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What is a Building Lease?
A building lease is a legal contract used by landlords and tenants to formally agree on the rental terms of commercial buildings that are used for office, industrial, or retail purposes. They are also used for commercial properties like warehouses, restaurants, and medical facilities. Landlords receive payments from their tenants in return for being able to use the commercial property for their business as needed.
A building lease differs from a residential real estate lease because the tenant is expected to use the property solely for business operations instead of everyday living. The space a business uses for their daily tasks is referred to as ‘demised premises’ because it is not a whole real property but is actually space within real property.
A building lease is known to be referred to as other names including:
- Business lease
- Industrial lease
- Office space lease
- Commercial lease
How Building Leases Work
Building leases work by allowing an individual or company with a legitimate business to rent building space. These leases result in agreements for the tenant to use the property for approximately 3-5 years as long as the rent payments are made on time and in the full amounts agreed upon. However, the number of years in the lease terms varies and can be shorter or longer depending on the agreement between the landlord and tenant. A building lease can be renewed if desired once it ends as long as both parties agree on the new rate and renewal terms being offered by the landlord.
Businesses that you may see most days such as restaurants, factories, self-storage facilities, office buildings in the city, small shops, and shopping centers likely do not own the property they conduct business out of. Instead, they chose to become a party to a commercial lease because it can be cheaper for them then outright purchasing a building, they offer flexibility, the ability to relocate when needed, and not wanting to tie up capital in real estate.
Choosing a commercial lease for your business will allow you to discuss options with your landlord as far as the term of the contract, amount and due dates of payments, and individual responsibilities. This type of lease is good for a business owner who may not want to get stuck in a particular area before testing the success of their services. A tenant may not wish to stay in the same location for very long and a building lease offers flexibility.
Common Types of Commercial Leases
The most common types of commercial leases are listed below with descriptions:
- Full Service/Gross Lease: A full service, or gross, lease provides that operating expenses, insurance, maintenance costs, and real estate taxes are included in the base rent, so no extra payments are needed from the tenant. The landlord does have the right to require the tenant to pay additional fees and dues if there are increases in the future though, but this would need to be expressed in an understandable way.
- Net Lease: A net lease is the opposite of a full-service lease because no operating expenses, taxes, insurance, or maintenance fees are included in the base rent, so the tenant is sometimes obligated to pay all of them separately.
- Single Net Lease: The tenant pays for just the real estate taxes outside of the base rent.
- Double Net Lease: The tenant pays for just the property taxes and insurance outside of the base rent.
- Triple Net Lease: In a triple net lease, a tenant pays for real estate taxes, property insurance, and area maintenance (known as CAM).
- Modified Gross Lease: A modified gross lease is a mixture of the full service and net lease principles. A tenant who is part of this type of lease shares responsibilities of paying operating or other fees with the landlord, which may include property taxes, common area maintenance, property taxes, structure repairs, and utilities.. The tenant and landlord come to an agreement on who will pay for what and have the opportunity to negotiate if there is a dispute that arises.
- Percentage Lease: A percentage lease requires a tenant to pay a percentage of their gross business proceeds at the end of each month in addition to the base rent. Usually, the tenant doesn’t have to pay a percentage of their gross business proceeds until the monthly sales go above a specified amount. This may not be a great option for business tenants who do not want to share their earnings.
To read more about the types of commercial leases that exist, visit this website.
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Key Content to Include in a Building Lease
For a building lease to be qualified as such, it should contain the following content at a minimum:
- Parties. The identities of the landlord and tenant should be stated near the beginning of the building lease. The roles of each party should be listed near their names. It is possible the business names relating to the tenant and the landlord, if it applies, should be included too.
- Duration. The number of years, months, weeks and/or days that the lease will be good for should be clearly expressed to avoid confusion. The anticipated start and end dates should be listed. This section should also state whether there will be an automatic renewal if the tenant does not inform the landlord within a specific time period prior to the end of the current lease that they will be moving their business elsewhere.
It needs to be stated whether there are exceptions to the end date or an early termination allowance and what situations will permit or lead to them.
- Demised Premise. This section needs to describe the rental space being rented to the tenant in detail. Since this lease is for a business property, the document needs to state what other features are available to the tenant such as parking lots, snow removal, security services, janitor help, and temperature control.
