Commercial Lease Agreement

What is a commercial lease?

A commercial lease rents space for business use: an office, a store, a warehouse, a studio. It is governed by contract, not by the residential landlord-tenant act, so there is no statutory deposit cap and few built-in tenant protections.

That cuts both ways. You have more freedom to set terms, and the lease itself is the only protection either side has. Unlike a residential lease, the money terms carry the whole deal.

Key takeaways for landlords

·        No residential safety net: commercial leases are contract-governed. There is no deposit cap and few default tenant protections, so the lease is the protection.

·        Define the use tightly: the permitted-use clause, and any exclusive-use promise, controls what the tenant may do and what you can lease nearby.

·        Decide who pays operating costs: gross, net, or modified gross sets whether the tenant pays taxes, insurance, and CAM on top of base rent.

·        Get a guaranty: a business tenant can dissolve, so a personal or parent-company guaranty is often the only real security.

·        Spell out TI and assignment: say who pays for tenant improvements, and whether the tenant may assign or sublet, usually with your consent.

What a commercial lease includes

·        Parties and premises: the landlord, the business tenant, and the exact space, including common areas.

·        Permitted and exclusive use: what the tenant may do, and any promise not to lease nearby to a competitor.

·        Term and renewal options: the length, and any options to extend and at what rent.

·        Base rent and escalations: the rent, and how it steps up over the term.

·        Operating costs: gross, net (NNN), or modified gross, and how CAM is calculated and capped.

·        Deposit and guaranty: the security deposit and any personal or corporate guaranty.

·        Tenant improvements: who builds out the space and who pays, including any allowance.

·        Assignment and subletting: whether the tenant may transfer, and on what consent terms.

·        Insurance, indemnity, and default: the coverage required, who bears which risk, and the remedies on default.

A note on disclosures

The residential rules do not apply to commercial space. There is no RLTA deposit cap, and the federal lead-based paint disclosure covers housing, not offices or stores. Other rules can still apply, such as ADA accessibility and any local or environmental requirements. Check your building and your jurisdiction.

How to write a commercial lease

Lead with the money and the risk, because the contract is the whole protection. Name the parties and the exact premises, then define the permitted use and any exclusive-use promise. Set the term, the base rent, and the escalations, and choose the cost structure.

Back the rent with a deposit and a guaranty. Decide tenant improvements, insurance, and default remedies. If the tenant may later rent out part of the space, that is a commercial sublease, usually with your consent. Screen the business first with a rental application. For a home instead of a business space, use the standard residential lease; for other forms, see the Rental & Lease hub.