Clause Considerations When Signing a Commercial Lease
No two commercial leases are created the same! There are however some common points covered in most leases. Commercial property leases typically include the following items:
You will occupy the premises for either a fixed or renewable time. Your lease may be month-to-month or for a much longer duration. The clause describing the term of your lease may include renewal options.
Commercial rents are usually based on the size of the space or the square footage. Your landlord may add operating costs to this base rent.
Various types of commercial leases involve different rent calculations:
- Percentage rent lease — If you own a retail business, you might pay a base rent plus a percentage based on your sales.
- Gross rent lease — You pay a flat rate equal to base rent plus other specific expenses. The landlord pays the additional operating costs.
- Net lease — You pay some of the taxes plus the base rent.
- Net-net lease — You pay base rent, taxes and insurance costs to the landlord.
- Triple net lease (net-net-net) — You pay base rent, taxes, and operating and maintenance costs.
Space and Services
Does your lease cover the actual square footage? It never hurts to take measurements. Which common areas are included (washrooms, lobby, etc.)?
Find out whether the following services are included:
- Parking — Is there enough for all tenants and their clients?
- Heating, ventilation and air conditioning — Is this a 24-hour service?
- Cleaning service for common spaces
- Snow removal/grass cutting/landscaping
- Healthy Features
- To help keep you and your employees healthy, look for building features such as:
- Indoor stairwells that are designed for everyday use
- Standards for indoor air quality
- Building certifications such as LEED, BOMA Best and WELL
Type of business permitted to operate on the premises
You may need written permission to use the premises for any purpose other than the original one. Find out if there are restrictions that could limit the future direction or expansion of your business.
Determine which repairs are your responsibility and which are your landlord’s.
You may be allowed to make some changes or improvements and install equipment. Will these fixed assets be yours or will they become the landlord’s property if you leave? Will you have to restore the property back to its original state?
Some fixtures are included in the property, such as built-in items that would damage the premises if removed. Make sure you know what you can take with you and what you will have to leave behind.
If your business expands, you might outgrow your space before the lease ends. You may need to sublet the premises, so it is a good idea to work this into a clause in your lease.
It may be okay to assign the lease to your own partners, subsidiaries or anyone with whom you merge, but you may not be allowed to sublet to anyone else outside your business without the landlord’s consent.
What is covered by your landlord’s insurance? You may be responsible for paying for repairs to anything not covered by this.
Will your landlord pay all property taxes? Are you responsible for any municipal taxes?
Any utilities that you must pay for, such as water, electricity, sewer, gas, phone, etc., should be listed. Your landlord may pay for anything that is not metered and then bill you accordingly.
- Other items to consider may include details about:
- Options for the first refusal if more space becomes available
- Building rules
- Damage and destruction
- What happens if the building is condemned
- Escape clause (in the event you become unable to run the business)
Because commercial leases are so complex, always enlist the help of experienced professionals, such as the experienced experts at CHI Real Estate Group for guidance. We care about your success.