Essentials of Commercial Leases
Commercial leases are used when the lessee wants to run or operate a business. The business can be a for-profit business or a non-profit. Commercial leases differ from residential leases in that the signer of the lease is not using location as a residence. Often, more legal protections are given to those who sign residential leases because having a place to live and sleep is one of life’s essentials.
Commercial leases are used when the lessee needs a place are to meet with customers or clients. They allow the business or organization to have a place to work away from home. Commercial leases can be used for stand-alone offices or for locations where multiple offices have private entrances but also common locations. According to Statista, there was nearly $87 billion in commercial real estate construction in the US in 2017.
The key differences between commercial and residential leases
Generally, commercial leases:
- Are negotiated. Unlike apartment complex leases or other residential leases, the lessee (the entity renting the premises) has more ability to negotiate the terms of the lease. Most apartments are pretty much told – sign the lease or move to another locations. Commercial leases should be reviewed by experienced lawyers. Some terms of the lease can be modified or even deleted. Often, what applies to one commercial tenant doesn’t apply to other tenants. Commercial leases are less standardized than residential leases.
- Have less protections. Florida makes every effort to protect residential tenants. Apartment owners need to provide habitable locations. There are specific legal timelines for attempting to terminate a lease. Florida has specific laws on how a tenant can be evicted, what a tenant owes after the eviction, and security deposits. Commercial leases are generally based on the principal that lessees are in a position to obtain legal counsel and that leases can be negotiated. Then, tenants should understand that the rights and duties of the lessor and lessee are normally set forth in the written contact.
- The length of the lease. Most residential leases are year to year. Commercial leases can obligate the lessee for several years at a time.
- The status of the signors. Typically, a residential lease binds the person who will live in the apartment. Commercial tenants may want to sign their lease in only their business capacity, such as the business corporation, without personally agreeing to be liable if the rent can’t be paid. Commercial landlords will usually seek personal signatures in addition to business signatures.
Key considerations commercial lessees should review with their attorney
A commercial lease is usually just one part of the lessee’s business. The commercial tenant should work with lawyers who understand the nature of their business. Businesses should consider some of the following before negotiating or signing a lease
- The location. Many businesses survive or fail on the location of the businesses. Even in the Internet age, businesses should be near suppliers, customers, and those people that can refer them business.
- Access. Commercial businesses need to make sure customers can easily enter and exit the premises.
- The rental terms. Often, rent is based on the amount of space, the square footage, being leased. Lessees should try to negotiate this amount. Since commercial leases can bind the lessee for several years, the lease should be clear as to how much the lease increases year-to-year.
- The amount of space and the type of space. Professional services generally need room for their operations and customers. Bigger companies may need several floors, open space as well as enclosed space, and other space requirements. Retail businesses have unique space needs.
- The ability to modify the premises. It should also be clear that the business can make changes or improvements to the space – for communications, for a better work environment, for a better customer experience, and for other reasons. For example, a medical spa may need room for laser equipment and massages.
Marketing considerations for leases
An experienced commercial lease attorney also reviews how a client will market their business to attract customers driving nearby. Signage is a common issue in many commercial leases.
Often, a lessee wants to prevent the landlord from offering space to a company that will compete with yours.
Other issues an experienced commercial lease attorney reviews
- Common areas. If the lessee is sharing common areas with other tenants, then the responsibility for maintaining and improving those common areas should be set forth in the lease. Common areas include waiting areas as well as elevators, escalators, corridors, and other areas that allow a customer to get into the building and navigate the building
- Parking. The rights and duties of the landlord to provide and maintain adequate parking for customer and supplies should be detailed.
- Maintenance and repair. It should be clear who has responsibility for maintenance of common areas and the internal locations. Businesses depend on roofs that don’t leak, plumbing and heating that works, and other services and needs.
- Termination clauses. It should be clear how the lessee and landlord can terminate the lease and the rights of each party on termination – including the right to the return of security deposits.
- Insurance. The duty to pay for premises liability insurance, building insurance, and other insurances should also be identified.
Other factors to review with a real estate lawyer include the ability to sublease the locations, how to handle disputes (arbitration, mediation, or litigation), and many other factors.