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Updated August 26, 2022

A commercial lease agreement allows a landlord to lease a space for retail, office, or industrial use. The tenant’s annual rent is based on the price per square foot ($/SF) plus any triple-net (NNN) expenses.

The timeframe (term) for a commercial lease is commonly 3-10 years with options to renew at pre-determined rates.

Supplemental Forms

  • Rental Application – Allows a landlord to verify the income and credit of a business and its owner.
  • Personal Guarantee – Requires the tenant or 3rd party to be personally liable for the obligations under a commercial lease.

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Table of Contents

By Type (12)


Booth (Salon) Rental Agreement – Tenant pays the owner of a business, typically a salon, for the use of a booth or area for cutting/coloring hair, massage, cosmetics, or nails.

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Booth (Massage) Rental Agreement – For a therapist that is seeking to rent a room or share space within a spa.

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Co-Working Space Agreement – For office space that is shared amongst many tenants. Commonly no dedicated space.

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Facility Event Space Rental Agreement – An agreement to rent a setting for an event.

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Garage (Parking) Rental Agreement – Space that is to be used by parking a vehicle.

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Gross Lease Agreement – The tenant pays only a base rent amount and the landlord is responsible for all property expenses.

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Modified-Gross Lease Agreement – The tenant pays a base rent amount and the property expenses are shared between the landlord and tenant.

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Month-to-Month Lease – For commercial tenants renting for 30-day periods.

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Office Lease Agreement – For professional settings deemed non-retail.

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Percentage (%) Rent Lease Agreement – The tenant pays a base rent amount and a percentage (%) of their sales.

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Sublease Agreement – An agreement that allows a current tenant renting commercial property to release the premises to another tenant.

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Triple-Net (NNN) Lease Agreement – Tenant pays an agreed-upon amount to the landlord in addition to all expenses apart of the property including but not limited to taxes, common area maintenance (CAM’s), and real estate taxes levied by the county and/or city/town.

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What is a Commercial Lease ?

A commercial lease is between a landlord and a tenant seeking to rent space for business purposes. The annual rent is calculated as a price per square foot ($/SF) of the usable space with 1/12th due each month.

Unlike residential leases, landlords will sometimes charge the tenant additional expenses such as common area maintenance (CAMs) , real estate taxes , and insurance (depending on the type of commercial lease).

(Video)

Types of Commercial Space  (3)

There are three (3) main categories of commercial property:

1. Industrial Space

Industrial properties are warehouses and factories often located outside of the cities. Prime industrial properties will be close to major transportation routes and will be up to code for manufacturing purposes. The most common types of industrial properties include heavy manufacturing, light assembly, flex warehouse, bulk warehouse, and R&D facilities.

2. Office

Office-related properties include a large subset of buildings used for business operations. They can be in the heart of downtown or on the outskirts of towns and suburbs. These properties have three categories based on their quality of construction and location (Class A, Class B, and Class C).

3. Retail

Retail properties are ideal for most shopping centers, restaurants, and small shops. These properties can make the lease a bit more complicated depending on the size of the building. The bigger the building, such as a shopping mall, the more likely that there will be multiple tenants renting out spaces for themselves. This will often include additional terms to negotiate how space will be blocked off for different tenants or if one business will have exclusive rights to the property.

How to Lease Commercial Space (11 steps)

  1. How Much Space is Available?
  2. Set the Price per Square Foot ($/SF)
  3. Lease Type: Gross or Triple-Net (NNN)
  4. Hire an Agent or Market Yourself
  5. List the Property
  6. Negotiating the Lease
  7. Conduct a Credit Check
  8. Approve or Disapprove the Tenant
  9. Determine the Security Deposit
  10. Write the Lease
  11. Taking Occupancy

Step 1 – How Much Space is Available?

person using measuring tape to measure space

In order to figure out how much is available for use, you will need to measure and calculate the square footage. This can be completed by multiplying the Length and Width of the interior usable space.

Step 2 – Set the Price per Square Foot ($/SF)

landlord calculating price per square foot to determine rent

Select the monthly rent that you would like to charge the new tenant. Unlike residential property, commercial rent is described as a price per square foot ($/SF). When trying to figure the rental amount, it is a good idea to set a price that is close to what others are asking in your area.

