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What businesses should know about commercial lease agreements

On Behalf of | Jan 16, 2024 | Commercial Real Estate |

Running a successful business involves navigating a myriad of challenges, and one crucial concern that is often overlooked is commercial lease agreements. This document outlines the terms of a business’s lease concerning a property owned by an alternative entity.

If you run a business that needs a lease or is already bound by the terms of one, its terms can significantly impact your operations. If you’re a business owner, familiarizing yourself with the critical elements of a commercial lease agreement can equip you with the knowledge needed to make informed decisions.

Key components of a commercial lease agreement

The terms of a commercial lease agreement typically address:

  • Parties involved: Identify the lessor (landlord) and lessee (tenant)
  • Property description: Clearly defines the leased space, specifying any exclusions
  • Lease terms: Outline the duration of the lease and renewal options
  • Rent structure: Details the rent amount, frequency and any escalation clauses.
  • Maintenance responsibilities: Clearly define who is responsible for property upkeep

Commercial leases also come in various forms, each catering to different business needs. The most common types include:

  • Full-service lease: Covers all operating expenses
  • Net lease: Tenant pays a portion of operating expenses
  • Percentage lease: Rent is based on a percentage of sales

The duration of a lease is another critical concern. Short-term leases offer flexibility but may lack stability, while long-term leases provide security but limit adaptability. Balancing these factors is crucial for optimal business planning.

Navigating key provisions

Understanding the structure of one’s rent obligations per the terms of a lease is paramount. Gross leases include all costs in the rent, while double and triple net leases require tenants to pay additional costs. Choosing the right structure is vital for budgeting accuracy.

Clearly defined responsibilities for maintenance and repairs are also crucial. Triple net leases often shift these burdens to tenants, while full-service leases may cover these costs. Negotiating these terms helps ensure a fair distribution of responsibilities.

Seeking legal guidance to negotiating a favorable commercial lease is often very beneficial. Employing effective strategies can lead to significant cost savings and operational advantages.

Leasing commercial space is a strategic decision that requires meticulous consideration. By understanding the nuances of commercial lease agreements, adopting effective negotiation strategies and seeking legal counsel, business owners can more effectively secure a space that aligns with their goals and safeguards their interests.