How to create a Commercial Lease / Tenancy Agreement

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What is a Commercial Lease / Tenancy Agreement?

A Commercial Lease / Tenancy Agreement is a contract to rent a premise for business or other commercial purposes. It is not appropriate for residential users.

A Commercial Lease / Tenancy Agreement protects the legal rights of both the landlord and the tenant by clearly stating the terms and conditions of the lease/tenancy, thereby reducing the chances of future disputes between the landlord and the tenant.

A Commercial Lease / Tenancy Agreement is signed on acceptance of an offer letter and payment of a holding deposit.

What should be included in a Commercial Lease / Tenancy Agreement?

A Commercial Lease/Tenancy Agreement is a contract between a business and landlord to rent out the property for a certain duration under pre-specified terms. The important terms to include in a Commercial Lease/Tenancy Agreement are as follows:

Start and end date: The start and end date of a lease duration should be clearly written in the agreement. The lease duration is the duration of the lease between the landlord and the commercial tenant. In this period, the commercial tenant takes advantage of the land or the premises for commercial purposes and is obliged to pay the rent to the landlord.

Property address: property address and the unit should be clearly written in order to avoid any confusion in the future.

Names and signature of both parties: Once both parties have agreed to a commercial lease it is very crucial for both parties to sign the document, as it will act as legal proof in case of any dispute in the future.

Deposit amount and monthly rent: A clear breakdown of monthly rent and deposit amount should be clearly written to avoid confusion.

Permitted use: It shows the limits of the business owner & use of the premises. The business owner is prevented from using the premises for non-agreed activities, for example, if the agreement is to use the premises to open a perfume store, the tenant will be prohibited from engaging in another blacksmithing activity instead of it.

Lease renewal: It is an option that allows you to continue your activity through a contract renewal between the two parties after the end of the first contract period in the event that the business owner continues to use the premises and the contract must stipulate this option.

Termination: this includes the terms and conditions under which the contract can be terminated. Normally if both parties agreed to terminate the contract they can do so without any lengthy legal formalities. Otherwise repeatedly breach of contract from both parties can lead to termination of Commercial Lease/Tenancy Agreement.

What are the common types of Commercial Lease?

A Commercial Lease is primarily categorized into 3 categories. I.e.;

  1. GROSS LEASE: It is also known as a full-service lease. In this type of lease, a tenant has to pay the rent, which includes all other expenses like taxes, insurance, and other operating costs. Generally, these costs will be paid by the landlord on behalf of the tenant.
  2. NET LEASE: Net lease is further divided into 3 categories:
    • Single Net Lease (N): in this type of lease a tenant has to pay the monthly rent plus a part of building property tax.
    • Double Net Lease (NN): In a double net lease, the tenant is responsible for monthly rent plus a part of property taxes and insurance.
    • Triple Net Lease (NNN): this is the most common type of commercial lease where a tenant has to pay monthly rent plus all other operating expenses like taxes, insurance, and maintenance cost. Other operating expenses are not included in the monthly rent and have to be paid separately by the tenant.
  3. PERCENTAGE LEASE: In a percentage lease, the rent is decided on the basis of profit made by the tenant. Normally a tenant has to pay the base rent, which is a minimum cost plus a certain percentage of profits made each month.

Lifetime Lease

This is a type of agreement that is applied while making a property purchase. It guarantees that lesses can live on the property for the duration of their lives. The lessor gets the property back when the lessee passes away. It is usually much more affordable to purchase a property with a lifetime lease. However, it cannot be passed on and the property cannot be left to anyone else.

Additionally, not everyone qualifies for this kind of lease. It is usually only offered to those who are 60 and above and have a significant amount of savings. 

Conclusion

Having a Commercial Lease/Tenancy Agreement in place helps to run the business smoothly because it guarantees the use of an asset (office space) in exchange for certain predefined rent payments. It will also help in minimizing dispute by clearly stating the duties and responsibilities of both businesses and the landlord.

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