Most businesses get to encounter a commercial lease contract at some point. Also known as a commercial lease agreement or a business lease, understanding the components of the document, and the implications of each element are critical to the smooth running of your business.
A commercial lease agreement is a contract that a business gets into with a property owner for purposes of renting an office or business space, which means that the rented property shall be used exclusively for business and not residential purposes. While every business lease is unique, it is important to understand that certain clauses are crucial for a business contract. Here are some of these clauses:
The use clause
The use clause outlines the limits to how the tenant (business) will use the rented property. The limitations specify the kind of business the tenant will run in the property. Sometimes, the landlord may wish to impose certain restrictions on the use clause, such as:
- The type of business, products and services the entrepreneur will conduct on the rented premises
- The liabilities that come with conducting the particular business on the premises
- The commitment to protect the business from competition by renting out space to companies that offer the same products or services
While most commercial lease agreements come with the use clause, they can differ considerably between landlords.
Lease period and renewal terms
This clause specifies the beginning and the end of the lease period and the rent due dates. Some commercial lease agreements also come with bailout options that allow businesses to opt-out of the lease should they not achieve certain levels of success.
While negotiating the lease terms, it is important that both parties talk about the renewal rights and terms. Sometimes, the lease will grant automatic renewal rights to the tenant, while at other times, the parties involved may review the terms before renewal.
A business lease agreement specifies the terms of engagement between the landlord and the tenant. Understanding the components of a good lease agreement ensures that both parties have a clear understanding of their rights and responsibilities.