What Is a Commercial Lease?
When you're running a business, having a physical space is crucial, and that's where a commercial lease comes in. It's an agreement between a landlord and a business when using real estate like an office, shop, or warehouse.
Unlike residential leases, commercial leases generally come with longer terms and higher rents. This is because the properties are used for business activities, which can often demand more stability and customisation.
There are different types of commercial leases you might come across.
The gross lease is where you pay a lump sum, and the landlord covers property expenses like maintenance and taxes. It's simple and often preferred if you don't want to worry about additional costs.
Alternatively, a net lease passes some of these costs onto you, the tenant.
There are one, two, or three net options that you may find, commonly referred to as single, double, or triple net leases.
In a triple net lease, you handle costs for property taxes, insurance, and maintenance on top of the rent.
Consider the commercial lease terms carefully before signing. They should clearly define your rights and responsibilities.
Commonly, leases may include clauses about renovation limits, property use, and who takes care of specific repairs.
Finally, the lease must comply with relevant laws like the Equality Act (2010), which requires businesses to make reasonable adjustments to a building, allowing accessibility for disabled individuals.
This might mean incorporating ramps and accessible restrooms, adding another layer to your responsibilities.
When Is a Commercial Lease Needed?
A commercial lease is essential when you're looking to secure a space for operating your business. It's a legal agreement between you, often referred to as the tenant, and the landlord.
You need a commercial lease when you're setting up a shop, office, warehouse, or any property intended for business use. This lease provides you with the right to use the property for a specified duration as outlined in the terms.
Situations where a commercial lease is needed include:
- Expanding your business: If you're moving to a larger or additional location, a commercial lease formalises this arrangement with the landlord.
- Leasing office space or retail outlets: When this is crucial for maintaining your company's operations.
Most importantly, a commercial lease specifies the rent payments, which you and your landlord agree upon. This ensures both parties understand the financial obligations involved.
If your business requires physical premises to meet clients, store inventory, or manage day-to-day operations, then a commercial lease is necessary.
It helps delineate responsibilities and rights, protecting both you and the landlord.
In some cases, if there's a guarantor, they might be needed to secure the lease, especially if you're a new business or lack a substantial credit history.
This safeguards the landlord's interests, ensuring rent and repair obligations are met.
How to Write a Commercial Lease
Creating a commercial lease agreement involves several key steps to ensure the document is clear and legally binding.
Step 1: Identifying the Parties
Start with listing the full names and contact details of all parties involved. Typically, this includes the landlord, tenant, and any guarantors. This establishes who is legally responsible under the agreement.
Step 2: Describing the Property
Clearly detail the commercial property being leased.
Include specifics such as the full address, size, and any notable features or boundaries. This avoids misunderstandings about the space being rented.
Step 3: Setting the Lease Terms
Define the lease terms, including the start and end date, rental payment schedule, and any renewal options.
Specify upfront costs like deposits or fees to ensure everyone is on the same page.
Step 4: Tailoring the Lease
Customise the lease to fit the specific needs of both parties. Consider clauses for maintenance responsibilities and property usage to prevent potential conflicts.
Step 5: Including Legal Clauses
Incorporate necessary legal clauses, such as a forfeiture clause, which allows the landlord to terminate the lease under certain conditions.
Ensure these are clear and agreed upon by both parties.
Step 6: Signing the Agreement
Once the draft is reviewed and any amendments are made, both parties should sign the agreement. It’s advisable to have a witness present to strengthen the document's legality.
Step 7: Recording and Storing the Lease
Make copies for all involved parties and store them securely. This helps prevent disputes by ensuring everyone has access to the terms they agreed upon.
You can also use a free commercial lease template for the UK to help guide you.
