Important Commercial Lease Terms You Should Learn
May 08, 18
Negotiating commercial leasing is easier when you know the terms. Commercial real estate leases have different terms and conditions from other types of leases. Learning the typical commercial lease terms will greatly help your understanding of the leasing document.
Here's your guide for all the ins and outs to commercial lease terms.
Clauses in Commercial Lease Terms
There are multiple different clauses when dealing with a commercial lease.
The rent clause will handle the important financial agreements of the lease terms and conditions. The rent is something that is negotiable and should be talked about here. Understanding the costs is an essential part of choosing an office space.
This is also where you should look for the automatic renewal and increase percentages. Find out what the increase will be based on so there are no surprises when it arises in the future.
A maintenance clause will go over which party will be responsible when problems arise. This will also dictate how these problems may affect the rent and how it is to be resolved.
Another part of this clause might be about keeping the leased space up to code. Talk to your landlord to make sure you understand exactly what that means for your specific space.
Another type of clause is the use clause that covers how you are allowed to use your commercial lease and what you can't do. This can be complicated because the statements in this clause can tend to be broad, so be sure to take your time and read thoroughly.
The exclusive clause, or a non-compete clause, can help other competitor companies from moving into a space near yours. This also specifies the differences between you and other tenants.
The description of premises clause will specify what exactly is included in the space of your lease. Whether it's the entire building or just a room, this area of the lease will go into detail about what you will be responsible for.
Other clauses that can come up in your commercial lease could be:
- Parties clause
- Term clause
- Improvements and alterations clause
- Subletting clause
- Security deposit clause
- Insurance clause
Commercial leases are all different so make sure that you read through these clauses thoroughly and bring up any concerns with your landlord.
Net Lease vs. Gross Lease
When you are renting commercial, you can either have a net lease or a gross lease.
These are different because they describe when and how you are to pay the landlord.
With a net lease, you should expect to pay your agreed upon amount of rent every month. On top of this expense, you will also need to pay a separate cost for all maintenance and other operating costs.
A gross lease will instead take all of those operating costs including insurance and the rent amount and create one flat rate to be paid by the tenant. This can sometimes end up being the more cost-effective option for a commercial lease.
Expect a full-service rent to be all-inclusive. This includes all fees, taxes, and expenses on a yearly basis. If the base amount increases the tenant will be expected to be responsible for the costs.
With years of experience in the commercial real estate world, we are here to help you with all your commercial lease questions and concerns.