Commercial Space Lease Agreement: A General Guide
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A commercial space lease agreement refers to a contract for any kind of business to rent office spaces or other business properties from a landlord in the U.S. The term 'commercial' means that the particular lease is for different business activities rather than housing. A commercial tenant can be either a sole proprietor who has a small business or someone who runs a major multinational corporation. Meanwhile, let us learn more about a commercial space lease agreement in detail below.
Types of Commercial Space Lease Agreements
The commercial space lease agreement should state the type of lease and the basis on which one calculates rent. These are usually standard arrangements but are subject to negotiation. Meanwhile, here are the common types of commercial space lease agreements:
- Net Lease Agreement: In this kind of commercial space lease agreement, the related tenant pays all or part of taxes, insurance, or maintenance costs. These would otherwise be incurred by the specific landlord apart from the stated rent.
- Double Net Lease Agreement: In this kind of agreement, the tenant pays taxes, insurance, and rent.
- Triple Net Lease Agreement: This commercial space lease agreement requires the tenant to pay taxes, maintenance, insurance, and rent.
- Percentage Lease Agreement: The rent associated with this particular agreement is based on a specified percentage of the tenant's sales and profits.
- Fully-serviced Lease Agreement: The rent includes utilities and other services that the tenant would pay for separately. This kind of lease is common in office buildings with several tenants.
Knowledge Tip: You can also download this template for your reference.
Important Terms in a Commercial Space Lease Agreement
Several items are commonly included in a commercial space lease agreement. They only apply if they are included in the commercial space lease negotiations with the landlord. Here are some basic terms with their associated questions:
- Lease Term: How long is the particular lease? Will it ever end on a fixed date, or is it always subject to different conditions? Does either the tenant or landlord have an option to extend it or cancel early?
- Rent: How much is the base rent of the particular commercial property? Does it increase during the set periods? What other extra charges are included in addition to the rent?
- Other Costs: Who pays for all the items? Who is in charge of the specific building insurance, property taxes, and other kinds of routine maintenance?
- Security Deposit: How much is the particular deposit, and when may the property’s landlord withhold it?
- Permitted Use: Is this particular lease only for specified commercial activities? If so, the tenant may also not engage in other business activities without the permission of the property’s landlord.
- Exclusive Use: Does the tenant always get the exclusive rights to perform certain activities? This happens within a larger property with many tenants.
Knowledge Tip: Need an answer to these questions? Check this video.
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Commercial Space Lease Agreement Vs. Residential Lease Agreement
There are several differences between a commercial space lease agreement and a residential lease agreement. These include the following:
| Particulars | Differences |
| Including Varied Terms | Landlords always use lease agreement templates for all kinds of residential leases because there are fewer tenant requirements. Commercial space lease agreements, on the other hand, have varied terms because every tenant’s requirement is different. |
| Adding Negotiable Terms | Commercial space lease terms are negotiable in most cases. Terms subject to such a change include the rent amount, the associated rent increases, the length of the specific lease, the ability to assign a lease, and all the other allowable improvements. |
| Working with Longer Terms | Most residential leases remain for a maximum of a year in the United States. Whereas commercial space lease agreements are functional for several years. |
Things to Keep in Mind When Signing a Commercial Space Lease Agreement
Although commercial space lease agreement tenants have fewer legal protections on the theory that they are more business-savvy as compared to other residential tenants. So, what is the solution here? Lessors and lessees of such lease agreements need to address other factors in their commercial space lease, which include:
| Particulars | Things To Keep in Mind |
| Including Pass-through Costs | A commercial space lease agreement always allows the property owner to pass through the costs. These may be related to operating or even leasing out the building to other renters. Pass-through costs may include different utilities, common area maintenance, and all kinds of property taxes. Pass-through costs may assist during rent negotiations. Yet, all business owners must look for them in the commercial space lease agreement. |
| Taking Leased Premises Measurement | The respective tenant's obligations for rent and maintenance always depend on the square footage of the associated premises. Legal issues often begin when the commercial space lease agreement is unclear. The confusion is usually about where those measurements begin. Tenants may often believe the premises consist of the interior of the respective building. Yet, a few landlords measure the outdoors instead. |
| Doing Improvements and Alterations | The commercial space lease agreement must always clarify who is responsible for the initial build-out. The same person must also look after the load-in following the opening of the particular business. Things should be made clear in the agreement if the landlord must provide any materials or have the property in a particular condition before the future tenant moves in. The specific agreement must also clarify who handles any future maintenance or alterations. |
| Handling Natural Disasters and Eminent Domains | Almost no place in the United States or any other part of the world is safe from any kind of disaster. The landlord and tenant may have their respective insurance. But what if the building is a loss or needs extensive repairs? These insurance policies may not be enough for both parties. The particular commercial space lease agreement must address what happens if the building needs renovations or in situations when the tenant must vacate it. |
Key Terms for Commercial Space Lease Agreements
- Lessor: A landlord who legally owns all the assets of a particular property. They lease a specific property or asset by giving the tenant the right to occupy or use it for a particular period.
- Lessie: A tenant who pays rent to occupy a specific space or property for a particular period. They may be a legal entity, individual, or a company.
- Term Sheet: An offer to lease that is usually used to guide the drafting of a contract and is commonly used during negotiations. It further outlines the commercial space lease agreement’s terms and conditions in bullet points.
- Base Rent: The set amount that a particular lessee pays to the lessor each month. The payment is made to occupy the associated premise or use the particular asset.
