Our commercial lease agreement provides landlords with excellent protection while giving the flexibility to tailor the agreement to their needs. The following information provides an overview of the key aspects and considerations of your agreement.

Fixed-Term vs. Periodic Tenancy

When determining the term of your agreement you will choose between a fixed-term and a periodic tenancy. A fixed-term tenancy is simply a tenancy agreement that ends on a specific date in the future, usually about six months or a year from the start of the tenancy. A periodic tenancy has no set end date and usually continues from month to month until one of the parties chooses to terminate the tenancy. Periodic tenancies are less common for commercial properties.

Many states give fixed-term tenants different rights than periodic tenants. This most commonly impacts the tenant's rights upon terminating the agreement or being evicted. The proper procedure for canceling a fixed-term or periodic tenancy depends on the terms of the agreement and state law, which often sets a default notice period that can be used in the event that the agreement is silent on the matter.

If you chose to create a fixed-term tenancy, this agreement states that the tenant must provide at least 30 days' notice of his or her intent not to renew the agreement when it expires. As with all terms in our agreements, if our online options for customization do not exactly fit your needs, you can always add further customization by downloading the document in Microsoft Word and revising it according to your preferences.

For fixed-term tenancies, the agreement will automatically expire at the end of the term. If the tenant holds over by staying on the premises and the landlord does not notify the tenant to vacate the unit when the agreement ends, then the agreement will convert to a periodic tenancy and continue on a month-to-month basis until terminated.

If you chose to create a periodic tenancy, then either the landlord or the tenant may terminate the agreement by serving the appropriate amount of notice in compliance with state law, which is usually 30 days' notice.

Rental Payments

This section of your agreement sets how often rental payments are due. A monthly payment structure is most common. However, you may also choose for rent to be paid weekly, twice per month, every two months, every six months, or once per year.

When specifying the location where the tenant must make payments, you may add multiple locations as a convenience to the tenant. You may also provide the details for any online payment portal in this section. The same applies when identifying the accepted payment methods. You may allow the tenant to pay via check, cash, direct deposit, wire transfer, credit card/debit card, money order, cashier's check, online, or all of the above. You may also add custom payment methods.

Signing Incentives

Offering signing incentives is an excellent way to motivate potential tenants to agree to longer-term leases or higher rental payments than they would normally be inclined to. Examples include rent concessions or other extra benefits that you do not normally offer. Even if an incentive is standardly provided to all tenants, it may still be a good idea to include it here so that the tenants are clear on the details.

Optional Fees and Deposits

You may choose to add fees for late rental payments, dishonored payments (i.e. bounced checks due to non-sufficient funds), and lost keys. If included, the relevant sections of your agreement will contain standard language enforcing the landlord's right to collect the fees. You also have the option of requiring additional fees or deposits by entering your own custom language.

Security Deposit

In the absence of a security deposit, tenants are still required to pay for any damage they cause to the property. However, it is recommended that the landlord always require tenants to pay an upfront security deposit equal to at least one month's rent. This will help ensure that the tenant pays for any damage discovered by the landlord at the end of the tenancy and helps avoid costly litigation that would be required to enforce the agreement in court.

The landlord may use the security deposit to repair any damage the tenant causes beyond normal wear and tear to the premises, the common areas, and any furnishings provided by the landlord. "Normal wear and tear" means deterioration that occurs when the premises, or any furnishings provided, are used as intended, without negligence or abuse by the tenant or any of the tenant's guests or subtenants (if permitted).

Lastly, the agreement spells out specific requirements that the tenant must follow in order to have all or part of the security deposit returned. Such requirements include the following:

• The full term of the agreement has ended or the agreement has been properly terminated according to its terms
• All rent and outstanding fees or charges have been paid by the tenant
• All utility bills are paid in full
• All keys and other items belonging to the landlord have been returned
• All of tenant's personal property has been removed
• The unit has been thoroughly cleaned

Property Taxes and Other Expenses

The agreement allows you to specify whether the tenant is responsible for paying property taxes, building insurance, and maintenance costs. If you select "None of the above," the tenant will not be responsible for these but will still be required to pay any sales or use taxes that could be assessed against the property unless the parties agree otherwise.

Substitute Tenants

Allowing the tenants to break the agreement by bringing the landlord substitute tenants is optional. This allows the current tenants to be released from the agreement. The landlord does not have to accept any substitute tenants presented and can negotiate a new agreement on any terms desired. It may be a good idea to include this provision so that the tenants are aware of this option ahead of time. Even if you do not choose to include it, the landlord can always agree to allow for substitute tenants later on.

