Essential terms for a commercial lease agreement

Any time a business rents a property, it must enter into a commercial lease agreement with the property owner. This formal document outlines the commercial lease agreement terms and conditions that both parties agree to abide by throughout the course of the lease.

What is a commercial lease agreement?

According to Maryland’s real property law, a commercial lease is “a lease of building floor space intended to be used by the tenant for nonresidential use.” This definition applies whether or not the lease explicitly states that it is to be used for a commercial purpose.

Why commercial lease agreements are necessary

A properly drafted commercial lease agreement protects the interests of both the landlord and tenant by ensuring a clear understanding of each party’s rights and responsibilities. This document is legally binding, so it is important to understand the various terms that may be included before signing.

Continue reading to learn more about the appropriate terms for a commercial lease agreement. If you have any questions, be sure to contact Coover Law Firm, LLC to speak with a commercial real estate lawyer in Maryland.

Essential terms for all agreements

There is no standard language for commercial lease agreement terms, as each agreement is tailored to the specific needs of the tenant and landlord. However, there are a few basic terms that all commercial lease agreements should include.

Lessor and lessee identification

The lease agreement should specify the full legal names (or official business names) and contact information of both the landlord (lessor) and tenant (lessee) along with an explicit label of each party’s role in the agreement. The lessor is the property owner, and the lessee is the individual or business that will be renting the property.

Identifying both parties in the lease helps to ensure a clear understanding of who is responsible for what. Without this information, it would be difficult to know who is liable for any damages or violations of the lease agreement, and enforcing the commercial lease agreement’s terms would be virtually impossible.

Description of the premises

The agreement must include an accurate description of the premises that are being rented. Key details include the street address, square footage, and any features or amenities included in the rental. If the landlord is providing access to shared resources or equipment, such as parking lots, storage facilities, or conference rooms, these must also be addressed in this section of the agreement.

This description serves as a point of reference for both parties, ensuring that they have a shared understanding of the physical space being rented. If any disputes arise regarding the premises, such as property damage, modifications to the space, or access to certain areas, this section can be used to resolve them.

Rent amount and payment schedule

This section indicates the amount of rent that is due to the landlord in exact dollars and cents. It should also specify when the rent is due, how it should be paid (i.e., check, money order, etc.), and any late fees that may apply. If there are any other required fees in addition to the base rent, such as utilities, they should also be listed. Any special rent arrangements, such as a percentage of profits rather than a flat rent amount, should be detailed in the commercial lease agreement terms.

These rent-related terms must be spelled out in as much detail as possible to ensure that the tenant is aware of their obligations to the landlord. They also protect the landlord’s interests by providing a legally binding agreement that guarantees payment each month. If the tenant misses any payments, this part of the commercial lease agreement allows the landlord to initiate legal action for nonpayment.

Lease term and renewal

All lease agreements, including commercial ones, must specify a start and end date for the term of the lease. This is the amount of time that the tenant will be occupying the premises. Most commercial leases have a term of one year, but some may have longer terms of up to five years or shorter terms of only a few months.

The agreement should also include provisions for renewing the lease if desired. This typically involves an automatic renewal clause, which allows the tenant to extend the lease without having to sign a new agreement as long as they notify the landlord of their intent to renew within a specific timeframe.

Similarly, the agreement should specify what happens if the tenant chooses not to renew the lease. It should also discuss whether either party can terminate the agreement early for any reason and, if so, what kind of notice and consequences are associated with the termination.

Additional provisions to consider

The landlord and tenant in a commercial lease are free to negotiate the terms of their agreement before both parties have signed it. Depending on the specifics of the rental, additional provisions may be necessary to protect both parties’ interests.

For example, the agreement may specify unique provisions based on the type of commercial property that is being leased, such as retail space, office space, or industrial space. Some types of properties require special provisions that address how the space may be used, any applicable zoning regulations, and what kind of signage may be displayed.

When safety is a concern due to the nature of the business or property, additional clauses may be added to ensure that appropriate security measures are in place.

In addition, the agreement can include terms that address:

• How the landlord or tenant will be responsible for repairs and maintenance
• What kind of insurance must be carried by both parties
• Any subletting or assignment provisions
• If the landlord wishes to restrict certain uses of the property, such as prohibiting smoking or loud music
• Any limits on remodeling or alterations

Some commercial lease agreement terms also identify a guarantor who would be responsible for any unpaid rent in case the tenant cannot meet their obligations. This is particularly common when the tenant is a young company with limited financial resources.

Importance of seeking legal guidance

Every word in a commercial lease agreement carries significant legal weight. A single misworded statement is all it takes to render the entire agreement null and void or create costly confusion that jeopardizes both businesses.

For this reason, both landlords and tenants should consider seeking legal guidance before signing a commercial lease agreement. A Howard County commercial real estate lawyer can review the drafted lease and ensure that all commercial lease agreement terms are reasonable and enforceable.

They can also provide advice about any potential risks or liabilities associated with the agreement and suggest changes to ensure that everyone is adequately protected. And if any disputes do arise during the lease, an experienced lawyer can help resolve them through negotiation or litigation.

By taking the time to craft a comprehensive and legally sound commercial lease agreement, landlords and tenants can begin their business relationship on the right foot. If you are considering entering a commercial lease agreement as either the lessor or lessee, contact Coover Law Firm, LLC at (410) 553-5042 to discuss your needs.