7 Main Components Of A Commercial Lease

For the vast majority of businesses, owning the building from which they operate or trade is usually not feasible. The main reason for that is the huge financial obligation necessary to purchase such buildings and the additional costs associated with their operation and maintenance.

This is why commercial leases are a legal document that most business owners will be familiar with, as that they allow them to lease a building or offices from a commercial landlord to trade from. Each landlord may have their own bespoke commercial lease, but the terms and conditions within it must comply with commercial law relating to commercial property leasing.

Each commercial lease will contain several components which form the agreement between the commercial landlord and the business owner leasing the premises. Below are seven that are certain to be included.

Lease Duration: The duration or ‘term’ of the commercial lease will state how long the tenant will rent the property from the landlord. This has importance for both the tenant and the landlord and is thus likely to never be too short not too long a duration. Before signing a business owner needs to consider if the term is congruent with their business’s growth and development.

Rent Amount: The second important factor after the term is the rent which is payable by the tenant to the commercial landlord. This will stipulate the starting amount and will also likely include provision for reviews of the rent amount which may apply to the commercial rental rates or rate of inflation at that time. It may instead simply have a fixed percentage increase each year.

Renewal Option: Most business owners will want their business to be a long term success so the option to renew is an important element of the lease agreement. Without an option to renew it might mean the business having to move which can undo much of the customer loyalty and local goodwill it has built up.

Permitted Use: If someone rented a property designed for retail use but subsequently used it as a car maintenance workshop, it is going to cause issues for the landlord. That is why commercial lease agreements have the permitted use of the premises clearly stated. This may also stipulate what goods and services can or cannot be sold from the premises.

Alterations To Premises: Businesses moving into leased premises often want the opportunity to make it their own. This could include new décor, installing fittings and equipment, and branding it as distinctively theirs. A fit-out clause within the lease agreement will permit the tenant to make alternations and also state what proportion, if any, the landlord agrees to contribute. It will also include limitations such as no major structural changes allowed.

Maintenance And Repairs: A commercial lease should also specify who is responsible for maintenance of and repairs to, the property. Given that the building is owned by the landlord many of them will be their responsibility especially anything major or structural. Minor repairs such as replacement lighting may fall within the tenant’s responsibility.

Additional Clauses: A commercial lease may have additional claes which both the landlord and tenant agree to. One could be exclusivity, where a shopping mall landlord agrees not to let a unit to a retail competitor of the tenant. Another could allow for the tenant to provide the landlord reduced or preferential rates for the products and services they sell for the period of the lease.