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What is a commercial lease agreement?
Commercial Lease Agreements are legally binding agreements that lay out the prescribed terms and conditions under which the rented property is leased out. The commercial property owner and the business tenant are to adhere to these strictly for the duration the contract is valid.
What does it include?
Before signing a commercial lease agreement, it is essential to ensure that the terms meet the needs of the business to avoid unfortunate consequences.
Commercial leases usually include the following conditions:
- Rent amount:
Rent amount is calculated on the basis of the square footage of the renting area. Be cautious of the area that has been included in the rent calculation, as common areas might be included in the same. For example: Verify if square footage should not include the elevator and interior walls. Make sure to check who is responsible for additional costs such as utilities, insurance, repairs, etc.
- Rent increases:
Commercial lease agreements usually provide for an annual rent increase. Negotiate to fix a favorable percentage increase in order to avoid unaffordable rental costs at a later date.
- Security deposit:
The security deposit can be used by the landlord to cover any damage at the end of your lease if the agreement is not renewed. This amount is kept by him without any interest and should not be mistaken with advance payment of any kind. The lease should verify the amount of security deposit and the terms regarding its return.
- Length of the lease:
Landlords usually wish to have a long lease and a higher rent. As a tenant, you would may negotiate the duration mutually and conditions associated to it.
The agreement should specify whether the tenant is responsible for restoring the property to its original state. It also elucidates whether enhancements or modifications can be made and which party is to bear the cost.
- Description of the property:
The lease should clearly describe the property under lease. For instance, the lease should clarify whether it includes bathrooms, common areas, a kitchen area, and a parking facility. The document can be produced to safeguard tenant’s interest in case of a dispute over such utility which had not been provided.
- Use clause:
Many lease agreements will incorporate a use clause to define the activity the tenant can engage in on the premises and sometimes even hours of operation, if applicable. These clauses protect the property from damage and limit the liability of the property owner. If possible, ask for a broad usage clause in case the business expands into other activities.
- Assigning and subletting:
With an assignment or sublet clause in place, the business can rent out space and get the cost covered by another party. This is a safeguard in case the business fails or relocates during the duration of the agreement when the tenant is still obligated to pay the rent to the landlord.
Sample Commercial Lease Agreement Outline
This Lease is made this ______ day of __________ (Month), _____ (Year) by and between _________________________________________________ (hereinafter “Landlord”) and ________________________________________________ (hereinafter “Tenant”). In consideration for the mutual promises and covenants contained herein, and for other good and valuable consideration, the parties hereby agree as follows:
- The Landlord leases to the Tenant, and the Tenant rents from the Landlord the following described premises: _________________________________________________________________________________
- The term of the Lease shall be for _______________commencing _________ and ending _________.
- The Tenant shall pay to Landlord as rent $____________ per year in equal monthly installments of $ _________ payable in advance ___________________ (Time Period).
- This Lease is subject to all present or future mortgages affecting the premises.
- Tenant shall use and occupy the premises only as a _________________________ (Tenant Rental Status) subject at all times to the approval of the Landlord.
- The Tenant shall not make any alterations, additions or improvements to the premises without the prior written consent of the Landlord.
- The Landlord, at his own expense, shall furnish the following utilities or amenities for the benefit of the Tenant:
- The Tenant, at his own expense, shall furnish the following:
- The Tenant shall purchase at his own expense public liability insurance in the amount of $ _________________ as well as fire and hazard insurance in the amount of $ _____________ for the premises and shall provide satisfactory evidence thereof to the Landlord and shall continue same in force and effect throughout the Lease term hereof.
- The Tenant shall not permit or commit waste to the premises.
- The Tenant shall comply with all rules, regulations, ordinances codes and laws of all governmental authorities having jurisdiction over the premises.
- The Tenant shall not permit or engage in any activity that will effect an increase in the rate of insurance for the Building in which the premises is contained nor shall the Tenant permit or commit any nuisance thereon.
- The Tenant shall not sublet or assign the premises nor allow any other person or business to use or occupy the premises without the prior written consent of the Landlord, which consent may not be unreasonably withheld.
- At the end of the term of this Lease, the Tenant shall surrender and deliver up the premises in the same condition (subject to any additions, alterations or improvements, if any) as presently exists, reasonable wear and tear excluded.
- Upon default in any term or condition of this Lease, the Landlord shall have the right to undertake any or all other remedies permitted by Law.
- This Lease shall be binding upon, and inure to the benefit of, the parties, their heirs, successors, and assigns.
Signed this _______ day of ________________ (Month) ________ (Year).