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Whether you’re talking about a residential lease, that is, a lease for a place to live, or a commercial lease, a place to work, the basic idea is the same: a property owner, or the “landlord” or “lessor,” lets a “tenant” or “lessee” use the property in exchange for payment of some sort by the tenant, usually rent money. People lease commercial space for many of the same reasons they rent residential space. For example, maybe they can’t afford to buy land, or maybe they don’t want to have to deal with the maintenance and repair responsibilities that go with owning land.
Aside from those things and some other basic similarities, commercial leases are different from residential leases. For example, commercial lease are often for a longer period of time than residential leases, tenants often have more costs and expenses, and there are usually restrictions on how the premises can be used.
In most states, there are laws that control what a commercial lease can and can’t contain, and of course the laws vary from state to state. So, before you sign a commercial lease, be certain to read it carefully, and check to make sure that it follows the laws in your area, or let your real estate attorney look at it.
Necessary Lease Provisions
Commercial leases usually run for more than one year, and it’s not uncommon for them to run for periods of anywhere from 3 to 99 years. Like residential leases, many states require that commercial leases be in writing if the term is for one year or longer.
Like a residential lease, there are several things that a commercial lease must contain in order for it to be valid and enforceable, such as:
- The names all landlords and tenants
- A description of the premises being leased, including street address and building name or number, as well as any common areas, such as hallways, lobbies, elevators and parking areas
- How much rent the tenant has to pay, a schedule of any increases (many commercial leases have rent that increases every year or every few years), and when and how it has to be paid (check or money order, for example), and any charges for late for late payments
- The length, or “term,” of the lease
Usually, if the lease has to be in writing, it will be invalid and unenforceable if it doesn’t clearly state what property is being leased, for how long, and how much rent has to be paid and when.
Typical Lease Provisions
Most commercial leases are very long because they try to cover every aspect of the landlord-tenant relationship, that is, exactly what each party’s rights and obligations are with respect to the property. For example, most commercial leases will specify things like:
- The amount of the security deposit that the tenant has to pay before moving in, as well how the deposit will be refunded and under what circumstances the landlord can keep portions of it, such as for damage to the property caused by the tenant
- How the utilities will be apportioned among multiple tenants and whether the tenant has to pay them directly to the utility or service provider, or if they are included in rent
- Who’s responsible for designing, building and paying for any improvements the tenant wants or needs in order to conduct his or her business
- How much the tenant will have to pay for maintaining common areas, such as parking areas and elevators
- Who’s responsible for insuring the property against loss from theft, fire and natural disasters, like flooding and tornados
- The fact that the premises are “suitable” for the tenant, that is, the premises are structurally safe and sound and there are no defects that would prevent the tenant from using the premises for his or her business
- If, how and when either party can end the lease early, say, for example, if the tenant’s business out-grows the leased premises
- If the tenant can “sublet” the premises, that is, rent it to someone else
- When the landlord can enter the leased premises, either with or without the tenant’s permission
- If and where the tenant can erect a business sign
- Who’s responsible for paying property taxes
- If the lease automatically renews after the initial term expires
- The tenant’s duty to “restore” the premises to its original condition when the lease expires, by doing things like removing his or her personal property, furniture, equipment and trade fixtures, like signs
- The requirement that the tenant can use the premises only for the commercial use specified in the lease, so if the tenant rents space to operate a delicatessen, the landlord could prevent him or her from later using the premises as a beauty salon
There are several things that a commercial lease can’t contain. For instance:
- Like residential leases, commercial leases can’t state that persons of various race, color, sex, religion or national origin can’t be tenants
- The landlord (or tenant, for that matter) can’t eliminate his or her obligation to follow the Americans with Disabilities Act (ADA) by making the premises that are open to the public accessible to disabled or handicapped persons
- The landlord can’t give him or herself greater rights to enter or access the premises without the tenant’s permission than the rights specified by state law, or give the tenant fewer remedies than those provided by state law if the landlord enters the premises unlawfully