Step 3 – Lease Type: Gross or Triple-Net (NNN)

landlord choosing lease type on lease agreement form

When choosing what to charge the tenant a major question they will ask is if the rental amount includes the insurance , real estate taxes , and/or the maintenance of the property. This is very important and should be displayed when marketing the property.

Gross Lease – The tenant only pays the monthly amount written in their lease. The landlord will pay the real estate taxes, insurance, and maintenance on the property.

Triple (NNN) Lease – The tenant pays the monthly amount written in their lease along with the real estate taxes, insurance, and maintenance of the property.

Step 4 – Hire an Agent or Market Yourself

landlord on phone with potential tenant

Now you will need to get the property listed. This lets other businesses and individuals who are looking for property aware of the availability. Therefore you will need to decide if you want to market the property yourself or to pay a real estate agent to market the property on your behalf.

Every real estate agent charges their own rates although it is the industry norm to charge between 4-6% total lease amount. 50% of the fee is paid upon lease execution and the other 50% is paid when the tenant takes occupancy. So if a lease is for 5 years at $1,000 per month the fee to the agent would be $2,500 ($50,000 multiplied by 5% = $2,500).

Popular Commercial Real Estate Companies

Step 5 – List the Property

landlord listing property on loopnet.com

If the property is being handled by an agent then you probably do not have to worry about the property being listed. If you choose to market the property yourself, then you will have to use the power of the internet as your sole source to getting the space occupied.

When adding your property it is best to have nice looking images of the interior and exterior along with any common areas. It is also important to write all the amenities, parking, water/sewer, and any other information that is necessary to the needs of a prospective tenant.

Popular Commercial Listing Websites

Step 6 – Negotiating the Lease

landlord negotiating lease with tenants

When dealing with a prospective tenant it is best to understand their needs and come to an agreement. Therefore, it may be a good idea for you and your agent (if any) to get creative with the tenant in making a deal that works for both parties.

Example – Charge the tenant a percentage (%) rent of their sales rather than a higher monthly amount. Therefore, if the tenant makes money, you benefit as well.

Step 7 – Conduct a Credit Check

landlord using tablet to conduct credit check on potential tenant

Unless you are dealing with an established company chances are that you will be dealing with an entrepreneur or small business. Therefore you will need to conduct a background and credit check to see their financial status.

Whether you’re checking a business or individual the best website to use is Experian .

Perform a Business Credit Check (Experian) – This will show the credit history of the company with details like how fast they pay-back their vendors and annual sales. Cost is $39.95 to $49.95 depending on the selected plan. View a Sample Business Report . The score will be between 0 and 100 with any score above 80 being credit-worthy.

Perform an Individual Credit Check (Experian) – It is best to also conduct a credit check on the owner of the business to view income and if they have any financial liabilities that could be separate from the business. Cost is $14.95  to the prospective tenant. View a Sample Individual Report .

Step 8 – Approve or Disapprove the Tenant

landlord sharing decision with tenant

It is now time for the landlord to make a decision on whether to approve or reject the tenant. If rejected, the tenant should be informed through a Tenant Rejection Letter .

Personal Guaranty – If the tenant’s business is not credible then the landlord should consider having the tenant sign a Personal Guaranty which binds the owner of the Company to the lease. So if the tenant defaults the individual’s assets would be liable, not just the business.

Step 9 – Determine the Security Deposit

landlord and tenant negotiating security deposit

Once the tenant has been approved by the landlord the Security Deposit should be made known to the tenant. In residential real estate, there are bbin电竞官网官方永久 Laws that limit how much a landlord may ask from the tenant. In commercial real estate, there are no limits to how much the landlord would like to charge the tenant.

The landlord will commonly ask between 2-3 months’ rent in case the tenant stops paying the monthly rent or to safeguard against any damage that the tenant may cause during their time on the property.

Step 10 – Write the Lease

tenants signing commercial lease agreement with landlord watching

Use an attorney or draft the lease yourself. Make sure to gather all the information about the property and the tenant and enter into the agreement. Once completed, the document should be signed with the tenant and landlord in the presence of a notary public .

This way, the signatures are proven to be valid and the agreement is much more likely to hold up in court if its legality is ever questioned.

