Commercial Lease Definition: Everything You Need to Know
A commercial lease definition is a lease that is used for commercial business property. It includes a responsibilities related to the upkeep of the property.3 min read
2. Commercial Leases vs. Residential Leases
3. Commercial Lease Terms
A commercial lease definition is a lease that is used for commercial business property. These leases include a variety of unique terms, including responsibilities related to the upkeep of the property.
Legal Definition of Commercial Leases
Commercial leases are a category of leases that are used for the purposes of business. A variety of topics are covered in the terms of commercial leases, including:
- Security deposits
- Property construction and repairs
Commercial leases can be broken down into four different types:
- Gross leases
- Modified gross leases
- Triple net leases
- Absolute net leases
With a gross lease, the tenant will pay a base rent amount and all other expenses will be covered by the landlord. In particular, the landlord will be required to pay for common area maintenance. Gross leases are very beneficial for tenants as they do not need to cover any of the expenses of operating a piece of commercial property. The difference between a gross lease and a modified gross lease is that with the latter, pass-through costs must be reimbursed to the landlord by the tenant.
In a triple net lease, the tenant will pay the landlord for all the costs that the landlord would cover in a gross lease, including insurance, taxes, and common area maintenance. Lastly, when a tenant signs an absolute net lease, they will need to cover all of the expenses of the property. This includes major property repairs.
Commercial leases are used for a range of property types, including retail and office spaces. When a property tenant is obligated to maintain or schedule construction of a structure, a ground or pad lease would normally be used. Typically, commercial leases will last between five and twenty years.
Commercial Leases vs. Residential Leases
It's important to be aware of the fact that commercial leases and residential leases have major differences, especially in legal terms. First, commercial leases are not subject to as many consumer protection laws as residential leases. For example, the privacy of a tenant is not guaranteed with a commercial lease, and there is also no limit to the amount that can be charged for a security deposit.
Second, there is no standard form that can be used for a commercial lease. While this does make writing these leases a little more time consuming, it also means that the commercial lease can be customized so that the needs of the landlord will be fully met. If you are a tenant, however, this lack of standardization means you should closely review a commercial lease before providing your signature.
Thirdly, commercial leases are considerably harder to break than residential leases. A commercial lease is a type of legal contract, and when these leases are broken, a great deal of money stands to be lost.
Lastly, commercial leases usually involve a longer negotiation period than residential leases. This is because commercial leases often need to include language that covers the individual needs of a business owner, and landlords will mostly be willing to meet these needs, as long as their compliance results in a signed lease.
Commercial Lease Terms
Because commercial leases are legally binding, it's vital that you understand the variety of terms you may see in a lease before signing.
Additional rent is a term that you would commonly find in a commercial lease. This means that the landlord reserves the right to charge the tenant for items that are not related to the rental's square footage or costs. Several costs could be charged as additional rent, including:
- Services provided after hours
- HVAC services
- Fees for common area maintenance
Base rent is another commercial lease term that you need to understand. This term refers to the minimum amount that the tenant must pay to rent the property. The amount of base rent due should be described in the lease.
If you see the term BOMA in a commercial lease, it is referring to a professional association that is focused on office buildings. BOMA provides a variety of information related to office buildings, including facts about leasing, developing a building, and operational costs. BOMA Standards are the standards published by this association for measuring commercial properties.
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