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Month to Month Commercial Lease Agreement
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Commercial Lease Agreement: Templates & More

A Commercial Lease Agreement is a legally binding contract between a landlord and a tenant for the rental of business property, specifying terms like rent, lease duration, and responsibilities of each party.

Also known as: Business Lease

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Month to Month Commercial Lease Agreement

This Commercial Lease Agreement governs the rental of property used for business purposes, outlining the terms and conditions agreed upon by the landlord (lessor) and the business entity or individual tenant (lessee). It details various aspects such as the amount of rent, payment schedule, length of the lease, security deposit requirements, and provisions for renewals or termination. The agreement also typically includes clauses on property use (defining what types of business activities are permitted), maintenance responsibilities, modifications or improvements to the property, and insurance requirements. Unlike residential leases, commercial leases are often more complex and negotiable, with terms that can significantly impact the success and legal rights of a business.

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What is a Commercial Lease Agreement

Author

Courtney M. Prado, Esq.

Courtney M. Prado, Esq.

Attorney

Courtney graduated from the University of California at Davis with a bachelor’s degree in Sociology with an emphasis in the intersection between law and society. She went on to graduate with honors from Chicago-Kent College of Law in 2021 as a Diversity Scholarship Foundation award recipient and as a board member of the Disability Advocacy Law Student Association. She worked for Chicago-Kent’s in-house legal clinic in the civil litigation department throughout law school and she holds a specialty certification in Litigation and Alternative Dispute Resolution in addition to being a certified mediator for the court systems in Illinois. Along with mediating, Courtney maintains a business as a solo freelance attorney providing litigation, research, strategy, and drafting services to lawyers around the country.

Commercial lease agreements are contracts outlining the terms under which a business rents commercial property from a landlord. These agreements are more complex than residential leases due to the unique nature of commercial needs and operations.

Important Terms in Commercial Lease Agreements

Commercial lease agreements, which are contracts for renting business properties, contain several key terms that are distinct from residential leases. These terms cater to the specific needs of businesses and landlords. Here's a breakdown of typical terms found in commercial leases and their explanations:

  1. Lease Type: Commercial leases often come in various forms like Net Lease, Double Net Lease (NN), Triple Net Lease (NNN), Gross Lease, and Modified Gross Lease. Each type determines how costs like utilities, property taxes, insurance, and maintenance are divided between landlord and tenant.
  2. Lease Duration and Renewal Options: This specifies the length of the lease, which can be several years, and details about renewal options. Commercial lease terms are generally longer than residential leases.
  3. Rent and Rent Escalations: Besides stating the base rent, commercial leases often include provisions for rent increases, which could be a fixed amount or tied to an index like the Consumer Price Index (CPI).
  4. Description of Leased Space: Precise description of the space being leased, including square footage, parking facilities, and any shared areas.
  5. Use Clause: This clause defines what the tenant can use the leased space for. It's crucial for businesses to ensure that their intended use complies with this clause.
  6. Improvements and Alterations: Details any tenant improvements (TIs) or alterations to the space that are permitted or required, and who will pay for these changes.
  7. Maintenance and Repairs: Outlines the responsibilities of the landlord and tenant regarding the maintenance and repair of the property. In commercial leases, tenants may be responsible for more maintenance and repair tasks compared to residential leases.
  8. Insurance Requirements: Specifies the types and amounts of insurance coverage the tenant must maintain, often including liability and property insurance.
  9. Sublease and Assignment Terms: Conditions under which the tenant can sublease the space or assign the lease to another party, and the landlord’s rights in approving or denying these arrangements.
  10. Default and Remedies: Defines what constitutes a default on the lease (e.g., non-payment of rent) and the remedies or actions the landlord can take.
  11. Termination Clause: Conditions under which the lease can be terminated before the end of the term, including penalties or fees for early termination.
  12. Security Deposit: The amount and terms regarding the security deposit required by the landlord.
  13. Compliance with Laws: Requires the tenant to comply with all relevant laws and regulations, including zoning, health, and safety standards.
  14. Right of Entry: States the conditions under which the landlord can enter the leased premises, typically for inspection, repairs, or in emergencies.
  15. Signage and Visibility: Terms regarding signage - size, type, and location - especially important for retail businesses.
  16. Exclusivity Clause: Prevents the landlord from renting other spaces on the property to direct competitors.
  17. Parking and Accessibility: Details about parking facilities and accessibility features, which are important for both employees and customers.
  18. Force Majeure Clause: Protects both parties in the event of unforeseen disasters or circumstances beyond control, like natural disasters or pandemics.