- Real Property. A description of the real property that the demised premise is in needs to be mentioned and all common areas should be discussed.
- Base Rent & Deposit. The amount of rent to be paid to the landlord must be included in this building lease as well as the frequency of these payments. The amount of the security deposit to be made by the tenant has to be in the contract along with when it is due and whether it can be returned at the end of the lease.
- Operating Costs. This section will cover what costs in addition to the base rent the tenant is required to pay to the landlord and how often. How and where the tenant needs to make the payments should be included also.
- Property Use and Occupancy. This part of the document will go through what is and is not allowed to happen on the property premises. It will describe who is expected to occupy the rented space and what basic business operations will take place there.
- Improvements. In any scenario the property being used for business may end up needing improvements that are costly, especially if operations involve consistent cooking or other messy tasks. This section should state which party will pay for the improvements and if their financial responsibility will be capped at a certain amount.
How Are Building Lease Payments Calculated?
Building lease payments are calculated by setting a price for each square foot ($/SF) and multiplying that amount by the amount of square feet that exist in the rental space. The price can be high or low depending on what buildings in your area are charging, because landlords want to stay on board with the commercial property market.
Calculations are not always the same because sometimes property insurance, maintenance costs, and tax dues are included in the price and other times they are not. There may also be miscellaneous things included or excluded based on the area of the rental as well as the type of lease.
Get Help with a Commercial Lease Agreement
Get assistance drafting or reviewing a building lease by working with real estate lawyers who specialize in these types of contracts. Post a project in ContractsCounsel’s marketplace and get free bids from vetted lawyers for your project.
Meet some of our Building Lease Lawyers
Donya G.
I am a licensed and active NY and CT Contracts Attorney, with over 20 years of diverse legal and business experience. I specialize in reviewing, drafting and negotiating commercial agreements. My practice focuses on working with small business clients as well as clients from international brokerage firms on acquisitions, especially in the Ecommerce space; drafting, negotiating, reviewing and advising on business agreements; ; breach of contract issues, contract disputes and arbitration. I am licensed to practice in New York and Connecticut, and am a FINRA and NCDS Arbitrator. My experience includes serving as General Counsel to small businesses. This entails reviewing, updating and drafting contracts such as employments agreements, asset purchase agreements, master services agreements, operating agreements and a variety of business and commercial contracts. Additionally, I assist clients with business strategies, contract disputes and arbitration. My diverse experience allows me to give my clients a well-rounded approach to the issues they face. I have been at top AML law firms; a Vice President at an Investment Bank, a Civil Court Arbitrator presiding over cases in contract law, commercial law, a Hearing Officer, presiding over cases and rendering written decisions, and a Judicial Clerk to a Civil Court Judge. It would be a privilege to assist you and your business with my services.
Briana C.
Legal services cost too much, and are often of low quality. I have devoted my law practice to providing the best work at the most affordable price—in everything from defending small businesses against patent trolls to advising multinational corporations on regulatory compliance to steering couples through a divorce.
Daniel R.
NY Admitted Lawyer 20+ years of experience. Focused on Startups , Entrepreneurs, Entertainers, Producers, Athletes and SMB Companies. I have been a part of numerous startups as Founder, CEO, General Counsel and Deal Executive. I have been through the full life cycle from boot strap to seed investors to large funds-public companies to successful exit. Let me use my experiences help you as you grow your business through these various stages. We saw a market for an on-line platform dedicated to Virtual General Counsel Services to Start Ups and Private Companies.
Gamal H.
I am a commercial contracts attorney with twenty years of experience. I have represented major corporate clients including Amazon, Marvel, and Viacom as well as independent entertainment professionals and technology startups.
October 28, 2021
Oscar B.