Subletting

The tenant may not sublet out the unit to other occupants without the prior written consent of the landlord. Doing so is grounds for the landlord to terminate the agreement and pursue eviction.

Guarantors (Co-Signers)

Guarantors are often needed when prospective tenants have poor credit. If a guarantor co-signs the agreement, the guarantor will be liable for any and all debts that may arise under the agreement. This is a smart way for landlords to protect themselves from potentially bad situations that arise when tenants fail to pay rent or cause damage to the property.

Move-In/Move-Out Inspection Checklists

This agreement includes a comprehensive Move-In/Move-Out Inspection Checklist to provide evidence to facilitate the security deposit process. It is highly recommended that this checklist be completed both at move-in and move-out regardless of which state this agreement occurs in; however, state law requires that a move-in checklist MUST be completed in the following states:

• Arizona (tenants also have the right to be present at a move-out inspection)
• Georgia
• Hawaii (tenants also have the right to be present at a move-out inspection)
• Kansas (completed jointly within five days of move-in)
• Kentucky (completed jointly)
• Maryland
• Massachusetts (only required if the landlord collects a security deposit)
• Michigan
• Montana (only required if the landlord collects a security deposit)
• Nevada
• New Hampshire
• North Dakota
• Virginia (completed within five days of move-in by the landlord or tenant or both together, and the landlord must disclose within this report the known presence of mold)
• Washington (only required if the landlord collects a security deposit)
• Wisconsin (the tenant has a right to inspect the rental unit, give the landlord a list of defects, and receive a list of damages charged to the prior tenant)

State and Federal Disclosure Requirements

For properties built before 1978 (i.e. pre-1978 property), federal law requires that the landlord and tenants (and their agents) sign a "Disclosure of Information on Lead-Based Paint," which is included for you. Landlords must keep the signed copy of the "Disclosure of Information on Lead-Based Paint" for at least three years as compliance with the rules.

Often, local law requires additional disclosure requirements that need to be disclosed before or at the signing of the rental or lease agreement. For instance, landlords are often required to disclose serious problems that affect the rental unit's fitness for occupancy; any building code violations; mold or flood zone warnings; radon warnings; bed bug disclosures; carbon monoxide, asbestos, and other warnings; the presence of a methamphetamine laboratory or a flood at the unit prior to the tenant's occupancy; and whether the property is located in a military zone. When in doubt, it is always best to disclose these and similar issues. Be sure to research local regulations for required disclosures. These can be found on your city or county website or by contacting the office of your mayor, city manager, county administrator, or a locally licensed attorney.

Final Steps

Once finished completing the agreement, simply have all parties sign and date where indicated. Be sure that all parties get a copy of the agreement to retain for their records.

Frequently Asked Questions

• What is a commercial lease?
• What is the difference between a commercial lease agreement and a residential lease agreement?
• What are the basic requirements of a commercial lease agreement?
• What law governs a commercial lease?
• What is a commercial lease assignment? Is it different from a commercial sublease?
• What are the tenant's responsibilities in a commercial lease?
• Can a commercial tenant make changes to a property under a commercial lease?
• How can a commercial lease be terminated?
• What are various types of rent payments available in a commercial lease?

What is a commercial lease?

A commercial lease is an arrangement between someone who owns a property and someone who wants to use the property in their business. These leases are contracts that are created to fit the needs of the particular parties involved.

What is the difference between a commercial lease agreement and a residential lease agreement?

The most significant difference between a commercial and residential lease is obvious: commercial leases are used for commercial properties while the primary purpose of a residential lease is to provide a property in which someone will live.

Residential leases are often referred to as “rental agreements.” Typical residential leases are for:

• apartments,
• houses,
• townhouses, and
• condominiums.

Residential leases have no commercial purpose, although some renters can and do run businesses out of their homes. Most residential leases will also run for a much shorter time period than a commercial lease—usually one year or less. They are also generally paid on a monthly basis. Termination requires much less notice than a commercial lease as well.

A commercial lease, on the other hand, is between a commercial tenant and a landlord. The purpose of the contract is to provide a property for the tenant from which to run a business. It involves the sale of goods or services or provides a place to manufacture a product. The rental space is not designed to provide a place to live, and it is often against local or state law (or the lease agreement) to reside in a commercial space.

