There can be much involved in the average commercial lease agreement. This includes when you’re handling it yourself or have a property manager. You must ensure you have the most suitable tenants and a watertight lease agreement to protect yourself and them.
With so much involved, it’s only natural to feel overwhelmed and forget important details. If you’re about to lease out your commercial property, here are some of the vital factors your lease agreement should have:
Lease Length
Lease length is one of the most crucial factors when you have commercial property available for rent. What will be convenient for you might not be for the people looking for new commercial premises.
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However, as a general rule, a short lease term provides flexibility, while a long lease term provides stability. If you’re not overly concerned about lease periods as long as you get excellent tenants, inform potential tenants that you’re open to negotiating their lease length.
Rent Structure
Having rent structure information included in your commercial lease agreement can ensure your tenants know what is expected of them. You can choose from three standard rent options: gross lease, net lease, and modified gross or net lease.
A gross lease involves a tenant covering all property operating expenses, including utilities, maintenance, and property taxes. A net lease is typically much lower but has fixed operating costs on top, like insurance, property taxes, and common area maintenance (CAM).
You might also explore modified versions of both. This is when tenants and landlords negotiate the operating expenses and base rent.
Use Restrictions
Not all tenants will be suitable for all commercial buildings. With this in mind, consider including use restrictions in your commercial lease agreement. These use restrictions can clarify the business activities allowed to take place in a building you own. In this part of your lease agreement, you can also detail whether or not there will be or can be other competing businesses in the same building.
Defaulting and Termination Details
The sad reality is that not all tenants turn out to be desirable tenants. You might have problems receiving rent payments on time, or your tenants have breached your lease terms. In these situations, having termination details written into your lease agreement can ensure you have rights.
You can outline the notice period for termination, the process for termination, and the conditions under which you can terminate a lease. You can also include requirements if a tenant wishes to terminate a lease. Sometimes, this can involve including an early termination right clause with penalties and fees attached.
Assignment and Subletting
Some landlords don’t mind if a tenant transfers their lease to someone else. They also don’t always care if a tenant subleases a space. However, that’s not to say all commercial property owners are okay with it. Your tenant won’t know where you stand unless you outline the information in their lease agreement.
Include information about assignment and subletting, noting the steps tenants can take to transfer a lease or sublease or whether that’s not allowed.
Renewal Options
Lease agreements can be short-term or long-term, depending on what you and your tenant negotiate. However, plans can change. As a result, having conditions for renewal can be important. These can include evaluating the existing lease, assessing market conditions, and updating any relevant renewal terms.
There can be much involved in the average commercial property lease. These commercial lease factors above could help you create a thorough lease agreement that protects both you and your future tenants.
