Free Commercial Lease Agreement Template
A Commercial Lease Agreement is a document outlining the responsibilities of a Landlord and Tenant when a commercial property is being rented. A Commercial Lease Agreement acts as a legally binding contract which allows a business the right to occupy the Landlord’s property for business or commercial activities in exchange for paying rent. The Lease includes basic information about the property, as well as providing an opportunity for both parties to specify their rights and responsibilities under the Lease.
This document will identify these basic elements:
- Landlord: the party who is renting out the commercial property for money, also known as the lessor
- Tenant: the party who is operating a business and paying for the leased property, also known as the lessee
- Term: the number of years or months the physical space will be needed, which can range from an agreed-upon start and end date; an agreed-upon time period in weeks, months, or years (i.e. 5 years); a periodic tenancy like a month-to-month timeframe; or an automatic renewal which continues to renew until one party sends notice to terminate or end the lease
- Demised Premise: the space actually being rented out by the tenant (like a store in the mall) including a property map with details about the size and whether the tenant has access to services like parking, cleaning, security, snow removal/landscaping, and heating/air conditioning
- Real Property: the entire property owned by the landlord (like the shopping mall where the store is located) which includes shared common areas such as walkways and parking lots that will be used by other tenants
- Base Rent: the starting cost of leasing the space on a monthly or annual basis
- Operating Costs: landlords may ask tenants to share in the cost of operating the entire building and maintaining common spaces including real property taxes, utilities, and collective advertising costs as either a fixed flat fee or designated percentage based on the tenant’s footprint or store size
- Security Deposit: an amount of money given to the landlord to demonstrate the tenant’s good faith efforts to not break the lease early or irreparably damage the property
- Property Use and Occupancy Details: both parties can clearly describe what is and is not allowed in the rented space and common areas, such as smoking, after-hours noise, and dumping garbage, or whether certain business activities like food services can occur in an office building
- Improvements: if the tenant plans on operating a restaurant or another business that requires improvements or construction in the demised premises, both parties should clarify who is responsible for paying and overseeing the construction project
What Are the Common Types of Commercial Leases?
There are several types of commercial leases beyond a simple flat monthly or annual rent arrangement.
- Net lease – The tenant pays all or part of taxes, insurance, or maintenance costs that would otherwise be incurred by the landlord in addition to the stated rent.
- Double net lease – The tenant pays taxes, insurance, and rent.
- Triple net lease – The tenant pays taxes, insurance, maintenance, and rent.
- Percentage lease – The rent is based on a specified percentage of the tenant’s sales or profits.
- Fully-serviced lease – The rent includes utilities and other services that the tenant would generally pay for separately (common in office buildings with multiple tenants).
Who Should Use a Commercial Lease?
A Commercial Lease Agreement can be used to cover many different kinds of rented spaces:
- Accounting Firm
- Business Office
- Child Care Facility
- Hotels or Guesthouses
- Legal Office
- Medical Clinic or Health Care Facility
- Startup Company
- Self-Storage Facility
- Shopping Mall Store
- Trade Businesses
In addition to traditional businesses, leases can also be used for private land. In Montana, nearly one-third of the state’s private land is leased to hunting outfitters.
What Information Should I Include in a Commercial Lease Agreement?
YOUR COMMERCIAL LEASE AGREEMENT SHOULD INCLUDE ESSENTIAL INFORMATION SUCH AS:
- Property location and description, such as a diagram or square footage
- The type of business being conducted in the space
- Landlord and tenant information
- The length of the lease: fixed term or automatic renewal
- Financial details, including rent, utilities, taxes, and a possible share of operating costs for the whole property
- Provisions for prepaid rent, security deposit, and penalties on late payments
- Tenant maintenance responsibilities for the leased space, including fixtures, landscaping, and sidewalks
When is a Commercial Lease Agreement Needed?
If you’re a small business owner needing office space or the owner of a building wanting to rent out units in your building, this document is needed to memorialize everyone’s obligations and clarify expectations. When negotiating this kind of agreement, both the landlord and tenant should clarify any concerns they may have about how the space will be used and what is needed for business operations.
A residential lease agreement may need to follow consumer protection laws that put caps on how much landlords may charge for security deposits or protect tenants’ basic rights to hot water and heating or air conditioning. In contrast, state laws governing business leases often do not impose such minimum or maximum requirements on landlords. Even if your state has specific requirements and procedures that apply to commercial landlords and tenants, in some instances a lease agreement might continue to trump the default laws.
If the commercial property tenant is operating a business open to the public and hires more than 15 people, the Americans with Disabilities Act (ADA) applies and requires doors be widened or ramps be installed. Should the landlord or tenant pay for these modifications? Learn more about who’s responsible for ADA compliance, and be sure to memorialize your decision in writing.
Accordingly, tenants and landlords should carefully negotiate the terms of this agreement to ensure each party is properly protected and obligations are clearly spelled out.
What Happens If There Is a Dispute about the Lease?
In the event of a lease dispute, the resolution process depends on the type of dispute.
If the tenant does not pay rent or pays late, the landlord will generally be able to take collections action or begin eviction proceedings. Tenants should be aware that commercial evictions are often much faster and have fewer protections than residential leases. In addition, the landlord may have the right to change the locks prior to going to court if the tenant has not paid rent.
Disputes about Lease Terms
Disputes about lease terms often arise when the landlord and tenant cannot agree on who is responsible for a specific item. Often, this occurs when a provision in the lease was too vague or did not clearly include something that a party thought it did.
Many commercial leases include an arbitration clause for resolving these types of disputes. An arbitration clause requires the parties to use and accept the decision of an arbitrator rather than filing court proceedings.