Residential renters have a lot more protections compared to commercial renters. Those who are renting an apartment often do not have the same type of experience or business knowledge that someone using a commercial lease would have. As a result, state law usually protects residential renters from certain abuses that their landlords may attempt. For example, residential landlords must keep their premises habitable, which includes providing things like heat and water. Commercial landlords have no such obligation unless it is explicitly spelled out in the lease agreement.

Residential landlords are often in charge of things like keeping the premises pest free and providing necessary maintenance. Commercial tenants do not have the same benefits; they are often tasked with doing their own maintenance for the portion of the property that they are renting. Common area maintenance is usually the responsibility of the commercial landlord, however.

What are the basic requirements of a commercial lease agreement?

A commercial lease agreement must include specific information to be considered valid under state law. While every state is slightly different, a commercial lease will generally include the following information:

• The name and contact information of the parties involved
• The address of the property being rented
• A description of the property
• The term of the tenancy (length of time)
• Renewal information
• Responsibilities of the tenant and the landlord
• The type of business that can be conducted in that particular location
• The amount of rent and how rent must be paid
• Provisions regarding deposits
• Requirements regarding maintenance, upkeep, and allowable changes to the property
• Ownership of improvement to the property

Although these terms are generally included in a commercial lease agreement, they are not technically required. A commercial lease is very flexible, and the parties can include as much or as little as they would like. However, the more detail that this document has, the more likely it will be useful if a dispute arises.

A commercial lease must be in writing. As a general rule, oral agreements will not be enforced if they last more than one year. It is also much easier to have a written document that both parties can reference if there is a question about the terms or whether a certain obligation was violated.

Commercial lease amendments should also be in writing to avoid "he said, she said" disputes. In fact, many lease agreements will require that changes to the agreement be in writing to be enforceable.

What law governs a commercial lease?

A commercial lease is usually governed by the state and local laws that apply where the property sits, regardless of where each party’s headquarters or principal place of business is located. In some situations, federal law may apply, but those circumstances are rare and often address only a portion of the company.

What is a commercial lease assignment? Is it different from a commercial sublease?

Landlords can assign the rent that they receive from a commercial tenant to another person or entity. They usually do this to pay off an outstanding debt or other obligation. They can also use it as a way to fund other business ventures.

If a landlord assigns its right to the rental payments, the tenant must pay its rent obligation to a different entity, but the responsibility to pay rent will generally stay the same. The assignor can often step into the shoes of the landlord and force a tenant out of a specific location if the tenant is not meeting their rental obligations.

A commercial sublease, on the other hand, deals with the tenant’s right to allow someone else to lease the property from them. Subleases are generally only permitted if the commercial lease does not prohibit them. In many circumstances, the tenant must get permission from the landlord to engage in a commercial sublease agreement. Often, subleases may not be possible because of restrictions in the commercial lease, including specific limits that affect the type of business that can move into that particular location.

What are the tenant's responsibilities in a commercial lease?

The answer to this question will depend on what your commercial lease agreement says. As either a tenant or a landlord, you can negotiate virtually any term in the lease. That means that if you want to cut down on tenant responsibilities, you can do that as long as the other party agrees.

Some of the most common tenant responsibilities include the following:

• The obligation to pay rent
• Maintaining the rented space so that it is in good working order
• Using the property only as permitted in the lease agreement

These basic obligations can be expanded significantly. For example, the landlord may want you to maintain the HVAC system for your unit. You may also contract with the landlord so that he or she provides “handyman” services on an as-needed basis. While a commercial tenant is usually responsible for general upkeep, it can contract that obligation away to the landlord or to someone else entirely.

Generally, the landlord will be in charge of maintaining the common areas, including parking lots, hallways, and other gathering spaces, but not always. If there are no common spaces and you are renting the entire property, you are much more likely to be responsible for maintenance of the whole area. However, the landlord may still be obligated to maintain structural aspects of the property, such as the foundation or the roof. Carefully construct or read through the lease agreement so that you understand the responsibilities of each party.

Can a commercial tenant make changes to a property under a commercial lease?

