Lease Contract

Written by: Avvo Staff

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A lease contract for commercial property is a legal document that outlines the leasing agreement between a tenant and landlord. A lease contract gives specific details on usage and maintenance of the space, terms of the lease, and who is responsible for costs like maintenance and taxes. Since a lease contract requires a significant business expense, it's important for both sides to negotiate a lease contract that serves their best interests.

Types of lease contracts

Typical types of commercial lease contracts include:

Gross lease: The tenant pays rent and the landlord pays the property's taxes, insurance, and maintenance expenses.

Net lease: Transfers some or all of the nonrent expenses to the tenant.

Fixed lease: Provides a fixed rent amount for a fixed time period. A landlord may raise the rent significantly when the lease expires.

Cost-of-living lease: Provides for increases in rent when the cost of living increases.

Step lease: Provides for fixed rent increases at specific intervals.

Percentage lease: Provides for a base rent amount plus a percentage of the renter's gross receipts or sales.

Provisions of lease contracts

Although lease contracts may vary in content, common items include:

Parties: The names of the landlord and tenant (if the business is an LLC or corporation, the business name should be listed to protect against personal liability).

Terms and rate: The length of the lease with specific start and end dates, the rent amount, and when it should be paid.

Premises: What space is included in the lease (e.g., parking, bathrooms, common areas).

Usage: How and when the space can and can't be used.

Maintenance and modifications: Who is responsible for making and paying for work done on the building, and what changes the tenant can make to the space.

Security: Who is responsible, what type is required or available, and whether the landlord has access to the space.

Escalation clause: How the rent can be increased over a specific time period.

Exclusivity clause: Limits a competing business from opening nearby (if the landlord has additional space, like in a mall).

Subletting: Whether the tenant can sublease a space and under what conditions.

Options: Whether the tenant has the option to renew the lease or the option to buy the space at the end of the lease term.

Insurance: Who is responsible for the property's casualty and liability insurance and how much coverage is needed.

Additional considerations about lease contracts

Lease contracts must be offered and accepted to be valid. They must be in writing and signed by both parties. It's a good idea to have a lawyer review a lease contract before signing. A lawyer can review the terms of the lease, explain anything that's unclear, and negotiate any issue that you don't agree with.