Commercial Lease Basics

What is a commercial lease?

A commercial lease is a legally binding contract made between a landlord and a business tenant. The lease gives a tenant the right to use certain property for a business or commercial activity for a period of time in exchange for money paid to the landlord. Additionally, the lease outlines the rights and responsibilities of both the landlord and tenant during the lease term. United Solicitors provides a written Commercial Lease Agreement.

What makes a commercial property lease different from a residential property lease?

A commercial lease is used by a tenant to rent space for a business while a residential lease is used by a tenant to rent a home or space to personally reside in. Commercial leases are typically viewed as contracts between knowledgeable business people. Consequently, less governmental protection is available for tenants of commercial property than tenants of residential property Because the parties are knowledgeable business people, the underlying belief is that they should be able to negotiate the terms of the lease to their liking. Consistent with this idea, the parties of a commercial lease typically have greater bargaining power and more negotiating ability than the parties of a residential lease.

Why isn't an oral lease agreement sufficient?

The problem with oral lease agreements is that they can be difficult to enforce. If a dispute arose, a court would have to hear evidence and decide whose version of the story to accept. If there is a written agreement, courts will generally be obligated to uphold the terms of the written agreement even if the courts don't like them. Some jurisdictions require that any contract dealing with land or an interest in land must be in writing to be enforceable.

What are provisions commonly dealt with in a commercial lease?

A commercial lease typically deals with the following:

● the type of property being let;

● the address of the property being let;

● the term of the tenancy and whether the tenancy is for a fixed term or renews periodically;

● the amount of rent payable, how often and when the rent should be paid;

● the type of business that may be conducted on the premises;

● ownership of any leasehold improvements; and

● the provisions of any security/damage deposit.

In addition, a commercial lease may also identify the following:

● provisions for lease renewal;

● landlord improvements and signing incentives;

● tenant improvements;

● whether the tenant can assign or sublet the property:

● notice provisions for termination of the tenancy; and

● insurance provisions.

What is the governing law of my lease?

The governing law is the jurisdiction where the property is located, regardless of the jurisdiction where the landlord and tenant reside.

The Parties

Who are the parties to the lease?

The parties to a lease are the lessor (also called the landlord) and the lessee (also called the tenant). The lessor owns the property and allows the lessee to use the property in exchange for monetary payments called rent.

What is a guarantor or surety?

A guarantor or surety is a person who agrees to pay any losses directly to the landlord should the tenant be unable to pay the rent, or otherwise breach the tenancy agreement.