In some situations, a tenant may be able to alter the fixtures or make improvements to the property to fit their business. These provisions should be directly addressed in the commercial lease agreement. There are generally three types of improvements that may be available under the contract:

• Fixtures – A fixture is a part of the property that is attached to the premises. Although you could move it, it would be difficult and may cause damage to the structure if it were removed. The most common examples of fixtures include things like toilets and sinks, but it can also include things like built-in refrigeration units, large ovens, and built-in shelving. Commercial leases often specifically address whether installation or improvements to fixtures are permitted.
• Chattels – Most tenants will be able to improve chattels in a rental space. These items are easily removed from the premises. Renters will sometimes take these items from location to location with them as well. Typical examples include curtains, desks, personal computers, and even large refrigeration units that are not built into a specific space.
• Permanent improvements – These improvements are often referred to as “leasehold improvements.” They cannot be removed from the property without destroying the value of the improvement. They usually include things like adding walls or flooring. Some commercial leases encourage leasehold improvements while others entirely prohibit them. As a rule, the landlord will own the improvement to the property once it is made, which sometimes discourages renters from making such improvements, even if they are permitted.

Remember, commercial leases are extremely flexible. The parties can negotiate improvements to fit their specific needs. If the commercial lease does not address improvements specifically, it could become a problem if the renter makes a significant change to the property that the landlord did not want or anticipate.

How can a commercial lease be terminated?

Commercial leases often have long terms, some up to several decades. Terminating a contract can be somewhat tricky, but it depends on the language of the lease. In most leases there is a notice provision that you must follow if either party does not want to renew the lease. Otherwise, the contract will often automatically renew.

If you attempt to terminate the lease early, you may have to pay a penalty that includes the full value of the lease for the entire term of the contract. While these provisions are great for landlords, they can be very costly for renters. Renters should think long and hard about using these types of terms in their lease.

Even if the lease does not include favorable termination terms, you may be able to work out something with the tenant or landlord to get out of the lease early. Sometimes simply approaching the other party to let them know about your situation can help a great deal.

What are various types of rent payments available in a commercial lease?

Most renters assume that their rent will be a periodic payment. It can be monthly, quarterly, or annually. However, some businesses will choose to use a different type of rental agreement depending on the type of property.

One type of rent agreement is directly tied to the revenue that the business earns at that particular location. This type of contract is particularly common in shopping malls or strip malls. Revenue-based rent is often called a “percentage lease.” It includes a base level of rent that will be due regardless of the income that you make at that location. Then there is an additional amount that varies depending on your revenue for a particular month, quarter, or year.

For example, if you have an agreement that includes $1,000 in monthly rent and then 5% of your profits for that month, and you make $5,000 in profits that month, your total rent due for the month would be $1,250. As your earnings increase, so does the rent. That means it is in the landlord’s best interest to ensure that you have whatever you need to increase profits, including proper maintenance and upkeep.

Another type of rental agreement is referred to as a “gross rent lease.” Under this agreement, the tenant pays a flat rate and the landlord pays other costs related to maintaining and operating the property. These expenses often include things like:

• insurance,
• utilities,
• taxes, and
• general upkeep and maintenance expenses.

Under other types of agreements, the tenant will typically be responsible for these costs.

Step 1: Gather Information

As you complete your commercial lease agreement, you will need to provide certain relevant information. This includes party names and addresses, lease dates, and rent and fee amounts. You may also need to collect details about any guarantor being used. Any special agreements and work orders for the unit should be determined at this stage as well.

Step 2: Answer Key Questions

Use the information you collected to complete the lease agreement. We make this easy by guiding you each step of the way and helping you to customize your document to match your specific needs. The questions and information we present to you dynamically change depending on your answers and the state selected.

Step 3: Review and Sign

It is always important to read your document thoroughly to ensure it matches your needs and is free of errors and omissions. After completing the questionnaire, you can make textual changes to your document by downloading it in Microsoft Word. If no changes are needed, you can simply download the PDF version and sign. These downloads are available by navigating to the Documents section of your account dashboard.

Step 4: Distribute and Store Copies

At a minimum, all parties that sign the document should receive a copy once it is fully executed (everyone has signed). Other interested parties may need or want copies as well. Be sure to store your copy in a safe location. It is a good idea to keep both a physical and electronic copy.

Step 5: Periodically Review and Update

It is easy to forget the ins and outs of your lease. Periodically reviewing it will help you stay familiar with any responsibilities or requirements so that you can determine when it needs changes or additions.

If the landlord and tenant wish to renew the agreement for an additional term (typically one year), then you will need to update the lease with the new dates as well as any other agreed upon changes prior to the expiration of the current term. When using LegalNature, your answers are always saved in your account to make this process fast and easy.

Step 6: Complete Related Documents

You can use a commercial lease amendment to make any additions or updates to the agreement. Likewise, a commercial sublease agreement should be used in the event that the tenant wishes to sublease. It is also highly recommended for landlords and business owners to create an LLC in order to hold and protect their property title and business from many personal liabilities that often plague sole proprietors.