Your commercial lease agreement isn’t just a nice-to-have: it’s a legal document that sets out your obligations and what you can expect from your landlord. It’s the blueprint for how your relationship will proceed.
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Lease Agreements — What Are They and Where to Find Them
Lease agreements don’t need to be complicated, although they often are! They get complicated because there are many different things to consider from both the tenant and the landlord perspective — when is rent due? How is it increased? Who’s responsible for maintenance and repairs? What happens when you want to end the lease early? These questions have complex answers.
If you’re looking for a commercial lease agreement form PDF, they’re widely available online, and it’s always best to get them from reputable vendors and providers. But when you’re looking, what areas should you prioritize to get the best deal?
1. Common Area Maintenance (CAM) Charges
Commercial leases usually spread the cost of maintenance and other operating costs between the tenant and the landlord. This is especially true for shopping centers, office buildings, or multi-tenant properties. In theory, these are the tenant’s share of the costs landlords incur for the space. They usually cover:
- Maintenance & Repair
- Common Area Utilities
- Property Management Fees
- Insurance & Property Taxes
- Security
Many leases are “Triple net” (NNN), so you’ll have to cover net property taxes, net insurance for the landlord, and net CAM. When you’re looking for a good commercial lease, you want to prioritize:
- Expense caps: You don’t want your CAM or other charges to increase by too much each year
- Audit rights: These will help you determine whether your landlord is providing accurate expenses
- Fair allocation: You don’t want to pay for expenses that don’t benefit your space
Rent and CAM together determine your real occupancy costs. You need to know how rent will increase, how your CAM charges work, and how both of them can change over the course of your tenancy.
2. Lease & Term Renewal
You should prioritize your business needs when it comes to lease and term renewals. When a lease term is up, it will need to be renewed — and that can mean a full renegotiation of terms. When signing a new lease, you should look for options that offer the right to renewal or the right to first offers of new or larger spaces nearby.
It’s important to think about your short, medium, and long-term goals too — short-term leases can help you scope out a location but may expose you to more rent increases, while long-term leases offer more stability at the cost of flexibility. You won’t want to lose your space too soon, but you also don’t want to be locked in too long if it’s not working out.
Be aware of relocation clauses — some leases allow landlords to move your business to another location. This can be extremely disruptive, so it’s best to avoid it.
3. Building Use & Restrictions
Your lease tells you exactly what you’re allowed to do with your space — so check it explicitly includes your business activities! But beyond that, you can look out for exclusive use clauses, which can be extremely helpful for your business. These have pros and cons, but if you can negotiate one, you can avoid your landlord allowing a similar business to set up shop next door.
4. Maintenance & Repairs
Which things are your responsibility to repair and maintain, and which are your landlord’s, should be laid out in the lease. You need to be sure who bears responsibility before signing.
When costly structural maintenance and repairs — HVAC, plumbing, roofs — are your responsibility, that can lead to very high unexpected costs.
5. Exit Strategies
You won’t want to get stuck in a lease agreement that isn’t working for you. Not only can it be expensive, but it can also harm your business and your opportunities in the long term. Exit strategies include things like being able to transfer your lease if you sell your business.
If you want to end the lease early, some lease agreements may require you to pay the rest of the rent immediately (lease acceleration) or pay penalties. It’s extremely important to understand how you can exit the lease early and what consequences trying to exit may have before you sign the lease.
7. Costs & Liabilities
Some landlords require a personal guarantee from business owners that rent will be paid. In these cases, try to get limits or caps on personal liability. Always check exactly what liability you’re assuming for accidents, damages, or third-party claims.
Final Thoughts
Even a small business will need to understand its lease agreement properly. Business owners should always look for agreements that limit their personal and business risk, liability, and costs, like CAM charges, rent, and insurance.
