12 Essential Terms for a Commercial Lease

A lease is any agreement which creates a landlord-tenant or lessor-lessee relationship.  A commercial lease pertains to any property which is being leased for a commercial purpose, including space in malls, office buildings, and shopping centers. 

Terms of a Commercial Lease

Most commercial leases are written by the landlord’s attorney and, therefore, naturally favor the landlord.  Nevertheless, a lessee should never feel that he cannot negotiate the terms of a commercial lease. 

There are certain essential terms which appear in every commercial lease. 

1. Parties – A commercial lease should include the name, mailing address, and phone number of the lessor and the lessee.
2. Property/Premises – The property or premises which are the subject of the lease should be clearly identified.
3. Term – The term of the lease must be specified.
4. Security Deposit – A commercial lease will set forth the amount of the security deposit.  In most states a lessor is free to demand as much as he deems necessary for the security deposit.
5. Rental Rate – The rental rate should also be clearly stated.
6. Escalation of Rent – Long term leases typically included annual escalations which state how much the rental will increase on the anniversary date of the lease.
7. Use Clause – The lease should clearly specify the authorized or agreed upon uses for which the lessee has leased the premises. 
8. Exclusivity Clause – In certain situations, a lessee would want an exclusivity clause to be included in the lease.  Such a clause prevents the landlord from lease to the competitors of the lessee.
9. Utilities – A commercial lease will include a clause which identifies whether the lessee or the lessor will be responsible for paying the utilities.
10. Renewal – A lease may contain a provisions which gives the lessee the first right of refusal to renew the lease at the end of the term.  Such a clause prevents the landlord from leasing the premises to another tenant without first giving the current lessee the first right of refusal.
11. Termination – A termination clause specifies the circumstances under which the leased may be terminated before its expiration and the penalties for early termination.
12. Default – A commercial lease usually sets forth events which result in an automatic default under the lease terms.  Filing bankruptcy or using the premises for unauthorized or illegal purposes are examples of events which trigger the default clause. 

A commercial lease may include a variety of other provisions as well including clauses pertaining to: 

• Insurance;
• Parking;
• Signage;
• Lessor’s right of entry;
• Security;
• Foreclosure;
• Condemnation;
• Natural Disasters and acts of God; and
• Guarantors. 

Talk to a Real Estate Attorney

If you are considering leasing commercial property, you should hire an experienced commercial real estate attorney to assist you in negotiating the terms.  Once you and the lessor have agreed on the terms, the lessor’s attorney will usually draft the lease agreement and deliver to your attorney for review before you sign it.