Commercial lease agreements are legal contracts that outline the terms and conditions of renting a commercial property. These agreements are an essential part of any business venture, as they ensure that both parties involved have a clear understanding of their rights and responsibilities.
In this blog, we will discuss the key terms and definitions that you should be familiar with when entering a commercial lease agreement. This information is crucial for both landlords and tenants, as it helps to avoid any misunderstandings or disputes in the future.
Parties Involved
The first key term that we will cover is the parties involved in a commercial lease agreement. A commercial lease typically involves two parties: the landlord (or lessor) and the tenant (or lessee). The landlord is the owner of the commercial property, while the tenant is the individual or business entity renting the property.
Premises
The premises refer to the specific space within the commercial property that is being leased. This can include a single unit or multiple units, such as an entire floor or building. It is essential for both parties to clearly define and agree upon the premises in the lease agreement.
Lease Term
The term of the lease is the length of time that the tenant has agreed to rent the premises. This can vary depending on the needs of both parties but typically ranges from 3-10 years. It is essential to clearly define the start and end dates of the lease in order to avoid any confusion.
Rent
The most basic term in a commercial lease agreement is rent, which is the amount paid by the tenant to the landlord for the use of the property. The rent can be a fixed amount per month or year or based on a percentage of the tenant’s sales. It is important for both parties to agree on the rent amount and how it will be paid (e.g., monthly, quarterly, etc.) before signing the lease.
Security Deposit
A security deposit is a sum of money that the tenant must pay upfront as a form of protection for the landlord in case of damage or default by the tenant. The security deposit is usually equal to one or two months’ rent and is returned to the tenant at the end of the lease if there are no damages or breaches of the lease terms.
Common Areas
Common areas refer to shared spaces within a commercial property, such as hallways, bathrooms, and parking lots. The lease agreement should specify who is responsible for maintaining and paying for these areas.
Use Clause
The use clause in a commercial lease agreement specifies what the tenant is allowed to do with the premises. This can include restrictions on certain activities or businesses, as well as any specific rules for operating within the space. It is essential for tenants to carefully review this clause to ensure that their intended use of the premises aligns with the landlord’s restrictions.
Maintenance and Repairs
The lease agreement should outline who is responsible for maintenance and repairs of the premises. This can include regular upkeep as well as any major repairs that may be needed during the lease term.
Utilities and Services
Utilities and services, such as electricity, water, and internet, should also be clearly outlined in the lease agreement. It should state who is responsible for paying for these expenses and any potential shared costs with other tenants.
Insurance
Commercial lease agreements typically require tenants to have insurance coverage for their business operations within the premises. This can include general liability insurance, property insurance, and workers’ compensation insurance. The lease should specify the required coverage amounts and if any additional insured parties need to be listed on the policy.
Assignment and Subletting
Assignment and subletting refer to the tenant’s ability to transfer their rights and responsibilities under the lease agreement to another party. This can be beneficial for tenants who need to downsize or relocate their business, but it must be approved by the landlord first. The lease should specify any restrictions or conditions for assigning or subletting the premises.
Default
The default clause outlines what actions will be taken if either party fails to fulfill their obligations under the lease agreement. This may include penalties, termination of the lease, or legal action. It is crucial for both parties to understand and agree on these consequences before signing the lease.
Termination
The termination clause specifies how and when the lease can be terminated. It may include conditions such as giving notice, paying a fee, or meeting certain requirements. This clause is crucial for both parties to avoid any confusion or disputes if either party wishes to end the lease early.
Common Area Maintenance (CAM)
In a commercial lease agreement, CAM charges refer to additional fees that tenants must pay for common area maintenance, such as cleaning, landscaping, and repairs. These charges are typically divided among all tenants in the building and are calculated based on each tenant’s proportionate share of the total rentable square footage.
Right of Entry
The right of entry clause allows the landlord to enter the leased property for specified reasons, such as making repairs or showing the property to potential buyers. This clause should also outline any notice requirements and restrictions on when entry is allowed.
Signatures
Finally, it is crucial for both parties to sign the lease agreement to make it legally binding. It is recommended to have a lawyer review the document before signing to ensure all terms are fair and transparent.
In conclusion, understanding these key terms and definitions in a commercial lease agreement is essential for any business owner. It is important to carefully review and negotiate the terms before signing to ensure a successful and mutually beneficial lease agreement.
So, feel free to contact Daniels Greer Commercial Real Estate in Tulsa, OK, at (918) 740-1015 for any assistance with your commercial lease agreement needs. Our team of experts will be happy to guide you through the process and help you secure the best deal for your business.