Key Takeaways

  • Commercial lease contracts are legal agreements granting tenants the right to use property for business purposes in exchange for rent, with terms covering rent, lease duration, permitted use, and responsibilities.
  • These contracts may apply to various property types, including office spaces, retail stores, industrial facilities, medical clinics, and event spaces.
  • Landlords must ensure the property meets zoning and safety requirements for the tenant’s intended business use and may impose rules on exclusive use and alterations.
  • Different lease structures exist—gross, net, modified gross, and percentage leases—each affecting how rent, taxes, insurance, and maintenance costs are shared.
  • Commercial leases often involve negotiable elements like renewal options, rent escalation clauses, common area maintenance (CAM) fees, and tenant improvement allowances.

Commercial lease contracts are used if a business property wants to rent to or from a company or individual. This gives the renter or tenant the authorization to use the property if it's for the purpose of business during the length of the lease. This is in exchange for them paying the business' landlord. Almost every business needs a storefront or office space. Having a commercial lease allows the landlord to be protected in case the business owner becomes liable for their actions.

A lease covers tenant and landlord information, which includes the rent, the length of the lease term, a guarantor, and any important information which is part of the terms of the lease. The longer version of the contract allows for more details and is more inclusive. The short version has no terms or clauses that aren't necessary and is a general lease agreement.

Whenever a commercial property gets rented from a tenant or landlord, a commercial lease agreement should be used. This lease should be used for owners of an industrial space or warehouse that want to lease another building, when leasing commercial space from a landlord, and when owning an office building and wanting to rent out workspace to other people or businesses.

Alternate Names

Commercial lease contracts have other names they're known by. These include: 

  • Industrial lease.  
  • Office space lease.  
  • Commercial property lease.  
  • Commercial real estate lease.   
  • Business lease. 

Common Types of Commercial Lease Structures

When entering into commercial lease contracts, understanding the various lease structures is essential because they dictate how costs are divided between landlord and tenant. The main types include:

  • Gross Lease: Tenant pays a fixed rent amount, and the landlord covers property expenses like taxes, insurance, and maintenance. This structure offers predictable costs for tenants but may come with a higher base rent.
  • Net Lease: Tenant pays base rent plus some or all property expenses. Variants include:
    • Single Net Lease (N Lease): Tenant covers property taxes in addition to rent.
    • Double Net Lease (NN Lease): Tenant pays taxes and insurance.
    • Triple Net Lease (NNN Lease): Tenant pays taxes, insurance, and maintenance costs, making the landlord’s role primarily to collect rent.
  • Modified Gross Lease: A middle ground where the tenant and landlord share operating expenses, often negotiated in detail.
  • Percentage Lease: Common in retail, where the tenant pays a base rent plus a percentage of gross sales.

Selecting the right lease type depends on the nature of the business, budgeting needs, and the level of control each party wants over property expenses.

Are There Various Types of Commercial Properties?

An office space is a type of commercial property that's made up of different offices used by a variety of varying professions and trades in the same building. Single-tenant properties can also be included. An office space can make up legal offices, accounting firms, or other types of trades.

Restaurant and retail space can often be found in malls, strip malls, and shopping centers. It can also cover specialty eateries, chain stores, fast-food restaurants, clothing stores, or physical stores of businesses found online. An industrial space is normally rented out to companies that need storage space, warehouses, companies that need industrial space, manufacturing buildings, or factories. 

Commercial space can also be made up of other properties that are non-residential. Examples of this are medical clinics, hotels, and self-storage facilities. A parking or garage rental agreement is space that's used to park vehicles. A facility event space rental agreement is used to rent out space for an event.

Key Clauses to Review Before Signing

Before finalizing a commercial lease, tenants and landlords should closely review certain clauses to avoid future disputes:

  • Use Clause: Defines permitted activities on the premises and can limit future flexibility if too restrictive.
  • Rent Escalation Clause: Outlines how and when rent will increase, often tied to inflation or operating cost changes.
  • Renewal and Termination Options: Specifies whether the tenant has the right to renew, the notice period required, and conditions for early termination.
  • Common Area Maintenance (CAM) Fees: Details how shared space maintenance costs are calculated and allocated.
  • Alterations and Improvements: Explains who pays for and owns any upgrades or renovations, and whether landlord approval is required.
  • Sublease and Assignment Provisions: States whether the tenant can transfer the lease or sublet the space.

These clauses can have significant financial implications over the life of the lease, making legal review advisable before signing.

What Is a Landlord Responsible for With Commercial Property?

A landlord is in charge of making sure that commercial use is allowed on the property and that this property meets the requirements for commercial use for the activities being conducted. As an example, an individual can't run a restaurant in an office building unless they have met specific building bylaws and codes.

The landlord of the property needs to decide what the tenant will do with the property and allow them to do so. They should find out what kind of business they'll be running, such as finance, real estate, etc. The landlord decides if the tenant has exclusive use, which means they're the only one allowed to run that business in the building. An example is letting a coffee shop run their business in a strip mall.

The terms of a commercial lease may be weekly, monthly, annually, or a longer term that's on an occasional tenancy or fixed renewal. The tenant can decide to pay a fixed rate in addition to their rent, or a percentage of the operating costs and utilities. The landlord decides how to distribute the costs and if the tenant pays the utility companies or the landlord. Some landlords will ask the tenant to pay a portion of the property tax. 

If parking is an option, it can be free, part of the rent, or added on as an extra fee. A tenant may have specific improvements they want done to the property to help them with running the business on a daily basis. The landlord is in charge of approving the changes and often paying for and completing them. Any improvements made are transferred to the tenant once the lease is over.

Negotiation Tips for Commercial Lease Contracts

Commercial lease contracts are often negotiable, and both landlords and tenants can benefit from thoughtful discussions before signing:

  • Compare Market Rates: Research similar properties in the area to ensure the rent is competitive.
  • Negotiate Build-Outs: If the property requires modifications, try to secure landlord-funded tenant improvements or rent concessions during the build-out period.
  • Seek Flexibility: Request options to expand, downsize, or sublease to accommodate changing business needs.
  • Clarify Maintenance Duties: Ensure responsibility for HVAC systems, roofing, and major repairs is clearly defined.
  • Limit Personal Guarantees: Where possible, negotiate to reduce the scope or duration of personal guarantees.
  • Address Parking and Signage: These can be critical for attracting customers, especially in retail settings.

A well-negotiated lease can provide cost savings, operational flexibility, and stronger legal protections.

Frequently Asked Questions

  1. What is the difference between a gross lease and a net lease?
    In a gross lease, the landlord covers most property expenses, while in a net lease, the tenant pays rent plus some or all operating costs such as taxes, insurance, and maintenance.
  2. Can a commercial lease be terminated early?
    Yes, but only if the lease includes an early termination clause or both parties agree. Otherwise, breaking the lease may result in penalties.
  3. What should I look for in a commercial lease agreement?
    Key elements include the lease term, rent amount, escalation clauses, permitted use, maintenance responsibilities, and renewal options.
  4. Are common area maintenance (CAM) fees negotiable?
    Yes, tenants can negotiate how CAM fees are calculated, capped, or shared to avoid unexpected cost increases.
  5. Do I need a lawyer to review a commercial lease?
    While not legally required, having a lawyer review the lease can help identify unfavorable terms and protect your business interests.

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