Commercial Leasing Overview
Commercial Leasing Resources
Commercial leasing significantly differs from residential leasing in several ways: (1) state real property laws focus more on protecting residential tenants than commercial tenants, (2) commercial leases tend to last longer than residential leases and (3) commercial lease agreements are not as standardized as residential leases. Thus, commercial leasing is an area where having an experienced real estate attorney can help you review the terms of your lease and reach the best arrangement. A lawyer can also assist in researching local ordinances and zoning laws, as well as describing local customs and market conditions.
Landlords should order a prospective tenant's credit report and request its complete financials. Tenants should inspect the space carefully, such as by checking the ceiling for signs of roof leakage. Tenants should also verify that the space will accommodate their purposes. For instance, a technology company that depends on Internet access will want to be sure that a broadband connection is available in the space. Likewise, a retail establishment will want to look for foot traffic and easy parking. All businesses must make sure that the city has zoned the space for their desired usage.
The landlord and tenant should memorialize the terms of the commercial lease in writing and such lease should cover the following points:
- The amount of rent due, including any increases down the line (also referred to as escalations). Escalations should be for specified amounts or tied to specific methods of calculation so everyone is on the same page with the same expectations. Prior to negotiating the lease, research the comparable rents in the community to determine the current market rates.
- Whether the lease includes utilities such as water, gas, electricity, garbage, and phone, or whether the landlord or the service provider will separately charge the tenant for such utilities. A "Double Net" lease generally means that the tenant pays for everything except structural repairs. A "Triple Net" lease generally means that the tenant pays for everything including structural repairs. However, you should read the terms of the lease since many Triple Net leases hold the landlord responsible for roof repairs.
- Whether the tenant is responsible for paying any of the landlord's maintenance costs, such as insurance, property taxes, etc., and if so, how will these amounts be calculated.
- Any required deposit and whether the landlord will accept a letter of credit instead of a cash deposit.
- A description of the rental space, including square footage, amenities and parking availability.
- A listing of any improvements the landlord will be making to the space. On a long-term lease, a landlord will more likely invest in improvements to the space. For instance, putting in a kitchen or additional bathroom.
- A tenant will want to include representations made by the landlord during the negotiation process; e.g., average utility cost, foot traffic, ADA compliance, whether the space is appropriately zoned for the tenant's business, etc. Tenant should also check with the local authorities regarding zoning suitability.
- The term of the lease, when the lease starts and under what conditions, if any, the tenant may renew the lease. While a shorter lease provides for less commitment, it also allows for less predictability.
- Under what conditions, if any, the tenant may assign the lease or sublet the space to another tenant.
- Under what conditions, if any, either party may terminate the lease, as well as the consequences of such termination.
When the time comes to renew a lease, the landlord and tenant will want to look at current market conditions as well as any representations made in the lease regarding the space and how they may have changed.
The flexibility afforded in commercial leasing makes having an attorney involved in the process important.