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Understanding Commercial Leases

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Your lease is a contract between you and your landlord. A lease can be for a short term (as little as one month) or long term, and it can be written or oral -- although a lease for more than a year must be in writing to be legally enforceable. Some people use the phrase "rental agreement" to describe a short or oral lease for which rent is typically paid once a month and the tenancy can be terminated on a 30-day written notice. To avoid confusion, we'll stick to the word "lease."

Terminology
Sometimes a written lease talks about the " Lessor" and the "Lessee." The lessor is the landlord; the lessee is the tenant.

It's crucial to understand from the get-go that, practically and legally speaking, there are oceans of differences between commercial leases and residential leases. Commercial leases are not subject to most consumer protection laws that govern residential leases -- for example, there are no caps on deposits or rules protecting a tenant's privacy. Also, since a business will often need to modify the existing space (add cubicles, raise a loading dock, rewire, etc.), the terms of commercial leases are usually subject to at least some negotiation.

The following checklist includes many items that are often addressed in commercial leases.

  • Rent, including allowable increases and method of computation
  • Security deposit and conditions for return
  • Length of lease (also called the lease term)
  • Whether the rent you pay covers utilities, taxes, and maintenance (called a gross lease) or whether you will be charged for these items separately (called a net or, if the tenant must cover three additional costs, a triple net lease)
  • Whether there's an option to renew the lease
  • If and how the lease may be terminated, including notice requirements
  • What space is being rented, including common areas such as hallways, rest rooms, and elevators
  • Specifications for signs, including where they may be placed
  • Whether there will be improvements, modifications, or fixtures (often called buildouts) added to the space, who will pay for them, and who will own them after the lease ends
  • Who will maintain the premises
  • Whether the lease may be assigned or sublet to another party
  • Whether disputes must be mediated or arbitrated as an alternative to court

For information about negotiating the terms of your lease, see Negotiating a Good Lease.


Note: Many businesses must comply with the Americans with Disabilities Act (ADA). ADA requires all businesses that are open to the public or that employ more than 15 people must have premises that are accessible to disabled people. Make sure that you and your landlord are in agreement about who will pay for any needed modifications, such as adding a ramp or widening doorways to accommodate wheelchairs.


Copyright © 2000 Nolo.com Inc.

Last updated: May 12, 2000




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