Rent business property with confidence: Commercial Lease
What we’ll cover
What is a Commercial Lease?
A Commercial Lease is a legal agreement between a landlord and tenant for renting a property for commercial or business purposes. Commercial Leases cover a variety of business locations, including office space, restaurants, retail space, industrial real estate, warehouses, and more.
Regardless of the type of business, Commercial Leases (sometimes referred to as Business Leases as well) include important details about the obligations and conditions of each party, such as the length of the lease, the amount and due dates of rent, and the permitted uses of the leased property.
In addition, a Commercial Lease may contain more specific clauses that outline who is responsible for property taxes, property insurance, and utilities. Landlords may also want to include terms related to the termination of the lease, such as the notice required for termination or what happens if the property is sold.
When to use a Commercial Lease Agreement:
- You are the owner of a commercial property and want to lease it to a new tenant.
- You own commercial property that will be converted to a rental property.
- You want to rent a commercial property for your business.
- You want to lease commercial rental property from a landlord who does not have a lease form.
Sample Commercial Lease Agreement
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COMMERCIAL LEASE
This Lease Agreement (this "Lease") is dated as of , by and between ("Landlord"), and ("Tenant"). The parties agree as follows:
PREMISES. Landlord, in consideration of the lease payments provided in this Lease, leases to Tenant (the "Premises") located at , , .
TERM. The lease term will begin on and will terminate on .
LEASE PAYMENTS. Tenant shall pay to Landlord Lease payments shall be made to the Landlord at , , . The payment address may be changed from time to time by the Landlord.
All security deposits shall be held by the Landlord for the Tenant in a bank, credit union, or depository institution which is insured by an agency of the federal government. Security deposits shall not be commingled with other funds of the Landlord. All security deposits shall be held in a trust established by the landlord and deposited in a bank, credit union, or depository institution account in the name of the trustee. Any interest earned on a security deposit shall be the property of the Landlord.
POSSESSION. Tenant shall be entitled to possession on the first day of the term of this Lease, and shall yield possession to Landlord on the last day of the term of this Lease, unless otherwise agreed by both parties in writing. At the expiration of the term, Tenant shall remove its goods and effects and peaceably yield up the Premises to Landlord in as good a condition as when delivered to Tenant, ordinary wear and tear excepted.
PROPERTY INSURANCE. Landlord shall be named as an additional insured in such policies. Tenant shall deliver appropriate evidence to Landlord as proof that adequate insurance is in force issued by companies reasonably satisfactory to Landlord. Landlord shall receive advance written notice from the insurer prior to any termination of such insurance policies. Tenant shall also maintain any other insurance which Landlord may reasonably require for the protection of Landlord's interest in the Premises. Tenant is responsible for maintaining casualty insurance on its own property.
MAINTENANCE. Landlord shall have the responsibility to maintain the Premises in good repair at all times.
MAINTENANCE. Tenant shall have the responsibility to maintain the Premises in good repair at all times during the term of this Lease.
MAINTENANCE.
Landlord's obligations for maintenance shall include:
- the roof, outside walls, and other structural parts of the building
- the parking lot, driveways, and sidewalks, including snow and ice removal
- the sewer, water pipes, and other matters related to plumbing
- the electrical wiring
- the air conditioning system
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- all other items of maintenance not specifically delegated to Tenant under this Lease.
Tenant's obligations for maintenance shall include:
- the roof, outside walls, and other structural parts of the building
- the parking lot, driveways, and sidewalks, including snow and ice removal
- the sewer, water pipes, and other matters related to plumbing
- the electrical wiring
- the air conditioning system
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- all other items of maintenance not specifically delegated to Landlord under this Lease.
UTILITIES AND SERVICES. Landlord shall be responsible for all utilities and services incurred in connection with the Premises.
UTILITIES AND SERVICES. Tenant shall be responsible for all utilities and services incurred in connection with the Premises.
UTILITIES AND SERVICES.
Landlord shall be responsible for the following utilities and services in connection with the Premises:
- electricity
- water and sewer
- gas
- heating
- garbage and trash disposal
- janitorial services
- telephone services
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Tenant shall be responsible for the following utilities and services in connection with the Premises:
- electricity
- water and sewer
- gas
- heating
- garbage and trash disposal
- janitorial services
- telephone service
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Tenant acknowledges that Landlord has fully explained to Tenant the utility rates, charges and services for which Tenant will be required to pay to Landlord (if any), other than those to be paid directly to the third-party provider.
