LegalNature’s commercial lease agreement leads the industry in providing landlords with outstanding protection and flexibility to customize the agreement according to their needs. Use this help guide to review the key considerations when creating this agreement.

Fixed-Term vs. Periodic Tenancy

The length of the agreement will depend on whether you want a fixed or periodic tenancy. Fixed-term tenancies are those that end on a specific date stated in the agreement, while periodic tenancies will continue to automatically renew each successive period until one or both of the parties choose to end the tenancy. Periodic tenancies are normally on a month-to-month basis, but they may also be renewed weekly or annually. Commercial lease agreements typically use a fixed-term tenancy.

Fixed and periodic tenants often have different rights under state law. This typically affects the tenant’s rights at the termination of the agreement or upon eviction. Always be aware of the relevant state law and terms in your lease agreement regarding the proper procedure for providing notice of terminating the agreement, ending the tenancy, and returning any deposits.

Under a fixed-term tenancy, our agreement states that the tenancy will automatically end unless the parties agree to renew the lease. If the tenant remains in possession of the premises with the landlord’s consent but without signing a new lease, the tenancy will convert to a month-to-month tenancy.

For periodic tenancies, our agreement simply allows either party to terminate the tenancy by providing the appropriate advance notice according to state law, which is typically 30 days.

Rental Payments

Next, you will select the payment frequency for rental payments. Parties normally select monthly rental payments, but you could also choose weekly, twice per month, every two months, every six months, or once per year.

Indicate where the tenant may make rental payments. This could be in person, at a specific address, online, or another location. Also, specify the accepted payment methods, such as by check, direct deposit, cash, wire transfer, money order, credit card/debit card, cashier's check, online, or another method.

Signing Incentives

Many landlords offer signing incentives as a way to encourage prospective tenants to sign more favorable—usually long-term—leases. For example, you can offer a rent concession, such as the first month free, or similar benefits.

Optional Fees and Deposits

You must include the details regarding any fees or deposits. A “deposit” is money that must be returned to the tenant if no damages occur. Therefore, a landlord is only allowed to keep the portion of a deposit that is used to cover damages that do in fact occur. For instance, a security deposit must be returned to the tenant if the tenant does not cause damage to the unit. The same applies with a pet deposit if the pet does not cause damage. In the event of a dispute, landlords must document damages in order to prove that they occurred.

On the other hand, a “fee” is a one-way payment to the landlord for violating the lease agreement. Examples include a fee for a late rental payment, dishonored payments (e.g. a “bounced” check caused by non-sufficient funds), or a lost key. LegalNature’s agreement will include standard language, giving the landlord the right to collect these fees should you choose to include them. You will also have the option of including your own custom fees or deposits.

Security Deposit

While tenants are responsible for paying the cost of repairing damages to the unit regardless of whether the landlord collects a security deposit, it is still always recommended that landlords collect one. This will ensure that there are funds on hand to repair any damages to the unit that the tenant causes and will avoid the difficulty of trying to recover money from the tenant when they are moving out. If the damages exceed the amount of the security deposit (usually equal to one or two months’ rent), then the tenant is still responsible for covering the cost of repairs.

The funds from the security deposit may be used for any damages that occur beyond the normal wear and tear to the premises, common areas, and any furnishings that the landlord provides. Here, “normal wear and tear” means deterioration caused by using the premises as intended and without negligence or abuse by the tenant or the tenant’s guests.

Lastly, the lease agreement lists the following requirements that the tenant must meet in order to have part or all of their security deposit returned at the termination of the lease:

• The term of the lease has ended or been terminated properly
• The tenant has paid all monies owed including any outstanding fees and utilities bills
• The tenant has returned all keys and other property belonging to the landlord
• The tenant has removed all of their personal property from the unit
• The tenant has thoroughly cleaned the unit

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

You may choose to allow the tenant to be released from their obligations under the lease in the event that an acceptable substitute tenant is located. The landlord will still be free to refuse any substitute tenants that it does not like. Also, any substitute tenant may be required to sign a new lease on different terms.