Step 11 – Taking Occupancy

tenants moving into new space

After the security deposit has cleared and the lease has been signed the tenant should take occupancy. This means that the tenant can begin using the space as directed for use in the lease. Both parties will be held accountable for their specified duties until the end of the lease term.

Estoppel Certificate – May be requested by the landlord after lease signing to certify a lease exists between the tenant and landlord.

Required Clauses

Americans with Disability Act ( 42 U.S. Code § 12183 ) – Also known as the ‘ADA’, requires that any commercial tenants which offer “public accommodation” (such as a restaurant, retail store, etc.) or have at least fifteen (15) employees adhere to all handicap access rules. This rule is only grandfathered to properties that have not been built or had renovations since 1992.

Per 42 U.S. Code § 12183 if the Lessee is using the Premises as a public accommodation (e.g. restaurants, shopping centers, office buildings) or there are more than 15 employees the Premises must provide accommodations and access to persons with disabilities that is equal or similar to that available to the general public. Owners, operators, lessors, and lessees of commercial properties are all responsible for ADA compliance. If the Premises is not in compliance with the Americans with Disability Act any modifications or construction will be the responsibility of the Lessor.

Hazard Waste ( 42 U.S. Code § 6901 ) – Forces the tenant to sign in writing that they will adhere to any federal, bbin电竞官网官方永久, or local laws in regards to the disposal of hazardous wastes.

“Shall mean any and all federal, state, or local laws, ordinances, rules, decrees, orders, regulations, or court decisions relating to hazardous substances, hazardous materials, hazardous waste, toxic substances, environmental conditions on, under, or about the Premises, the Building, or the Property, or soil and ground water conditions, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), the Resource Conservation and Recovery Act (RCRA), the Hazardous Materials Transportation Act, any other law or legal requirement concerning hazardous or toxic substances, and any amendments to the foregoing.”

Other Lease Terms

In addition, there may be other areas of the lease, outside of the monthly rent, that the parties may want to negotiate such as:

Option to Renew – Use if the tenant would like to have the option to stay in the property for an extended period, then they may request an ‘Option to Renew’ the lease. This gives them the right to extend the lease for a specified rental price if they want.

Option to Purchase – Use if the tenant would like the option to purchase the property for a specified price during the course of their lease.

First (1st) Right of Refusal – If the property is for sale and goes under contract with a buyer, this allows the tenant the option to purchase the property for the same price. The tenant will usually be given 30 or 60 days to secure financing if they choose to purchase the property.

Sample

COMMERCIAL LEASE AGREEMENT

1. THE PARTIES . This Commercial Lease Agreement (“Agreement”) made on [DATE], by and between:

Landlord : [LANDLORD’S NAME], with a mailing address of [ADDRESS] (“Landlord”) who agrees to lease the Premises to:

Tenant : [TENANT’S NAME], with a mailing address of [ADDRESS] (“Tenant”), who agrees to rent the Premises under the following terms:

Collectively the Landlord and Tenant shall be known as the “Parties.”

2. DESCRIPTION OF LEASED PREMISES . The Landlord agrees to lease to the Tenant the following described space:

Street Address : [ADDRESS]
Square Feet : [#] SF
Type of Space : [ENTER TYPE] (retail, office, industrial, etc.)
Other Description : [DESCRIBE]

Hereinafter known as the “Premises.”

3. USE OF LEASED PREMISES . The Tenant agrees to use the Premises for: (check one)

☐ – All purposes legal under law.

☐ – Only the following purposes: [ENTER PURPOSE]. Any change in the above-mentioned purposes of the Premises shall only be permitted upon the Landlord’s prior written consent.

4. TERM OF LEASE . The term of this Agreement shall be for a period of [TERM] commencing on [START DATE], and expiring at midnight on [END TERM] (“Initial Term”).

5. SECURITY DEPOSIT . The Tenant is: (check one)

☐ – Not Required to Pay a Deposit . There shall be no deposit required for the successful performance of this Agreement by the Tenant (“Security Deposit”).

