Lease agreements for commercial property typically take longer to compile for several reasons. One of these being that the lease documentation for commercial properties usually contains more terms than those for residential properties. In this article, you’ll find all the terms commonly used in commercial property leases.
What’s the difference between a residential and commercial property lease?
Property leases are binding legal contracts between a landlord and a tenant. The key aspects of commercial property leases that set them apart from residential property leases, is the intended use of the property. In the case of the former, greater responsibilities are placed on tenants in relation to business activities. The lease might even specify what kinds of businesses are eligible to use the property. On the other hand, residential leases are primarily focused on providing rights for daily living over a period of time. This means that commercial property tenants have less legal protections and are subjected to stricter responsibilities.
Commercial property leases also tend to last longer (5+ years) and feature a clause for a minimum rental period which tenants must agree to. Taking this into account, along with the added complexity of commercial leases, it is recommended that you seek professional commercial conveyancing support when negotiating the terms of the lease. Toomey Legal can help make sure your commercial lease is appropriate for your business long term.
Terms in a standard commercial property lease
- Lease period: also written as the Term of the Lease, this establishes the length of time that the lease is in effect. An important piece of information here is the fixed end date, as the terms in the lease agreement cannot be altered before this date.
- Property definition: aspects of the property are outlined, such as its address, features, description, size, age, land boundaries, and anything that lies within the property boundary.
- Rent and other cost responsibilities: the lease will list the base rent as the fixed amount that should be paid on a monthly basis by the tenant. Any additional costs that tenants of the property will be required to pay, such as utilities, will be listed separately.
- Alterations: a section of the lease will be dedicated to the scope of alterations that can be made to the property. Most commercial leases will allow non-structural changes to be made to the property, although this is often not the case for exterior changes or extensions to the building. Regardless, the lease will usually stipulate that the landlord has to give permission for any alterations to be made to the property by tenants.
- Schedule of condition: this term is concerned with assessing any damage of the property, namely whether it existed before the start of the lease period or if it was caused by those using the property for commercial purposes. It’s best that a schedule of conditions is done at the start of a lease period so tenants aren’t made to pay for damages that weren’t their fault.
There are additional terms that might be in a commercial property lease, although this will be up to the landlord’s property solicitors to decide whether or not to include. These lease terms include:
- Percentage lease: in addition to a base rent rate, a percentage of the business’ income will also be paid every month. There will be an opportunity to negotiate the percentage rate and base rate, as every commercial tenant will have different income streams.
- Automatic renewal: this states that, unless specified within a certain period of time, the lease will continue without any input from either party. Those seeking a long term commercial lease can find this helpful, although it’s important to be aware of this term if any significant issues with the property start to arise.
- FRI leases: known as a Full Repairing and Insuring lease, this term places the responsibility of covering repairs, maintenance, and insurance that relate to the property. This has the potential to a tenant incurring many additional costs.
Responsibilities under a commercial lease
Something we often see is individuals purchasing commercial property for the purpose of renting it to a business to use. This is because, as discussed earlier, commercial leases have the potential provide significant financial returns. However, you should also consider the responsibilities bestowed on you as a result of the lease, including:
- Maintenance and repair works.
- Supplying the property with gas and electricity.
- Health and safety checks.
- Complying with regulations.
- Asbestos and other hazardous materials.
Read our comprehensive analysis of a ‘landlord’s responsibilities under a commercial lease’.
Need a commercial property expert?
Toomey Legal provide expert conveyancing services for commercial property in the North East. We are also experienced in residential property leases, as well as the legal process of buying and selling businesses. When you come onboard with us, you’ll have a dedicated commercial property solicitor by your side to review the terms of your lease and advise you accordingly. Take the next step for your business and contact us today.