Commercial Lease Agreement

A commercial lease agreement is a legal document between a landlord who rents property to a tenant for business use. The common property types are retail, industrial, and office space. A commercial tenant is commonly expected to pay for some of the property’s expenses, including property taxes, insurance, and maintenance costs.

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Last updated November 18th, 2024

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A commercial lease agreement is a legal document between a landlord who rents property to a tenant for business use. The common property types are retail, industrial, and office space. A commercial tenant is commonly expected to pay for some of the property’s expenses, including property taxes, insurance, and maintenance costs.

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Commercial Real Estate (2024)

The aggregate value of commercial real estate has an estimated worth of $25.28tn[1], or 45.7% of the total market value of the U.S. stock market.[2]

By State

By Type (7)

Industrial Lease Agreement – Space designated for manufacturing or distribution, such as warehouses, manufacturing facilities, or distribution centers.

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Gross Lease – Landlord is responsible for taxes, insurance, and maintenance costs while the tenant pays a fixed monthly amount.
Net Lease – Tenant pays rent plus some or all property expenses.

  • Single-Net (N) – Tenant pays property taxes.
  • Double-Net (NN) – Tenant pays property taxes + insurance.
  • Triple-Net (NNN) – Tenant pays property taxes + insurance + CAMs.
Office Lease – Space designated for professional or administrative working environments.
Percentage (%) Lease – Tenant pays a percentage of revenue or profits generated from operating at the property plus a fixed monthly rent.
Retail Lease – Space designated for stores, restaurants, and service providers.
Storage Lease – Space to rent a storage unit to a tenant for holding purposes.

What Should be Included (10 Items)

1. The Parties

  • Landlord: The name and address of the owner who is agreeing to handover access to the property in exchange for rent.
  • Tenant: The name and address of the business occupying the property and paying rent to the landlord.
Personal Guarantee: The landlord should obtain if the tenant is a new business or an entity with little or no assets.

2. Property Details

A description of the property should be mentioned in the lease, including:

  • Full address
  • Square footage
  • Buildouts
  • Common areas
  • Furnishings
  • HVAC systems
  • Parking

3. Lease Term + Renewals

The lease term is the fixed period a tenant is required to pay rent and can occupy the space. If the tenant wants to terminate early, they will remain bound to the full payments for the lease term.

Renewal Periods: Options to renew the lease at pre-determined lease rates are to the benefit of the tenant and allow a longer commitment to the property.

Average Lease Terms[3]

    • Retail Space: 10-15 years
    • Office Space: 5-10 years
    • Industrial Space: 5-10 years

4. Monthly Rent ($)

The monthly rent amount should include the payment instructions and when it is due (commonly by ACH and on the 1st day of the month).

It is commonly mentioned as the price per square foot ($/SF), which is an annual amount paid for each net rentable square foot of the premises.

Rent Increases: It is common to list pre-determined rent increases during the lease term to offset inflation and rising property maintenance costs.

5. Tenant’s Obligations

A tenant is responsible for the following:

  • Paying Rent: As specified in the lease plus additional obligations.
  • Security Deposit: A deposit is paid for the full commitment of the lease (if applicable).
  • Utilities: Such as electricity, water, internet, etc.
  • Property Maintenance: From day-to-day repairs to landscaping, snow removal, etc.
  • Improvements: If alterations are needed to comply with local building codes.
  • Liability Insurance: In the event of injury by an employee or customer.
  • Occupancy: To obtain a certificate of occupancy (if applicable).
  • Zoning Laws: To use the property per local restrictions.

6. Landlord’s Responsibilities

A landlord is responsible for the following:

  • Granting Occupancy: Providing possession of the property to the tenant.
  • Structural Integrity: Roof, foundation, exterior walls, and common areas.
  • HVAC: Heating and air conditioning systems.
  • Providing Access: Maintaining access to utilities and services.
  • Buildouts: If required, the landlord to build per the lease.
  • Disclosures: If applicable for environmental hazards or defects and compliance.

7. Non-Compete Clause

Prohibits the landlord from renting any other portion of the property to the same or similar use as the tenant. This limits the competition a tenant has on the property.

Sample Clause

“The Landlord agrees not to lease any other units within the property to businesses that directly compete with the Tenant’s [TYPE OF BUSINESS] for the duration of this Lease.”

8. Right to Sublet

Refers to the tenant’s right to rent out a portion or all of the property being rented for the remainder of the lease term. In the event the tenant’s business is not successful, it allows them to rent to someone else and pay the difference in the rent owed.

Sample Clause

“The Tenant is ☐ allowed ☐ prohibited from subletting any part of the Property during the Lease Term.”

9. Right to Assign

Assigning a lease allows another tenant to take over the lease. Similar to a sublet, this allows another entity to replace the current tenant and assume all rights and obligations under the lease. However, this is typically prohibited unless the landlord grants consent.

Sample Clause

“The Tenant may not assign this Lease or transfer any rights or obligations under this Lease to another party without the prior written consent of the Landlord, which shall not be unreasonably withheld. Any attempted assignment without such consent shall be void.”

10. Default and Remedies

Section that includes terms if the landlord or tenant fails to fulfill their obligations under the lease. This is most common when the tenant doesn’t pay rent or breaks their lease through another lease violation.

If either party should default on the terms of the lease, it is recommended that either party has the option to terminate with 15 days’ notice and seek damages for loss of income.

Sample

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