All You Need to Know About Commercial Lease Agreement and How it Differs from Residential Lease Agreement!

With the future growth of a business, the founders start dreaming of expanding and have a dedicated business unit or a separate building. The walls of your garage may cease to hold the spillover, profits and demand an increase in production or supply to meet the growing customer needs.

With an increase in the number of customers turning loyal to your shop and those products or services, there is a pressing need to move into a new unit. This said, you need to buckle up to deal with a monster in business called ‘commercial lease agreement.’

But before stepping in to look for document and attorney service, it is necessary to go for a recce for the new commercial space and find the ideal office to run your business.

The location you finalize must meet your business needs when it comes to budget, accessibility, size, availability of human resources, presence of human traffic, and well-established infrastructure, etc. Once identified a location with all these features for further growth, look ahead for a commercial lease and negotiate on terms and conditions.

If it’s your first time with leases for commercial property, know that a commercial lease agreement is a legal contract agreed upon between the landlord and a tenant for business purposes. The signing of the lease implies transferring the right to use a commercial space by a tenant for a specific duration and an agreed amount. The agreement, in detail, also outlines the rights and responsibilities of both parties in the course of the lease term. A commercial lease agreement is also called commercial property lease agreements, office lease, commercial rental, commercial real estate, or business lease agreements.

How is Commercial Lease Agreement Different from a Residential Lease Agreement?

Wondering what makes the commercial lease agreement different from the residential lease contracts? Well, here it is!

Tenants in residential spaces receive more protection from the law because most tenants rarely are equipped with information about leases and lease agreements, and they may fall prey to the foul. On the other hand, it is assumed that the parties involved in a commercial lease agreement are educated enough about the leases’ issues, and they have better access to legal help and professional advice from experts.

Other than the level of protection afforded, commercial lease agreements are more negotiable than the other counterparts. Residential leases offer an increased level of flexibility.

Being negotiable, the commercial lease can be expensive or cheap, depending on your choice and understanding of terms and types of leases and how it affects the overall costs incurred for the lease.

What else to review and negotiate in a commercial lease agreement?

• Security Deposit: The amount, is it negotiable, return policy for the security deposit.

• Tenant Improvement: Is the tenant required to return the space in its original state at the termination of a lease, any tenant improvement allowance allowed!

• Compliance: You must consider reviewing the compliance of the property to state and federal laws.

• Subleasing and assignment: Can the tenant sublease the space and assign a third party to use the property and obligations under your name?

• Relocation: Is the landlord responsible for paying for moving costs if he wants you to relocate to a new unit? Will the lease terms in the new location change or remain similar, the benefits of space offered compared to the older location?

• Repairs: Who is responsible for central structural repairs?

• Exclusivity clauses

• Parking

• Signage and advertisement

• Most states require the lease agreement to be acknowledged by the notary public once they agree upon terms and the signing of the contract.

Lastly, before signing off the agreement, review every term in the lease and only sign if the terms are favorable.