Final Thoughts on Commercial Space Lease Agreements
Every lessee needs to have a thorough understanding of commercial space lease agreements, whether they are signing their first lease or getting ready for a move or a renewal. Unlike residential leases or other documents, commercial space lease agreements are very much "buyer beware." The rights of the lessor or the lessee are exactly as stated in the particular lease, with little to no other protections. That is why both parties must approach a professional lawyer with expertise in drafting a legal, commercial space lease agreement.
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Meet some of our Commercial Space Lease Agreement Lawyers
Richard M.
Richard "Rick" Mortensen has practiced law continuously in Utah since 2006. For most of that time, he worked in-house, including stints at two international mining companies, two direct selling/MLM companies, a large ecommerce retailer, and an accounting/fintech firm. He also has extensive litigation experience, having represented plaintiffs and defendants in every stage of litigation, including jury trials and appeals. His current role is as a fractional general counsel for businesses of all sizes.
"This was my first commercial lease, and the contract was lengthy and complicated, so I’m very glad I had Rich to help me through it. He was professional, patient, and took the time to explain everything clearly. Since English is my second language, that meant a lot to me. Rich was very thorough in reviewing the contract and took the time to have regular calls with me to walk through questions and details. He also communicated directly with my leasing agent when needed, which helped keep things moving and get some of the issues sorted out. I really appreciated the time and attention he gave throughout the process. His guidance made me feel much more comfortable with my first commercial lease, and I would definitely recommend him to others."
Rebecca S.
I absolutely love helping my clients buy their first home, sell their starters, upgrade to their next big adventure, or transition to their next phase of life. The confidence my clients have going into a transaction and through the whole process is one of the most rewarding aspects of practicing this type of law. My very first class in law school was property law, and let me tell you, this was like nothing I’d ever experienced. I remember vividly cracking open that big red book and staring at the pages not having the faintest idea what I was actually reading. Despite those initial scary moments, I grew to love property law. My obsession with real estate law was solidified when I was working in Virginia at a law firm outside DC. I ran the settlement (escrow) department and learned the ins and outs of transactions and the unique needs of the parties. My husband and I bought our first home in Virginia in 2012 and despite being an attorney, there was so much we didn’t know, especially when it came to our HOA and our mortgage. Our real estate agent was a wonderful resource for finding our home and negotiating some of the key terms, but there was something missing in the process. I’ve spent the last 10 years helping those who were in the same situation we were in better understand the process.
"Rebecca you were awesome I appreciate you working with me and helping me get this done. I look forward to working with you in the future."
Diane D.
I am the Founder and Managing Attorney of DMD Law, PA. and have 20 years' experience. I am a business-oriented, proactive, and problem-solving corporate lawyer with in-house experience. My firm's practice focuses on ensuring the legalities of commercial transactions and contracts. I am adept at reviewing, drafting, negotiating and generally overseeing policies, procedures, handbooks, corporate documents, and contracts. I have a proven track record of leading domestic and international companies by ensuring they are functioning in complete compliance with local, federal and international law. I also help clients with their estate planning documents. In all projects, the firm's goal is to simplify the law and provide clients with the confidence and information necessary to make their decisions.
"Diane was very patient with me and helped with a professional cease and desist letter."
Jeffrey W.
Jeffrey W.
I am a business, transactions, contracts attorney. I was the sole in-house attorney for a good-sized staffing company. I can review and create nearly any type of document you need. I enjoy writing, reading, and editing contracts. I want to read your contract. If I cannot do it, I won't take the job and I won't charge you for what I cannot do. However, in reality, unless you need a 225 page financing agreement, is has never been an issue.
Matthew F.
As a business law attorney serving Coral Springs, Parkland, and Broward County, FL, Matthew has been recognized as “AV” rated, which is the highest rating an attorney can achieve through Martindale’s Peer Review system. Year after year Matthew is listed in the “Legal Leaders” publication as a top-rated attorney in South Florida in the areas of litigation, commercial litigation, and real estate. Matthew is also a graduate and instructor of the Kaufman Foundation’s FastTrac NewVenture Program, presented by the Broward County Office of Economic and Small Business Development.
"Matthew took my trademark matter from cease and desist through a signed settlement and got exactly the outcome I wanted. His drafting was thorough, he was fast and responsive, and the other side resolved quickly. Highly recommend for anyone protecting a brand."
December 11, 2023
Moshe G.
Motivated and self-starting Corporate and Commercial Counsel with over 12 years of experience in providing strategic legal solutions. Exceptional analytical and negotiation skills, focusing on Cyber Security, Finance, and Software. Proven track record of success in handling complex M&A matters. Expertly led negotiations and full five M&A transactions from start to finish (over $100M), resulting in successful integration including raising capital on Reg. A and Reg. D exemptions. Drafted, reviewed and negotiated commercial agreements including, Restructure Agreements Partnership Agreements, Asset Purchase Agreements, Stock Purchase Agreements, Restructure Agreements, Loan conversion Agreements, Debt Conversion Agreements. Provided business and capital strategy, such as restructuring of companies, due diligence, and SEC filings. Proven expertise in M&A and equity debt finance, with a track record of handling diverse clients. Provided strategic guidance on corporate governance, compliance, fiduciary duties, and ethical issues
December 12, 2023
Alexis L.
I am an attorney in Michigan. I attended Boston College for my undergraduate degree and Suffolk University Law School for my law degree. I have been practicing law for over 20 years.
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