CUMULATIVE RIGHTS. The rights of the parties under this Lease are cumulative, and shall not be construed as exclusive unless otherwise required by law.
NOTICE. Notices under this Lease shall not be deemed valid unless given or served in writing and forwarded by mail, postage prepaid, addressed as follows:
LANDLORD:
,
TENANT:
, , , ,
Such addresses may be changed from time to time by any party by providing notice as set forth above. Notices mailed in accordance with the above provisions shall be deemed received on the third day after posting.
GOVERNING LAW. This Lease shall be construed in accordance with the laws of the .
ENTIRE AGREEMENT/AMENDMENT. This Lease Agreement contains the entire agreement of the parties and there are no other promises, conditions, understandings or other agreements, whether oral or written, relating to the subject matter of this Lease. This Lease may be modified or amended in writing, if the writing is signed by the party obligated under the amendment.
SEVERABILITY. If any portion of this Lease shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable. If a court finds that any provision of this Lease is invalid or unenforceable, but that by limiting such provision, it would become valid and enforceable, then such provision shall be deemed to be written, construed, and enforced as so limited.
WAIVER. The failure of either party to enforce any provisions of this Lease shall not be construed as a waiver or limitation of that party's right to subsequently enforce and compel strict compliance with every provision of this Lease.
BINDING EFFECT. The provisions of this Lease shall be binding upon and inure to the benefit of both parties and their respective legal representatives, successors and assigns.
LANDLORD:
| By: | Date: |
TENANT:
| By: | Date: |
If the property being leased has a total floor area of more than 10,000 square feet, the Landlord must provide the Tenant(s) with data on the buildings energy performance, operating characteristics and energy use.
State laws vary on the amount that may be charged as a late payment fee. Consult an attorney to determine whether limits apply in your state.
Consult an attorney to determine whether the laws of your state limit the amount that may be charged for checks returned due to non-sufficient funds.
About Commercial Lease Agreements
Learn about how to rent business property with confidence
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Understanding Key Terms In a Commercial Lease
A Commercial Lease is a legally binding agreement between a landlord and a tenant that outlines the terms and conditions of renting a commercial property. Writing a Commercial Lease requires careful consideration of various clauses to protect the rights and interests of both parties involved. Let’s explore some of the essential clauses and terms that are often included in a commercial lease to ensure a smooth and mutually beneficial tenancy.
Security Deposit
A security deposit is an amount of money the tenant gives to the landlord that can be used to offset unpaid rental payments or some other default by the tenant. Most states do not limit the amount that can be collected as a security deposit when the lease is for commercial purposes (i.e., renting space to a printing business as compared to renting an apartment to the president of the printing business for his private living quarters). However, some states require that the security deposit be retained in a separate account, perhaps bearing interest. Check with an attorney if you have any questions about the collection of a security deposit.
Commercial Lease Payments
In Commercial Leases, there is usually no restriction on the amount of rent charged. These leases are generally unaffected by rent control laws. However, state and local laws can change quickly based on local considerations and unanticipated situations. Check with a lawyer if you have questions about legal restrictions on local rental rates.
Late Payments
Many states have laws limiting the amount of fees that can be charged for late rental payments, but they generally apply to residential, rather than commercial leases. For commercial leases, the landlord generally is allowed to charge whatever late charge that the parties agree upon, as long as that amount is reasonable in relation to the amount of rent and how long the payment has been overdue.
Automatic Renewal/Holdover
Commercial leases often provide for automatic renewal of the lease at the end of each term unless either party gives written termination notice to the other party. Most renewal clauses provide that the terms of the renewed lease will be the same as the old lease except that the lease payments may be adjusted.
A Commercial Lease Agreement can also include a "holdover" clause, which automatically characterizes the lease as a month-to-month lease after the term expires but before the tenant leaves. This characterization defines and limits the relationship so that the landlord can enforce its terms.
Maintenance
It is important to clearly indicate who is responsible for each maintenance item. Generally, the tenant is responsible for most maintenance items in a Commercial Lease Agreement, except perhaps for the roof, exterior, and structural components of the building.