Subletting

Tenants will be prohibited from subletting the unit to a subtenant without first obtaining the landlord’s prior written consent. A “subtenant” is a new tenant who agrees to take over the lease for part or all of the remaining term. Tenants who attempt to sublet without permission may be evicted.

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

Your agreement will include an attached Move-In/Move-Out Inspection Checklist. This helps the landlord document any damage present when the tenant moves in and compare any damage present upon move-out. Landlords in all states are recommended to complete this in order to prevent disputes. However, landlords MUST complete move-in checklists 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

If the property was constructed prior to 1978, then federal law requires that the landlord and tenant sign a "Disclosure of Information on Lead-Based Paint," which is attached to your download. Retain the signed copy for at least three years for your records.

Local law may require that the landlord make additional disclosures not included in the lease agreement. For example, you may be required to notify the tenant of any serious problems affecting the unit’s fitness for occupancy, building code violations, or flood zone warnings. Landlords are responsible for researching and being familiar with their local rental disclosure laws. Often, you can find these listed on your city or county websites. If you are in doubt about a particular disclosure, it is always best to include it to be on the safe side.

Final Steps

After completing our questionnaire, have the landlord and tenant sign and date the agreement. Provide a copy to the tenant and retain another copy for your records. Also make an electronic backup if possible.

Ready To Get Started? Create a Commercial Lease Agreement

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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?

Commercial lease agreements must contain certain information to be legally compliant with state law. While states differ, most commercial leases contain the following information:

• The party names, addresses, and contact information
• The address of the rental property
• The rental term (length of the agreement)
• How to terminate or renew the agreement when it expires
• The duties of the landlord and tenant
• The permitted business activities of the tenant
• Rental payment details
• Terms of any deposit or fees
• Maintenance responsibilities
• Ownership of any improvements made to the unit

Outside of meeting state requirements, the parties have a lot of flexibility in the terms and conditions they can include in their commercial lease agreement. LegalNature allows you to customize your agreement according to your needs by adding as many of your own terms as are needed. You can also make text edits to your document by downloading it in .docx format and opening it in Microsoft Word or Google Docs.

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.

Ready To Get Started? Create a Commercial Lease Agreement

Step 1: Gather Information

Collect basic information about the parties and the agreed lease terms in preparation for completing your agreement. This includes the party names, property address, lease dates, fee and deposit requirements, and any other special requirements.

Step 2: Answer the Questionnaire

The information from Step 1 can then be used to complete our questionnaire. We make this process as simple as possible, providing guidance and helpful tips at each step of the way. The questions presented to you will customize the agreement to your needs as you go.

Step 3: Review and Sign

Thoroughly review the commercial lease agreement, correcting any errors or omissions along the way. You can make your own custom edits after downloading the .docx format of your document and opening it in a text editor, such as Microsoft Word or Google Docs. You can also download the .pdf version if you are ready to print and sign the agreement. You can locate your downloads in your account dashboard.

Step 4: Distribute and Store Copies

Give a copy of the fully signed agreement to each party and store your copy in a safe location. It is always recommended that you create an electronic copy for additional security.

Step 5: Periodically Review and Update

You may need to review the terms of your agreement during the term of the lease in order to stay familiar with everyone’s responsibilities.

In order to renew the lease for an additional term, the parties will need to sign a new lease agreement. During this time you are also free to update any terms and conditions in the lease as needed. We make this process easy by storing your original lease in your account, allowing you to update only the relevant portions.

Step 6: Complete Related Documents

Lastly, consider using a commercial lease amendment if you need to modify the language of the lease during the lease term. Use a commercial sublease agreement in order to protect the landlord in the event that a subtenant will be occupying the property. As business owners, landlords are also recommended to utilize the liability protections offered by creating an LLC.

Ready To Get Started? Create a Commercial Lease Agreement