Lease agreements range from simple to complex depending on the type of real estate and the printed forms vary from the standard forms issued by your state’s Real Estate Commission Board to those customized by landlords.
The Essentials of a Commercial Lease Agreement
Before you sign, it is important to understand what is essential to have in your lease agreement for a Raleigh commercial property.
The lease agreement must state the full legal name of the tenant(s) and the landlord.
The full address of the property must be provided. If the property has multiple available locations, as is the case with shopping centers, the specific leased space must be explicitly stated.
Terms of Occupancy
The duration of the lease agreement will be set, as well as the amount to be paid each month by the tenant in the form of rent. Duration and rent amounts will vary between properties and agreements.
Rent escalation may occur on an annual basis during the term of the agreement.
The amount required for the security deposit and the terms of its release holding will be stated.
Maintenance and Repairs
The party responsible for maintenance and repairs will be named.
If the tenant is responsible for upfitting the space before occupancy, the landlord usually allocates the tenant with a dollar amount based on square footage for improvements. This is also referred to as “TI”, tenant improvement money.
Tenants will often be responsible for monthly utilities and repair costs of their space, while landlords are usually responsible for overall maintenance items like the HVAC, roof, and common areas of the property.
Typically, landlords require tenants to purchase a general liability policy and name the landlord as an additional insured to cover any accidents. The lease may specify certain coverages your policy must include.
The type of business is stated, along with the intended use of the leased space. If the property has multiple units, businesses can be turned down if they have a similar business model to another preexisting business in the same location (e.g., a pet store cannot open next to another pet store without creating unduly competition).
If the property has multiple tenants, the responsibilities of the individual tenant in terms of common areas will be noted.
Often, tenants are responsible for the area directly outside their space and are required to pay a maintenance fee based on square footage for common area maintenance, also referred to as “CAM”.
Commencement and Rental Dates
Two separate dates are assigned in the lease agreement. The lease commencement date states when the tenants take possession of the space and can enter the property and upfit the space to their needs. The rental date is when they are required to start paying rent.
On average, tenants have a stated period of time to upfit the property rent free or until they obtain a certificate of occupancy.
Default and Remedy
Consequences are set in the event the tenant does not or is unable to pay the required rental amount for the duration of the lease.
If a tenant is unable to fulfill their requirements, they can sublease their space to another tenant with landlord approval.
It should be noted, however, the responsibility for restitution reverts back to the original tenant in the event the subtenant defaults for any reason.
Items that are not in the body of the lease will be added as attachments. These almost always include clarified site plans and specific space allocations of multi-tenant areas.
Any municipal conformity standards for the property location such as sign placement and size will be added here.
Option for Renewal
As long as the lease agreement has been met, there may be an option to renew the contract for another term.
Finally, the lease agreement must be dated, have all initials and signatures, of both the tenant and landlord in the appropriate locations, and be delivered back to tenant and landlord or their brokers to be legally binding.
Want to Know the Best Way to Negotiate a Lease?
To learn more about what to include in a lease, what to avoid, and the best way to negotiate a lease, contact our greater Raleigh commercial real estate experts at email@example.com.