What Is a Commercial Lease Agreement?
A commercial lease agreement is a legal document that allows a tenant to rent a property, such as an office, store, or warehouse, for business purposes. It outlines the tenant’s right to use the property in exchange for rent and possibly other fees, such as operating costs, taxes, maintenance, and parking.
Tenants are permitted to conduct business on the premises as long as they adhere to the specified terms. Tenants may also be responsible for property taxes, insurance, and maintenance expenses.
When Do You Need a Commercial Lease Agreement?
You need a commercial lease agreement whenever you rent out non-residential property to a business. Whether you’re leasing out office space, a retail storefront, a warehouse, or a restaurant location, a written lease protects both parties and clearly defines the terms of the rental.
Common Use Cases:
- Leasing a storefront to a retailer
- Renting an office to a professional services firm
- Providing warehouse space to a distributor or manufacturer
- Leasing a commercial kitchen to a catering company
Not having a written lease can lead to serious issues such as disputes over rent, confusion about maintenance responsibilities, lack of legal recourse, and even violations of state laws. Always put your agreement in writing.
How to Write a Commercial Lease Agreement
A well-drafted commercial lease should clearly outline the expectations, responsibilities, and rights of both landlord and tenant. Below are the key sections you should include when creating a lease agreement:
- Parties Involved: List the full legal names of both the landlord and the tenant. Include their business names (if any) and how to contact them.
- Property Description: Give the full address of the property, the size in square feet, the suite or unit number, and any extras like parking spots or storage areas.
- Lease Term: Write down when the lease starts and ends. If the lease can be renewed, include how that works and how much notice is needed.
- Rent Details: State the base rent amount, payment frequency (monthly or annually), due date, grace period, payment method, and any clauses regarding rent adjustments during the lease term.
- Type of Lease Structure: Define whether the lease is Gross, Net (N, NN, or NNN), Modified Gross, or Percentage, and explain how costs are split.
- Security Deposit: Indicate the deposit amount, whether it earns interest, and terms for refund or forfeiture.
- Permitted Use: Clarify the tenant’s use of the property (e.g., retail store, law office) and any usage restrictions.
- Maintenance and Repairs: Outline who handles specific repairs and upkeep inside the unit and in common/shared areas.
- Improvements and Alterations: State whether the tenant can modify the space, what requires landlord approval, and removal responsibilities at lease end.
- Utilities and Operating Expenses: List which party is responsible for each utility and expense (e.g., CAM fees, property tax, insurance).
- Insurance Requirements: Explain what insurance the tenant must carry, such as liability or property insurance, and whether the landlord must be named as an additional insured.
- Subleasing and Assignment: Indicate if subleasing or lease assignment is allowed, and under what conditions, landlord approval is required.
- Default and Termination: Define what counts as default, how much notice must be given, and the terms for early lease termination.
- Dispute Resolution and Governing Law: Choose how disputes will be resolved (mediation, arbitration, or court) and which state’s laws will apply. If desired, include a clause requiring the payment of the prevailing party’s legal fees in the event of a dispute surrounding the lease.
- ADA Compliance and Hazardous Waste Clauses: Add clauses for ADA accessibility and compliance with environmental laws regarding hazardous materials.
