COMMERCIAL LEASE

COMMERCIAL LEASE

What is a Commercial Lease? Some basics of Commercial Lease!

A commercial lease is a written agreement between a landlord and a business tenant. This legally binding contract allows you, as the tenant, to use the commercial premises for your business activity for a certain period of time by promising to pay an agreed-upon rate to the landlord.

Leasing a commercial space is often a two-part process. First you sign the offer to lease. Then, after negotiations take place, you sign the lease containing the details of the negotiations.

Here are a few items to keep in mind as you investigate commercial property:

1. Be ready to negotiate. You are not expected to agree to all terms immediately, so be prepared to go back and forth. 
2. Take the time to understand what is included in your lease. Go through it carefully on your own, then with your team of professionals (lawyer, accountant, lease consultant, property inspector, etc.).  Always get decisions and changes in writing — a verbal agreement may not stand up in court. 
3. The amount of rent you pay is important, but other aspects of the lease are also significant. 
4. Be prepared to walk away. Things to consider when signing a commercial lease There is no such thing as a standard commercial lease, but there are common points covered by most leases. Commercial property leases can include the following items: Term You will occupy the premises for a fixed or renewable period of time. Your lease may be month-to-month or for a much longer term. The clause describing the term of your lease may include renewal options. Rent 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: 
5. Percentage rent lease — If you own a retail business, you might pay a base rent plus a percentage based on your sales. 
6. Gross rent lease — You pay a flat rate equal to base rent plus other specific expenses. The landlord pays the other operating costs. 
7. Net lease — You pay some of the taxes plus the base rent.
8. Net-net lease — You pay base rent, taxes and insurance costs to the landlord. 
9. 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 spaces are included (washrooms, lobby, etc)? Find out whether the following services are included: 
10. Parking — Is there enough for all tenants and their clients?  Heating, ventilation and air conditioning — Is this a 24-hour service? 
11. Cleaning service for common spaces 
12. Security 
13. Snow removal/grass cutting/landscaping 

Type of business can take place 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. Repairs Determine which repairs are your responsibility and which are your landlord's.

Leasehold improvements 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.

Subletting 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.

Insurance details What is covered by your landlord's insurance? You may be responsible for paying for repairs to anything not covered by this. Taxes Will your landlord pay all property taxes? Are you responsible for any municipal taxes?

Utilities 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 These may include details about options for first refusal if more space becomes available, building rules, signage, damage and destruction and what happens if the building is condemned. An escape clause could be very useful in the event you become unable to run the business. But because commercial leases can be complex, always enlist in the aid of experienced professionals for guidance. Before signing any commercial lease, you may wish to seek legal advice. Gross rent lease A type of commercial real estate lease under which you pay a single amount to the landlord that covers base rent and all incidental expenses.

Net lease A type of commercial real estate lease under which you typically pay for one incidental expense directly.

In a single net lease, you usually pay the base rent plus property taxes (though in some cases, you might pay for insurance or utilities instead).

The landlord pays all other expenses. Double net lease or Net Net Lease (NN) A type of commercial real estate lease under which you usually pay the base rent plus two incidentals—for example, property taxes and insurance. The landlord covers all other expenses. Triple net lease (NNN) A type of commercial real estate lease under which you typically pay the base rent, plus property taxes, building insurance and utilities, as well as other operating and maintenance costs. The landlord assumes no costs, other than those for structural repairs. Percentage rent lease A type of commercial real estate lease under which you pay a base rent plus a percentage of gross sales over a certain minimum. These are usually used in malls and other multi tenant retail locations.

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