Understanding these terms is crucial for both tenants and landlords in a commercial lease agreement. They ensure that both parties are aware of their rights, responsibilities, and expectations, reducing potential conflicts and legal issues.

Required Landlord Disclosures in Commercial Leases

Landlords must disclose:

  • Environmental Hazards: Such as asbestos or lead paint.
  • Zoning Laws: Information on how zoning laws affect the permissible use of the property.
  • Past Use: Disclosure of the property’s previous use, if it impacts its current or future use.

What Each Side Typically Negotiates

Landlord’s Focus

  • Higher Rent and Escalations: To ensure maximum profitability.
  • Longer Lease Terms: For stability and reduced turnover.
  • Strict Use Clauses: To maintain property value and compliance with zoning laws.

Tenant’s Focus

  • Rent Caps and Concessions: To manage costs.
  • Flexibility in Use and Improvements: For operational effectiveness.
  • Escape Clauses: For flexibility in case the business changes or doesn’t perform as expected.

Common Pitfalls and Things to Look Out For

  • Hidden Costs: Be aware of additional expenses, like maintenance, property taxes, and insurance.
  • Restrictive Clauses: Pay attention to clauses that limit business operations, such as exclusivity clauses.
  • Automatic Renewal Clauses: These can lock a tenant into an unwanted extended lease.

Other Noteworthy Points For Your Commercial Lease Agreement

  • Compliance with ADA: The Americans with Disabilities Act requirements must be met in commercial spaces.
  • Build-Outs: Negotiations often include who pays for necessary modifications to the space.
  • Personal Guarantees: Small business owners should be cautious about signing personal guarantees on leases.

How Are Commercial Leases Different from Residential Leases?

Here's a concise comparison of commercial and residential lease agreements:

Purpose

  • Commercial Lease: For business activities like retail or offices.
  • Residential Lease: For living or dwelling purposes.

Duration

  • Commercial Lease: Longer-term, typically 3-10 years.
  • Residential Lease: Shorter-term, usually 6-12 months.

Rent and Costs

  • Commercial Lease: Complex structures (net, gross, percentage leases) with potential rent escalations.
  • Residential Lease: Fixed rent, often with simpler cost structures.

Negotiability and Complexity

  • Commercial Lease: Highly negotiable and complex.
  • Residential Lease: Less negotiable with standardized terms.

Maintenance and Repairs

  • Commercial Lease: Often the tenant's responsibility.
  • Residential Lease: Generally the landlord's responsibility.

Legal Protections

  • Commercial Lease: Fewer protections, assuming more knowledgeable parties.
  • Residential Lease: Stronger tenant protections, including privacy and habitability.

Termination and Renewal

  • Commercial Lease: More difficult and costly to terminate; specific renewal terms.
  • Residential Lease: Easier to terminate, often with flexible renewals.

Use and Exclusivity

  • Commercial Lease: Specific business uses and possible exclusivity clauses.
  • Residential Lease: Primarily for living; restrictions on subleasing.

Commercial lease agreements are complex documents that require careful consideration and negotiation. Understanding the key terms, required disclosures, and common negotiation points is crucial for both landlords and tenants to ensure that the lease meets their business needs and protects their interests. Awareness of common pitfalls and a focus on crucial terms can lead to a more favorable and successful leasing experience for both parties.

Download a Commercial Lease Agreement template

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Month to Month Commercial Lease Agreement

This Commercial Lease Agreement governs the rental of property used for business purposes, outlining the terms and conditions agreed upon by the landlord (lessor) and the business entity or individual tenant (lessee). It details various aspects such as the amount of rent, payment schedule, length of the lease, security deposit requirements, and provisions for renewals or termination. The agreement also typically includes clauses on property use (defining what types of business activities are permitted), maintenance responsibilities, modifications or improvements to the property, and insurance requirements. Unlike residential leases, commercial leases are often more complex and negotiable, with terms that can significantly impact the success and legal rights of a business.

Commercial Lease Agreement Word Document

Commercial Lease Agreement PDF

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Month to Month Commercial Lease Agreement

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