Commercial Lease Information
A Commercial Lease is also known as:
- Commercial Lease Agreement
- Business Lease
- Industrial Lease
What is a Commercial Lease?
A Commercial Lease Agreement is a contract used when renting business property to or from another individual or company. It gives the tenant (or renter) the right to use the property for business purposes during the term of the lease in exchange for payment to the landlord.
Generally, a commercial lease covers the landlord and tenant information, which can include a guarantor; the rent; the duration of the lease term; and any pertinent information which constitutes as a term of the lease.
The long version of this contract is more inclusive and allows for precise specifications to the terms of the lease. The short version is a more general lease agreement and does not include any clauses or terms that are not absolutely necessary.
When to Use a Commercial Lease
A Commercial Lease Agreement should be used whenever commercial property is being rented from a landlord or a tenant.
You should use a commercial lease if you:
- Own an office building and wish to rent work space to other businesses and individuals;
- Own a warehouse or industrial space that you would like to lease to another business; or
- You are leasing commercial space from a landlord.
Types of Commercial Properties
A Commercial Lease Agreement will cover almost all commercial property types, including:
Office space: Generally, office space is made up of a number of various offices dedicated to different trades and professions that are located in the same building, although single-tenant properties are included as well.
This space encompasses accounting firms, legal offices, and other types of professional trades.
Retail and Restaurant: Retail and restaurant space is usually found in shopping centers, malls, and strip malls.
This space covers fast-food restaurants, specialty eateries, clothing stores, chain stores, and brick-and-mortar versions of online retail businesses.
Industrial: Industrial space is rented to businesses that require warehouses and storage space, manufacturing buildings, factories, or businesses that need industrial space as well as office space for employees.
Industrial work space is rented by many trade businesses who specialize in manufacturing products that are either sent out to retail stores and shops or to other larger manufacturing companies and trade businesses.
Other: Other commercial space can be comprised of most other non-residential properties. Examples are self-storage facilities, medical clinics, and hotels.
Commercial Property and Landlord Responsibilities
When leasing an office, retail space, restaurant, or industrial space, landlords (or lessors) have a number of different issues to keep in mind, including:
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.
The landlord must decide and permit how the tenant will use the property for their business. The tenant needs to specify what type of business they will be running (real estate, finance, etc.).
The landlord must choose if the tenant will be allowed exclusive use, which means the tenant would be the only party in that building to conduct their type of business. An example would be only allowing one coffee shop in the strip mall.
Commercial lease terms may follow a weekly, monthly, yearly, or longer term that may either be on a fixed renewal or a periodic tenancy.
Operating Costs and Utilities:
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 if the tenant will pay the utility companies directly.
Some landlords require that the tenant pays a share of the property tax. The amount, whether it will be a percentage or a fixed portion, is up to the landlord.
When parking is available, it may either be free, included in the rent, or charged as an additional fee.
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. A landlord needs to approve these changes and, depending on what they are, pay for and complete them. Improvements can transfer to the tenant at the end of the lease and generally depreciate in value during the term of the lease.
Types of Lease Terms for Commercial Properties
There are different types of terms that you can choose from when creating your Commercial Lease Agreement, including:
Fixed End Date Lease:
This type of lease specifies the exact end date of the tenancy.
This is beneficial to both parties as the length of the lease is predetermined, the rent cannot be increased during that period, and no changes may be made to the lease unless the landlord includes a clause in the lease and the tenant agrees.
Fixed Number of Weeks/Months/Years:
This type of lease specifies a time period for the lease in terms of weeks, months, or years. A tenancy may last for whatever period the landlord and tenant agree upon.
The landlord may not increase rent or change any of the lease terms unless it was specified in the agreement.
A periodic tenancy can be made up of weeks, months, or years and will continue until either party terminates the lease. The most common type is the month to month tenancy.
A landlord can generally increase rent and make changes to the terms if he or she provides proper notice to the tenant.
Automatic Renewal Lease:
A lease based on an automatic renewal means that the lease continues on the agreed upon terms until either the landlord or the tenant gives notice to terminate the contract.
An automatic renewal allows the contract to continue on the same terms as previously negotiated even after the term has ended.
For example, if a renter was on a 12 month lease with an automatic renewal, the lease could continue to be binding and valid even after the 12 months if both parties are in agreement. If neither party objects, the lease would simply renew for another 12 month period.