When it comes to commercial leases, business owners need to carefully think about what their business will require in a lease before the agreement is signed because there is less protection provided by law for tenants in a commercial lease than in a residential lease. Business owners should prepare a checklist and review the checklist as they review commercial spaces to rent.
The most important item in the checklist is probably rent and how rent in a commercial lease is calculated. In a commercial lease there will at least be a base rent, which is the minimum amount of rent due by the commercial tenant. Often commercial landlords may require additional rent costs on top of the base rent. The base rent plus the additional rent costs is referred to as the "rent basis."
There are generally five types of rent basis used in commercial leases: percentage lease, net lease, double net lease, triple net lease and full serviced lease or gross lease. In a percentage lease, the commercial tenant pays base rent plus a percentage of monthly sales. A percentage lease is common when renting retail space, especially in malls. A net lease requires the tenant to pay base rent and some or all of the taxes, insurance or maintenance. A net lease rent basis is common in many commercial leases. In a double net lease the tenant pays the base rent plus taxes and insurance, and in a triple net lease the tenant is responsible for the base rent plus taxes, insurance and maintenance. Finally, in a fully serviced lease or gross lease, the landlord is responsible for all or most costs but charges the tenant for the costs in the rent.
Business owners should also be aware of the difference in terms between “usable square feet” and “rentable square feet.” Usable square feet refers to the square footage that is exclusively used by the tenant whereas rentable square feet refers to a combination of usable square feet plus a portion of common areas of the building that will be used by the tenant.
Another important checklist item is whether the tenant can sublease or rent the space or a portion of the space to another tenant. Normally, sublessors have the same rights of the commercial tenant that are outlined in the lease. Some landlords may prohibit subleases, though.
These are only a few of the items that should be on a business owner's commercial lease checklist. Other items to consider are:
- Rent increases
- Security deposit
- Length of the lease
- Description of the property
- Use clause
- Exclusivity clause
- Compliance with Americans with Disabilities Act
Contact a knowledgeable business attorney for more information and professional guidance if you are seeking to enter into a commercial lease for your business.