Last Updated October 18, 2023
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What is a Commercial Lease Agreement?
A Commercial Lease Agreement outlines a landlord’s and tenant’s rights and obligations when the landlord rents out commercial property to a tenant. Either party can be an individual or company. A tenant may also be referred to as a renter or lessee.
The purpose of Commercial Lease Agreements is to establish lease terms so parties are bound to them. It also gives the tenant the right to use the rental property for business purposes during the term of the lease in exchange for payment to the landlord.
A Commercial Lease Agreement is also known as a/an:
- Business lease agreement
- Business rental agreement
- Commercial property lease agreement
- Commercial real estate lease agreement
- Commercial lease contract
- Office lease agreement
If you want to rent out your commercial property but do not have a tenant yet, use our Commercial Lease Application to screen potential tenants.
What properties are commercial?
Generally, commercial real property includes any non-residential real estate, including entire buildings as well as individual units within buildings. The following examples are considered commercial property:
- Office spaces, including individual office suites or entire office buildings
- Industrial buildings, such as factories and workshops
- Retail stores and shops
- Restaurants, cafes, and commercial kitchens
- Warehouses and other storage spaces
In the United States, commercial tenancies are governed by landlord-tenant law.
Do I need a Commercial Lease Agreement?
If you are a landlord who owns commercial property and rents it to a tenant, you need a Commercial Lease Agreement. Likewise, if you are a tenant who is renting commercial property and your landlord does not initiate a written contract, consider creating one and presenting it to them.
Having a written contract protects landlords by ensuring that tenants are bound to the terms of their agreement. It is common for landlords and tenants to have disputes, such as disagreeing about who is responsible for repair costs. Without a contract, it is difficult to prove the agreed-upon terms of the tenancy. Having a ;ease agreement can be extremely helpful if a landlord has to file a legal claim to evict their commercial tenant
In addition, landlords must outline certain terms, such as whether or not tenants can sublease the rental property to another tenant or if they need their landlord's consent before subleasing.
A written contract protects tenants by documenting their right to use the rental property for business purposes. A commercial lease also binds landlords to their obligations.
Types of commercial leases
When creating a commercial lease form, it is worth knowing the different types of commercial leases that exist. We offer templates for both comprehensive and standard Commercial Lease Agreements.
In addition, there are varying types of leases when it comes to the costs that tenants are responsible for paying, including gross, net, and triple net leases.
Gross lease
Having a gross lease means the tenant only pays a flat rental fee and the landlord is responsible for all additional operating costs, including property taxes and maintenance costs. Many commercial leases and most residential leases are gross. Under a gross lease, a tenant can still be responsible for some or all utility costs.
Net lease
A net lease means the tenant is responsible for some additional costs, such as certain operating costs, in addition to a fixed rent payment. A net lease is also known as “gross rent plus specified operating costs.” Under a net lease, a tenant may pay some or all of the property taxes, insurance fees, or other operating costs in addition to their rent.
Triple net lease
A triple net lease means the tenant is responsible for all operating costs on top of their rent. A triple net lease is also known as “gross rent plus all operating costs.” Under a triple net lease, a tenant pays all of the costs including property taxes, insurance fees, and repair and maintenance costs in addition to their rent.
What should be included in a Commercial Lease Agreement?
A Commercial Lease Agreement should include information such as:
- The property’s details, such as the address and legal description of the commercial rental space
- The permitted use of the rental property and any restrictions placed upon the landlord, such as not leasing to direct competitors in the same building
- The personal information of the landlord and tenant, such as names and contact information
- The lease terms, such as the lease type, length, and start and end date
- Whether or not the tenant can assign or sublease the property
- The rent details, including the amount, payment frequency, and whether the tenant’s lease will be gross, net, or triple net
- The responsibility for utilities and insurance payments, such as who is obligated to pay for which expenses
- Whether the landlord will charge a security deposit and whether they can increase rent.
Whether the landlord has to make improvements to the property, or whether the tenant can renovate or make improvements to the property
What are the types of lease terms for commercial purposes?
When creating a Commercial Lease Agreement, there are different types of terms that you can choose from. Generally, commercial leases are fixed or periodic.
Fixed-term
A fixed-term lease ends on a specific date. The conditions of the lease, including rent, cannot be changed unless the lease specifies. The lease will likely become a month-to-month lease after the term expires, depending on the laws of your jurisdiction.
Periodic
A periodic lease renews automatically every month or year until the tenant or landlord terminates it. A periodic lease is also known as month-to-month or year-to-year. These types of leases offer greater flexibility to both the tenant and the landlord to break the lease, evict the tenant, change the terms, and raise the rent. A landlord can generally increase rent and make changes to the terms if they provide proper notice to the tenant.
What are a commercial landlord's responsibilities?
When leasing an office, retail space, restaurant, or industrial space, landlords may have a variety of responsibilities to keep in mind, including:
- Checking property specifications: It is up to the landlord to ensure that commercial use is permitted on the property and the property will satisfy the specific type of commercial use for the tenant's activities. For example, one generally cannot operate a restaurant in an office-type building unless very specific building codes and bylaws have been satisfied.
- Permitting property use: The landlord must decide and permit how the tenant will use the property for their business. If a landlord owns a multi-unit commercial building, they may need to ensure they are not renting out units to similar businesses that are in competition.
- Deciding the type and length of lease term: Often landlords are the ones who dictate the type and length of commercial leases. The tenant can either pay a percentage of the utilities and operating costs, or a fixed rate on top of their rent. It is up to the landlord to choose the cost distribution, and whether the tenant will pay the landlord or the tenant will pay the utility companies directly.
- Determining tax obligations: Some landlords require that the tenant pays a share of the property tax. The amount, whether it will be a percentage or a fixed amount, is up to the landlord.
- Making improvements: Sometimes a tenant will require that certain improvements be made to the property in order to assist them in properly conducting their day-to-day business. If these terms are worked into the lease, a landlord needs to pay for and complete the improvements.
Making repairs and maintaining the property: Depending on the terms of a lease, landlords may be responsible for coordinating repairs and maintaining the property. However, sometimes landlords pass these responsibilities to tenants and add these responsibilities into the tenant’s lease agreement.
