If you are a business owner seeking real estate, you will have to sign a commercial lease agreement to rent a new space. The world of business lease agreements can be a complex process that requires systematic investigation.
What Is a Commercial Lease Agreement?
A 3 year and 5 year commercial lease agreement is a legal and written contract between a commercial landlord and a commercial business tenant. There is no standard commercial lease, as every lease can differ depending on the lease terms. These contracts are different from residential lease agreements and require certain terms and rules to be viable, such as the inclusion of incidental expenses like insurance and property taxes. Commercial leases are less regulated than residential leases, offering more flexibility concerning lease negotiations. When signing a commercial lease, you should be aware of the different priorities of renting a commercial space, such as the square foot of the space, zoning laws, and property tax rates.
What Are Common Types of Commercial Leases?
There are a few different types of commercial lease agreements to be aware of. It’s important to understand the differences when considering an investment in a commercial property.
Gross Rent Lease
The business tenant pays a single amount to their landlord that covers the base rent and all incidental expenses.
Modified Gross Lease
The business tenant and landlord share some incidental expenses.
A net lease is used when the business tenant pays the rent plus property taxes, while the landlord pays for all other expenses.
Double Net Lease
The business tenant pays the rent plus two incidentals, while the landlord pays for all other expenses.
Triple Net Lease
The business tenant pays the rent as well as: property taxes, utilities, insurance, and other maintenance costs. The landlord pays no extra costs, other than building repairs.
In a percentage lease, the business tenant pays the base rent plus a certain gross sales percentage over a preset minimum.
When Are Commercial Lease Agreements Used?
These contracts are used whenever a business needs to rent a commercial property to operate out of a regulated commercial space. Lease terms can depend on short-term or long-term rental uses, and also include usable square feet, the security deposit, improvements, and the grant of the commercial lease. A commercial lease is also used to help the tenant negotiate fair terms with their landlord, and it is recommended for future commercial property tenants to ask for the following terms:
Landlord Representation and Warranties
Tenants should seek representation and warranties from their landlords to ensure that their landlord is the owner of the premises and that all environment, zoning, rent increases, and building laws are being followed.
Tenant inducements are favorable incentives that tenants should negotiate before entering a long-term agreement with their landlord. These inducements can include monthly rent-free periods or a lease allowance for property improvement.
It can be difficult to maintain a five-year tenancy. By negotiating flexible leasing terms, a tenant can ensure that they can sublet the lease to a third party without hindrance from the landlord.
If the landlord files for bankruptcy or sells the building, the tenant can negotiate “non-disturbance” to ensure that they are still able to use the lease commercial property for their needs, regardless of the current ownership.
Find More Information at Schwarz Properties
Even a simple commercial lease agreement should be carefully examined and negotiated before signing. Hidden fees and unexpected liabilities can quickly arise when working with commercial rentals, and a thorough overview can prove favorable for the tenant when negotiating long-term leases. It is essential to understand your legal rights as a tenant and seek legal advice when renting. If you are a landlord or tenant looking for assistance, Schwarz Properties offers a personal guarantee of satisfaction and are happy to help. Check out our website to learn more!