It is important to check county and city ordinances for specific duties that may be imposed on landlords. A lawyer should be consulted if you have questions.
Remodeling and Improvements
It is important for the landlord to retain control over any remodeling or alterations to the property. If the tenant redesigns the property in a manner that is impractical or unattractive to other potential tenants, it may be difficult to re-rent the property when the tenant moves out. Therefore, if remodeling or improvements will be permitted at all, the lease may require pre-approval by the landlord. Further, the tenant may be required to restore the property to its original condition before leaving.
Also, allowing a tenant to make improvements to the property can result in "liens" against the property. For example, if a tenant hires a contractor to install a new furnace and then fails to pay the contractor, most states authorize the contractor to file a "mechanic's lien" or "contractor's lien" against the property. A "lien" is similar to a mortgage in that the lien holder (here, the contractor) can force the sale of the property, if necessary, in order to get paid.
Therefore, if the tenant will be allowed to make improvements, the landlord may want to take appropriate steps to make sure that the contractor is paid in full. In some states, some protection can be obtained by including language in the lease which prohibits liens caused by the tenant and then filing the lease with the appropriate government office. Contact an attorney for further assistance.
Casualty Insurance
Either party can be assigned the responsibility to obtain and pay for casualty insurance on the property and its contents. In a lease where the tenant occupies only part of the space in the building, it is common for the landlord to insure the building and the tenant to insure his or her belongings (if desired). If the tenant occupies an entire building, however, the tenant may be required to maintain the insurance coverage at levels specified by the landlord and to name the landlord as an "additional insured." In any event, where the tenant must supply the insurance, the landlord should be provided with proof of insurance and a commitment from the insurance company to notify the landlord prior to any lapse of coverage.
Non-Compete Clause
A non-compete clause is used to ensure that no other tenant operating the same or similar type of business can lease space in the same building. This clause benefits certain service-oriented businesses that do not want competition within the same commercial property. For example, if the tenant opens a pizza shop on the property, the landlord would not be allowed to lease another space on the property to another pizza shop because it would cause direct competition with the tenant.
Sublet
A "sublet" or "sublease" is a lease by a tenant (also known as a “lessee”) to a third party of all or a part of the property that the tenant is leasing from a landlord (also known as the “lessor”). Under the sublease, the original tenant becomes the "sublessor" and the new tenant is referred to as the "sublessee." The sublease does not release the tenant from the remaining obligations of the lease, unless the landlord specifically releases such obligations in writing.
Obviously, the landlord will insist on retaining some control over the selection of any sublessee in order to prevent a complete stranger from occupying the property. Therefore, it is recommended that you include a lease provision that prohibits subletting the property without the landlord's prior written approval. This gives the landlord the opportunity to screen and approve the prospective sublessee.
Subordination of Lease
A "subordination of lease" is a consent from the tenants that their rights to enjoy possession of the property are lower ("subordinate") in priority than the rights of a bank holding a mortgage on the leased property. The landlord's bank usually requires this arrangement for the bank's protection. Without it, the bank might be limited in enforcing its mortgage (upon the landlord's default) because of the tenant's superior right of possession.
Termination on Sale
A "termination on sale" provision gives the landlord the right to prematurely terminate the lease if the leased property is sold to a third party. The new buyer may want to occupy the property itself or lease the property to a different tenant. Therefore, without this provision, the property would be less valuable to the buyer because the tenant could not be forced to leave.
General Provisions
A lease should include provisions that: (i) make it clear that the document contains the entire agreement of the parties, (ii) require any changes to the agreement to be in writing and signed by both parties, (iii) preserve the remainder of the agreement if one of its provisions is invalid, and (iv) specify which state's laws will govern any dispute between the parties.
Commercial Lease Agreement FAQs
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Will my Commercial Lease be legally binding under local law?
As with any legal contract, a Commercial Lease will not be legally binding until everyone has signed it. Unlike a generic Commercial Lease template that you may download elsewhere, your Rocket Lawyer Commercial Lease contract comes with the option of Document Defense®, so an attorney in our network can review the situation and take action if you need to demand payment or experience another issue.
