discovered on the property. State the number of days the tenant has to provide notice.
Step 11 – Indicate Property in Demised Premises
Right to Leasehold Improvements. Choose whether or not the tenant may make improvements to the property. If yes, state whether or not the tenant may remove their trade fixtures and equipment at the lease end.
Fixtures and Furnishings Provided by Landlord. Specify whether or not the landlord will provide any fixtures or furnishings. If yes, state the fixtures and furnishings supplied. You can write on any of your own.
Personal Property Taxes of Tenant. Specify whether the landlord or tenant will pay the personal property taxes on the fixtures and furnishings.
If the tenant is responsible for the taxes and needs to pay back the landlord for such taxes, state the number of days the tenant has to pay after receiving notice from the landlord.
Step 12 – Enter Repairs and Maintenance Details
Landlord’s Obligation to Repair and Maintain. Choose the items the landlord must repair and maintain on the property. You can write any other items.
Also, state whether or not the tenant is responsible for the costs of any maintenance, repairs, or replacements the tenant’s actions cause.
Tenant’s Obligation to Repair and Maintain. State the items the tenant is responsible for repairing and maintaining on the property. You can write any additional items.
Remodeling. State whether or not the tenant must obtain the landlord’s permission before painting, remodeling, or installing equipment, wires, or displays.
Liens. Specify the number of days after actual notice of the filing of a lien; in the event, the landlord files a lien on the property, the tenant has to release the lien.
Step 13 – Discuss Insurance and Indemnification
Tenant’s Public Liability and Property Damage Insurance. The tenant must buy public liability and property damage insurance for the leased property. State whether or not the tenant must add the landlord as an additional insured on the policy.
Write if the policy will have a minimum aggregate policy or a limit of liability per occurrence.
Specify the minimum aggregate amount or minimum liability amount per occurrence. Also, state the required maximum deductible dollar amount.
Certificate of Insurance. Indicate the number of days the tenant has to provide written notice to the landlord that the insurance policy is facing cancelation.
Landlord’s Insurance. State whether or not the landlord’s property insurance on the building includes operating costs.
Step 14 – Address Signage
Exterior Sign. State whether or not the landlord must approve the tenant’s exterior business sign before installation. Specify whether the landlord or tenant is responsible for the cost of the business sign.
Other Signs. Note whether or not the landlord must approve any other signs, banners, or advertising visible from the outside of the property before installation.
Step 15 – Choose Utility Services
Utilities. Specify the utilities the tenant must pay. You can write any other utilities not listed. Also, note the utilities the landlord will pay. You can write any utilities not listed.
Step 16 – Document Access, Surrender, and Assignment
Fixtures and Equipment Installed by Tenant. State whether tenants, upon lease end, can remove the trade fixtures and equipment they installed.
Assigning and Subletting. Specify whether or not the tenant can sublease the property with the landlord’s prior approval.
Step 17 – Discuss Damage to Premises
Substantial Damage. Provide whether or not the cost of repair or replacement for substantial damage in the event of a fire or another disaster is measured by a percentage or dollar amount.
Specify the amount that the replacement value must exceed the cost of repairs.
Additionally, state the days after fire or disaster, the parties have to end the lease.
Partial Damage. State whether or not the landlord or tenant is responsible for repairs in the event of partial damage due to fire or another disaster.
Also, specify the days after receiving insurance payments; if fire insurance proceeds are insufficient to repair the premises, the landlord must end the lease.
Step 18 – Enter Eminent Domain Details
Condemnation of Demised Premises. State the percentage of the property or common area that must be taken if a part of the property is subject to eminent domain for the landlord to end the lease early.
Additionally, specify the number of days after the receipt of the compensation; in the event, the landlord is insufficiently compensated, the landlord has to end the lease early.
Step 19 – Fill in Default Information
Rights in the Event of Default of Tenant. Specify the number of days after receipt of the landlord’s written notice the tenant has to pay rent or fix a problem.
Default of Landlord. State the number of days after receipt of the tenant’s written notice the landlord has to fix a problem.
The landlord must make a reasonable faith effort to start fixing an issue that would reasonably take longer than a specific number of days. State the number of days to cure the problem.
Step 20 – Write Miscellaneous Details
Governing Law. Choose the state’s laws that will govern the construction of this commercial lease agreement.
Dispute Resolution. Note whether the tenant and landlord will resolve disputes if there are any disputes through court litigation, binding arbitration, mediation, or mediation then arbitration.
Commercial Lease Agreement Sample
The following is an example of a commercial lease agreement. You can also download our template in PDF or Word format and complete it yourself.
Frequently Asked Questions
Depending on where you live, the length of the lease term, and the property’s rental value, 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 significant risk by not creating a written commercial lease agreement. The agreement helps you clearly define all the lease terms and have proof of exactly what you and the other party agreed upon in case a dispute arises. Remember that running a business out of a rental property using a Residential Lease Agreement is illegal in many situations. 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, 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?