Oscar is a St. Petersburg native. He is a graduate of the University of Florida and Stetson University, College of Law. A former US Army Judge Advocate, Oscar has more than 20 years of experience in Estate Planning, Real Estate, Small Business, Probate, and Asset Protection law. A native of St. Petersburg, Florida, and a second-generation Gator, he received a B.A. from the University of Florida and a J.D. from Stetson University’s College of Law. Oscar began working in real estate sales in 1994 prior to attending law school. He continued in real estate, small business law, and Asset Protection as an associate attorney with the firm on Bush, Ross, Gardner, Warren, & Rudy in 2002 before leaving to open his own practice. Oscar also held the position of Sales & Marketing Director for Ballast Point Homes separately from his law practice. He is also a licensed real estate broker and owner of a boutique real estate brokerage. As a captain in the US Army JAG Corps, he served as a Judge Advocate in the 3rd Infantry Division and then as Chief of Client Services, Schweinfurt, Germany, and Chief of Criminal Justice for the 200th MP Command, Ft. Meade, Maryland. He is a certified VA attorney representative and an active member of VARep, an organization of real estate and legal professionals dedicated to representing and educating veterans. Oscar focuses his practice on real small business and asset protection law.
October 28, 2021
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We help simplify every transaction and provide a superior level of customer service to create long lasting and trusted relationships with our clients. Our goal is to guide our clients with practical and zealous legal representation and eliminate the difficult nature of any legal transaction.
October 29, 2021
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For over 15 years, I accumulated both hands-on technical and business experience as an IT engineer and entrepreneur, enabling me to understand your challenges probably better than anyone else on the legal market! My California-based full-online practice focuses on: - Intellectual Property (Copyright / Trademarks) - Privacy / Data Protection - Commercial matters (e.g. service contracts) - Corporate (e.g. incorporation, restructuring)
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Building Lease
California
Are pets allowed under a building lease?
I am currently in the process of renting an apartment in a building that has a strict lease agreement. I have a pet that I would like to bring with me, but I am not sure if the lease agreement allows for it. I am looking for clarification on whether pets are allowed under the building lease so that I can decide if I am able to rent the apartment.
Alexis L.
Whether you are allowed pets or not would be dependent on the actual language in the lease. One would have to review the entirety of the lease and lease provisions to answer for sure. Certain lease provisions will address if pets are allowed or not.
Business
Building Lease
California
Are building lease deposits refundable?
I am a tenant looking to rent a commercial building. I am in the process of signing the lease agreement and wanted to understand if the security deposit I have to pay will be refundable. I understand that this will depend on the terms of the lease, but I wanted to get a better understanding of what is common in the industry.
David B.
Generally speaking, a security deposit is refundable after a lease expires if the tenant complies with all of the terms and conditions of the lease. When a landlord leases a commercial building, they are giving the tenant possession of a very valuable asset and they are trusting the tenant to maintain and care for it. The deposit gives some assurance to the landlord that if the premises is damaged or rent is not paid, there is a source of money to pay the landlord. This is the general way security deposits work but the landlord and tenant can agree to substantially different terms.
Real Estate
Building Lease
Florida
Can a building lease transfer to another party?
I am a tenant of a building in a commercial area. I recently received an offer from another party to take over my lease, and I am wondering if this is possible. I need to know if the lease can be transferred to the other party, and if so, what the process would be. I am also interested in understanding any potential legal implications of this transfer, as well as any other considerations I should take into account before making a decision.
Linda W.
If the lease does not indicate in writing that it is assignable, without any legal implications, you would need the permission of the landlord/owner. And if agreeable, then they would need to be an assignment of lease.
Real Estate
Building Lease
New York
What about taxes in a building lease?
I am in the process of signing a lease for a building for my business. I am looking to understand the tax implications of the lease and what I need to be aware of. I want to make sure I am in compliance with all relevant tax regulations and I am looking for advice on how to best handle taxes in the context of this lease.
Craig C.
There are several different ways this can be handled: one situation is that you have a base tax year and as tenant are responsible for any and all amounts over that base amount. Another scenario that the Tenant is liable for all of the taxes and associated costs. Finally, and unlikely, the tenant could have zero exposure for taxes, but that’s rare. To sum it up it is whatever you negotiate with the Landlord prior to signing any lease.
Dispute
Building Lease
North Carolina
If you break a lease can a landlord add crazy charges without an agreement?
I signed a lease 9/11 and tried to break it 9/13. Landlord charged me 60 days and did not provide an early termination agreement
Donya G.
Is there an early termination in the original document that you signed? Typically, you can withdraw from an agreement with minimal fees but it all depends on what your contract states. If you contract does not have any early termination language, you will need a real estate attorney in your state to advise on the law of your state and how to handle. All the best Donya Gordon
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