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What type of landlord needs to make Commercial Leases?
Regardless of whether the rental is short- or long-term, creating documentation of your commitments to those renting from you is important. The following benefits might inform your decision-making:
- The landlord and tenant(s) know what they are responsible for.
- All parties know when rent payments are expected.
- There are no surprises about how long the rental will last.
If you don't have a Commercial Lease, you and the tenant may suffer one or more of these unwanted issues: not being paid on time, unexpected modifications, and, unfortunately, very little recourse if something goes wrong.
This formal agreement is a crucial step to protect both parties, particularly because leasing commercial property can be more complex than residential ones due to stricter regulations.
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What is included in a Commercial Lease Agreement?
The details that you should plan to include in your Commercial Lease are:
- The address and description of your commercial property.
- Your tenant's contact information.
- How rent payments should be made.
- How long the tenancy will last and whether it will auto-renew.
- What kind of amenities and/or utilities will be included.
- Who will be responsible for property taxes.
As you may expect, Commercial Leases made with Rocket Lawyer also include rules around late rent, early termination, and acceptable use of the property. While building your document, you'll be able to add more specifics related to furnishings, insurance requirements, remodeling, and maintenance procedures. With the document tool, you are able to add further custom editing, as needed.
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What would I traditionally have to pay for a Commercial Lease?
Fortunately, you do not have to hire a traditional lawyer to get your agreement in writing. With the document tools on Rocket Lawyer, anyone can produce a Commercial Lease for free online today. Your agreement is built section by section, so you can be certain that it contains all of the appropriate information. Simply tap or click on the button labeled "Make Document" to begin.
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Will I have to take additional actions after my Commercial Lease is made?
Upon completing this Commercial Lease, you will be able to retrieve it from your account at any time and place. Feel free to take any of the following actions with your contract: making edits, getting electronic signatures with RocketSign®, printing it out, or downloading it as a Word or PDF document. Attached to each Commercial Lease, there will be a series of helpful tips to follow while finalizing your document. As a best practice, you should give a copy of your signed agreement to the other party. You should also feel free to browse our library of real estate legal documents.
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How do local property rental laws affect my Commercial Lease?
Laws often change over time. If you have any concerns or hesitations related to property rental laws, you can talk to a lawyer today. Getting a legal professional to check your Commercial Lease could be fairly time-consuming. Sometimes a lawyer will not even accept requests to review a rental contract if they didn't work on it. In the event that an attorney does decide to provide feedback about your contract, they would still charge their standard fees to do it. An easier alternative would be using a Rocket Lawyer network attorney. As a Rocket Legal member, you can get your documents looked at by an experienced real estate attorney. Whether you decide to produce another Commercial Lease or any other legal document from the extensive library, Rocket Lawyer has you covered.
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How long do Commercial Lease Agreements last?
As a commercial property owner, it can be beneficial to offer a multi-year lease. Common durations are three, five, or even ten years. In exchange for committing to a long lease, savvy tenants may expect or ask for a discount on the monthly rent. As you consider offering a multi-year lease, here are a few questions to keep in mind:
- How well-established is the tenant business? Is it likely to remain active for the full lease term?
- How long can I manage to pay my mortgage if the tenant doesn't pay rent?
- Does location matter to the tenant and would they stay longer as a result?
- What kind of alterations or improvements to the property are being requested? How much are you willing to pay for as the property owner?
- What will happen if the tenant needs to move from the property before the end of the lease?
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What is a typical Commercial Lease Deposit?
Deposit amounts for commercial properties vary. Most property managers will ask for the equivalent of about one to two months of the rent amount. The amount charged often varies by the market, tenant's credit, and the cost of improvements (or custom alterations) before occupying. For the most part, the owner of the property typically will want to be able to cover potential losses if the tenant defaults or damages the property. Some may even choose to charge as much as six times the rent for the deposit in certain markets. Unlike residential leases, there are often no legal limitations on what can be charged for the deposit.
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Do I need to use a commercial broker?
The choice is up to you. While there may be benefits from working with a commercial broker, you do not always need to work with one. If you only have one or two properties, you may be able to handle them yourself and save on fees. However, if you have a lot of properties to manage, you may benefit from hiring a broker to help you find tenants and conduct negotiations.
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