☐ – Required to Pay a Deposit . The Tenant is required to pay $[AMOUNT] and shall be due and payable in advance of the Term or at the signing of this Agreement (“Security Deposit”). The Security Deposit shall be held in escrow by the Landlord in a separate bank account as security for the successful performance of the terms and conditions of this Agreement. The Security Deposit may not be used to pay the last month’s Rent unless written permission is granted by the Landlord.

6. RENT . The Tenant shall be obligated to pay $[AMOUNT] each month with the first payment due upon the commencement of this Agreement and each monthly installment payable thereafter on the [#] day of each month (“Due Date”) after the Initial Term (“Base Rent”). The Base Rent shall also be applied to any pro-rata period when the Tenant occupies the Premises for less than a one (1) month period.

a.) Percentage Rent . In addition to the Base Rent, Tenant shall be: (check one)

☐ – Not required to make payments related to Tenant’s sales or revenue (“Percentage Rent”).

☐ – Required to pay [#]% of [TYPE OF SALES] (gross sales, net sales, etc.). Such payment shall be made with a receipt and proof of calculation and paid each: (check one)

☐ Monthly
☐ Quarterly
☐ Annually

The Base Rent and the Percentage Rent shall be referred collectively to as the “Rent.”

7. LATE FEE . If Rent has not been paid on the Due Date, there shall be: (check one)

☐ – No Late Fee . The Tenant shall not be liable to pay a penalty for any late payment due under this Agreement.

☐ – A Late Fee . If the Rent is not paid within [#] days of the Due Date, the Landlord will charge a penalty in the following manner: (check one)

☐ – Flat Fee . The late fee shall be equal to $[AMOUNT] and applied each ☐ occurrence ☐ day until the Rent is paid in full.
☐ – Based on Interest . The late fee shall be equal to the Rent Due with interest accumulating at a rate of [#]% per annum and applied each ☐ occurrence ☐ day until the Rent is paid in full.

All late payments made related to Rent shall be first applied to the late fee and all remaining amounts toward the outstanding Rent amounts.

8. EXPENSES . In addition to the Rent, the Parties shall be obligated for the following expenses related to the Premises:

Landlord’s Responsibilities : [LANDLORD’S RESPONSIBILITIES]

Tenant’s Responsibilities : [TENANT’S RESPONSIBILITIES]

Shared Responsibilities : [SHARED RESPONSIBILITIES]

9. OPTION TO RENEW . The Tenant may: (check one)

☐ – Not Renew this Agreement .

☐ – Renew this Agreement . The tenant may have the option to renew this Agreement with a total of [#] renewal period(s) with each term being [#] year(s) [#] month(s), which may be exercised by giving written notice to the Landlord no less than 60 days prior to the expiration of this Agreement or renewal period thereafter (“Renewal Periods”).

Rent for each Renewal Period shall: (check one)

☐ – Not increase.
☐ – Increase as calculated by multiplying the Rent by the annual change in the Consumer Price Index (CPI) published by the Bureau of Labor Statistics by the most recent publication to the option period start date.
☐ – Increase by [#]%
☐ – Increase by $[AMOUNT]

The Initial Term and any renewal periods mentioned shall be collectively referred to as the “Term.”

10. LEASEHOLD IMPROVEMENTS . The Tenant shall be: (check one)

☐ – Allowed to Make Leasehold Improvements . The Tenant shall be allowed to make leasehold improvements without the written consent of the Landlord.

☐ – Not Allowed to Make Leasehold Improvements . The Tenant shall not be allowed to make leasehold improvements without the written consent of the Landlord.

11. GOVERNING LAW . This Agreement shall be governed by the laws of the bbin电竞官网官方永久 of [GOVERNING LAW].

12. NOTICES . Payments and notices shall be addressed to the following:

Landlord

Name: [NAME]
Address: [ADDRESS]
Phone: [PHONE]
E-Mail: [E-MAIL]

Tenant

Name: [NAME]
Address: [ADDRESS]
Phone: [PHONE]
E-Mail: [E-MAIL]

IN WITNESS WHEREOF, the Parties have indicated their acceptance of the terms and conditions of this Agreement by their signatures below on the dates indicated.

Landlord’s Signature : ________________________ Date: ____________
Print Name: ________________________

Tenant’s Signature : ________________________ Date: ____________
Print Name: ________________________