Understanding Commercial Lease Agreements

Commercial lease agreements vary from residential lease agreements in a number of respects. For instance, commercial lease agreements are typically long-term leases, and are subject to fewer consumer protection laws than residential lease agreements. Therefore, it is essential that you understand the various provisions contained within a commercial lease agreement, and that you review the agreement thoroughly before entering into a commercial lease.

How Lease Agreements Work

Under a commercial lease agreement, you enter into a contract with the owner of a building or property to rent the space to operate your business. Under the typical commercial lease agreement, you agree to pay rent in a certain amount pursuant to a particular payment schedule (usually monthly), in exchange for being able to use the space for your business operations. A commercial lease often will remain in effect for a lengthy period of time, and is a legally binding contract.

Types of Agreements

As you begin to explore commercial lease agreements, you will learn that there a variety of commercial lease agreements from which to choose, such as the following:

• Gross Lease – This is a lease that includes not only rent payments, but also payments toward insurance, property taxes, and/or maintenance costs.
• Net Lease – This type of lease that provides for a rent payment by you, and often will include a separate payment toward all or a portion of insurance premiums, property taxes, and/or maintenance costs.
• Flat / Fixed Lease – This is a lease that provides for a certain payment of rent over a fixed period of time.
• Step Lease – This type of lease provides for a certain set rent increase amount, usually, on an annual basis, in order to cover a landlord's anticipated expenses.
• Cost-of-Living Lease – In this lease, any increases in rent are tied to inflation, or increases in the cost of living.
• Percentage Lease – This is a lease whereby the tenant agrees to pay a certain percentage of the business's gross income to the landlord.

Terms to Remember

There are some commonly used terms that you will see in the context of a commercial lease agreement, including the following:

• Lease Term – This is the length or duration of the lease agreement, or how long the lease agreement remains in effect.
• Escalation – This term refers to the ability of the property owner / landlord to increase rent payments during the lease term.
• Premises Clause – This is the provision in a commercial lease agreement that refers specifically to the space that you are leasing.
• Use Clause – This lease provision sets forth the specific activities for which the rented space can be used.
• Exclusive Use Clause – This lease provision guarantees that you, and only you, have the right to use the rented space for business purposes, to the exclusion of all other people and businesses.

Importance of Hiring an Attorney

As commercial lease agreements may be complex, and can have provisions that vary widely from one state to the next, as well as depending on your situation, you should be sure to hire an attorney to assist you in commercial lease preparations, negotiations, and executions. Having an experienced real estate attorney represent you will ensure that your interests are fully represented throughout the commercial lease process.