Are You a Legal Professional?

Commercial Property Lease Agreement

As a businessperson, the commercial lease you sign for your business is one of the most important documents you'll ever create. Take the time to learn the clauses you should expect to see in any commercial lease and what those clauses mean.

Overview of the Lease

At its most basic, a commercial lease will set out:

  • The parties, the rent a tenant owes, and the period of time the rent covers;
  • An agreement by the landlord to let the tenant occupy the business space;
  • The terms and conditions that the tenant must abide by to legally occupy the space;
  • Any additional agreements regarding improvements, amenities like parking and maintenance.

Don't Just Accept the Landlord's Lease

The process of signing a commercial lease is usually initiated by the landlord, who will often offer you a "standard" lease. Don't sign this right away - the lease was most likely drafted by the landlord's lawyer and is designed to favor the landlord. If the landlord expresses concern about deviating from a "standard" lease, remind the landlord that the only thing constraining the landlord are promises made to other tenants which you are happy to respect.

The use of "standard" leases is just a negotiating tactic, and not one that usually favors the tenant. The cost of renting property for your business will be one of the largest business expenses you make, so take the time to really understand the impact of the terms and negotiate hard. Ultimately, the landlord's lease should be seen as an invitation to negotiate.

Lease Terms

Clause

Explanation

Parties

This should contain the name of the landlord and tenant, often referred to as the Lessor and Lessee, but make sure that it is your business name, not your personal name that ends up on the lease to avoid personal liability.

Premises

A description of the space you are renting, it should be as broad or specific as the case requires; an entire building may be designated with little more than an address, but if you are renting only a portion of a building, make sure that the description is sufficiently detailed.

Rent

The money owed over a period of time. Make sure that the start date for the rent coincides with moving in so that you are not paying for empty space that isn't generating any money.

Term

The term of the lease is not to be confused with other potential periods of time in the agreement; a lease may be effective immediately and run for three years (the term), but that does not preclude you from setting the "term" for other obligations, such as when rent first becomes due.

Use

Use restrictions are promises made by the landlord to other tenants that any new tenant (you) must respect; be very careful to ensure that you aren't restricting yourself unnecessarily. A use restriction on the type of business may prevent you from expanding into a slightly different, but related, area of business.

Utilities and Maintenance

How utilities are metered and paid for as well as maintenance costs and obligations.

Improvements

Whether any improvements or alterations are allowed as well as how they will be paid for and maintained.

Taxes

Which taxes each party is responsible for paying.

Insurance

What types of insurance both parties must carry, such as property and liability insurance.

Parking and Access

Where tenants can park and how access to the building is granted.

Security

Defines who is in charge of security for the space and who pays for it (typically the landlord).

Deposit

A security deposit in case you damage the space or fail to make rental payments. Tenants may be able to substitute in a line of credit from their bank in lieu of a security deposit.

Hold Over

Details what happens if the tenant doesn't move out as set forth in the lease.

Subletting

Whether the tenant has any right to assign or sublet the space.

Options

Defines any rights a tenant may have to increase or reduce the space as well as any right to renew the lease or buy the property.

Condemnation, Destruction and Foreclosure

What happens if the building enters foreclosure or is destroyed by a natural disaster.

Attorney Fees

If a dispute arises that results in litigation, who will pay the winner's legal fees.

Guaranty

A Guarantor is someone who guarantees the tenant's financial obligations and also must sign the lease.

Dispute Resolution

The process for resolving disputes, short of filing a lawsuit.

Defaults and Remedies

A series of remedies if the landlord fails in any of his or her duties.

Speak to a Lawyer about Commercial Leases

Starting a business can be difficult. Negotiating for fair lease terms can sometimes be even more challenging. While you may be very business-savvy, it is smart to employ the help of an attorney when negotiating your long-term commercial lease. If you have questions or concerns, you should consider contacting a business and commercial law attorney in your area.

Next Steps
Contact a qualified business attorney to help you
address you business's operational needs.
(e.g., Chicago, IL or 60611)

Help Me Find a Do-It-Yourself Solution