Commercial Space Lease: Different Types and How to Review

What is a Commercial Space Lease?

A commercial space lease is a legal document between a tenant and a landlord that governs the leasing of commercial real estate, such as an office space. In order to be rented under a commercial space lease, the property must be used solely for business purposes or contain only business property, such as in a self-storage facility.

What’s Typically Included in a Commercial Space Lease?

A commercial lease is a vital part of renting business space for any entrepreneur. A commercial space lease differs from a residential lease agreement because it governs rentals that are used solely for business purposes. While a residential rental can be partially used for office space, a commercial rental cannot be used for residential purposes at all.

Renting a commercial space is an exciting endeavor for business owners, no matter whether they are new to the territory or seasoned professionals. Signing on a new space means discovering new possibilities, and understanding what to expect from a commercial space lease is a great asset in these situations.

Here is a quick overview of what’s included in a commercial space lease:

• Base rent : the basic cost of renting the property, charged in combination with property taxes, insurance, and utilities in some scenarios
• Occupancy : governs how many people can reside in the building at once, in accordance with state and federal laws and local fire codes
• Rental period : how long the lease agreement is good for
• Property expenses : includes cost of required renovations and modifications needed to do business and operating cost
• Maintenance and repairs : who can make required maintenance and repairs and who will pay for them
• Property taxes : how much is due yearly for property taxes and who will pay for them
• Insurance : minimum property insurance requirements and who is responsible to make payments towards insurance premiums
• Utilities : which companies service utilities for a property and who is required to make utility payments

Check out this article to learn more about what’s included in a commercial space lease.

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Types of Commercial Space Leases

Commercial space leases typically fall under three categories: standard, single net, double net, and triple net leases. Each type of lease has its own requirements and the base rent for each lease differs based on what other costs a lessee is responsible for.

Here is an in-depth guide about what a lessee should expect from each lease type:

Standard Leases

Standard leases are the closest commercial space lease type to residential space leases. When a lessee signs a standard lease, they are only responsible for the base rent of a property. The landlord, on the other hand, is responsible for property taxes, insurance premiums, repair and maintenance, and sometimes utilities.

Businesses who sign standard leases usually pay the most in base rent when compared to other lessors of other types of commercial space leases.

Single Net Leases

In a single net lease scenario, the lessee is responsible to pay base rent charges and property taxes. Single net leases are attractive to lessees because they involve minimal risk since the landlord is responsible for a majority of the expenses incurred by the rental space. Single net leases are the least common type of commercial space lease.

Since lessees are responsible for property taxes, their rent is typically lower than a standard lease, since they pay slightly more than a standard lessor yearly. In a single net lease situation, landlords may find themselves on the hook for missed property tax payments to the municipality, which leaves them responsible to pay. For this reason, landlords usually prefer to include property tax payments in the rent, where they can deduct and set them aside to ensure proper payment.

Double Net Leases

When a lessor agrees to a double net lease, they are agreeing to pay:

• Base rent
• Property taxes
• Insurance premiums

Double net leases are the most common type of commercial space lease and are beneficial to lessors since the landlord is responsible for repair and maintenance costs, which can be costly.

Many commercial space lease agreements involve large business developments where several spaces are leased. When this happens, landlords typically charge the property’s costs in accordance to the percentage of the total square footage of the building. This ensures that each tenant is charged a fair amount and that the landlord has sufficient funds available to cover the costs of the building.

Triple Net Leases

Triple net leases involve the lessor paying:

• Base rent
• Property taxes
• Insurance premiums
• Repair and maintenance costs

This type of lease is attractive to business owners because it usually involves the lowest base rent cost out of the three types of commercial leases, but it is not always an ideal option.

When repair and maintenance costs are needed, they can be expensive. In some cases, the price tag on these items can exceed the amount of money a company has to spend. Sometimes, companies will attempt to get out of their lease when exorbitant repair bills are needed. However, landlords are prepared for this.

When a triple net lease is signed, landlords will often include a clause that entails a bondable net lease. A bondable net lease demands that renters fulfill their lease agreement in accordance to the originally agreed-upon amount of time and that they must pay any agreed-upon costs during this time period.

Lessors are not entitled to rent concessions, regardless of the types of repairs or maintenance needed on a property.

Here is an article with more details about the types of commercial space leases out there.

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Reviewing Your Commercial Space Lease

Making sure a commercial space lease is right for you is imperative to making a sound leasing decision.

Here are a few important considerations to entering into a commercial space lease:

Customer Base

The customers you serve are the most important consideration when renting a commercial space. As you browse the commercial space market, consider these questions:

1. Where do my customers live?
2. What areas might my customers be willing to do business?
3. What type of environment will attract my customers?

Property Zoning

Commercial buildings are zoned for specific uses. If you run a retail store, for example, you need to rent a space that is zoned for retail use. Further, you cannot run a retail store out of a space zoned for warehousing.

Size Requirements

Each commercial space has a limit on the number of people allowed inside at once. If you have a considerable customer base, you should only consider spaces that allow for a large amount of people inside at once.

On the other hand, even businesses with a conservative following have the opportunity for unexpected growth, so avoid renting a space that is too small to allow for considerable growth in a small amount of time.

Get Help with Commercial Space Lease Agreement

If you’re ready to rent a space for your business via a commercial lease agreement, you don’t have to go through the motions alone. Post a project on ContractsCounsel today to enlist the help of experienced real estate lawyers who specialize in commercial lease agreements and can give you valuable advice along the way.