Commercial Lease Agreements

Types of commercial lease agreements

1. Gross lease

It is a commercial lease structure framed for lessees who need an inclusive lease agreement. This type of lease consists of lease rates, operating costs, taxes, insurance, and utilities paid via a single payment. The landlord pays for the expenses by charging the tenant a set fee. Gross lease is highly in favour of tenants as no costs are hidden in the clause.

2. Modified gross lease

It is a type of lease with a structure where the tenant pays the rent and additional operating costs. In this case, the operating cost is stated as the responsibility of both the tenant and the landlord. This factor is usually explained in the lease at negotiable terms. This type of lease is prevalently used where a common area is shared between business people.

3. Net lease

A net lease is prevalent where the tenant pays the base rent and the operating cost, including insurance, tax, and maintenance charges. Here, the tenant pays a lower rent price and is responsible for all the operating expenses.

4. Commercial lease agreements for office spaces

Lease agreements for office spaces are classified for non-retail purposes by categorizing them into low-, mid-, and high-priced properties. This categorization is based on the number of stories possessed by the building. Furthermore, these properties are classified as Class A, B, and C. These classifications are done based on the property’s location, age, and market in the surrounding area. 

There are various lease agreements for office purposes, including a Gross Lease, Modified Gross Lease, and Net Lease. The commonly used leasing terms for negotiation are CAM clause, Relocation clause, and Personal guarantee clause. Speaking of the lease term, it can vary from six months to a year or even more.

Commercial lease agreements for restaurants or retail spaces

A commercial lease agreement for restaurants and retail spaces will include the following details:

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• -Type of lease agreement includes Modified Gross lease, Percentage lease, or Net lease. 
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• -Furthermore, the commonly used terms for negotiation in this case include the Competitor clause, Insurance clause, and Repair clause. 
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• -It is advisable to include a termination clause if a license cannot be obtained within the contingency period. 

A typical lease agreement for retail spaces spans up to three to ten years. 

Commercial lease agreement for industrial spaces

Industrial spaces are enormous in terms of area and are usually categorized as factories and warehouses. These industrial properties are usually close to the most important transportation routes and consist of heavy manufacturing processes. The comprehensive breakdown of the lease agreement for industrial spaces is mentioned ahead.

Lease agreement types include Gross, Modified, or Net leases. In this case, the commonly used negotiation terms are Rent escalation, Lease renewal, Use clause, Parking, and Environmental indemnity. This type of lease stays valid for up to three to ten years.

Format for framing a commercial lease agreement

The approved format for creating a commercial lease agreement consists of the following parameters:

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• -Date and information of the party
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• -Description of the premises on lease
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• -Use of premise on lease
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• -Terms of lease
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• -The base of rent
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• -Renewal option
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• -Expenses
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• -Insurance
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• -Security deposit
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• -Improvements in leasehold
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• -Default
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• -Signs
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• -Governing law
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• -Notices
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• -Signature
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• -Notary public acknowledgement

WebLex’s Stance:

A commercial lease agreement is used widely to safeguard the interests of the tenant and the owner through legal documentation. This type of lease is created for commercial spaces. There are various commercial lease agreements, such as gross, net, and modified gross leases. Make sure to go through all the essential information before getting your first commercial lease agreement.