Commercial lease agreement

What a commercial lease agreement is

A commercial lease agreement is a contract between a landlord and a business tenant for the rental of property used for business purposes, rather than as a home. It covers the rent, the length of the term, and the responsibilities of each side, and it tends to be far more detailed than a residential lease because businesses have specific needs and the amounts involved are larger.

Commercial leases are also more negotiable. Many of the consumer protections that apply to home rentals do not apply the same way to business tenants, so the written terms carry more weight. That makes it important to read the lease closely and negotiate the points that matter before signing, because you will generally be held to what you agreed.

This is general information, not legal or tax advice. Rules vary by state and province, and the right choice depends on your facts. For anything important, check with a qualified professional.

The main types of commercial lease

Commercial leases differ mainly in who pays the property expenses on top of base rent, such as property taxes, insurance, and maintenance. The common structures are:

• Gross lease. The tenant pays a single rent and the landlord covers most property expenses. Simple and predictable for the tenant.
• Net lease. The tenant pays base rent plus some property expenses. Variations pass along one, two, or three categories of cost.
• Triple net lease, or NNN. The tenant pays base rent plus property taxes, insurance, and maintenance. Common for standalone retail and single tenant buildings.
• Modified gross lease. A middle ground where costs are split between landlord and tenant in a negotiated way.
• Percentage lease. Common in retail, where the tenant pays base rent plus a percentage of sales above a set level.

The lease type has a big effect on your true cost, so look past the base rent to see which expenses you are actually responsible for.

Key terms to check before you sign

• Rent and increases. The base rent, when it is due, and how and when it goes up over the term.
• Additional costs. Which property expenses you pay, especially under a net or triple net lease.
• Term and renewal. The length of the lease and any option to renew, plus the notice required.
• Permitted use. What you are allowed to do in the space, which should match your business.
• Improvements and fit-out. Who pays for build-out, and what happens to improvements at the end.
• Maintenance and repairs. Who is responsible for the structure, systems, and common areas.
• Assignment and subletting. Whether you can transfer or sublet the space if your business changes.
• Security deposit and guarantees. The deposit and any personal guarantee the landlord requires.
• Exit terms. What happens if you need to leave early, and any early termination rights.

How commercial and residential leases differ

A commercial lease is not just a longer home rental. The main differences are that commercial leases are longer, often several years, and heavily negotiated, that the tenant frequently takes on property expenses like taxes and maintenance, and that consumer protections that apply to renting a home usually do not apply to a business tenant. Landlords also often ask business owners for a personal guarantee, meaning the owner is personally responsible if the business cannot pay. Because of all this, reading and negotiating the lease matters more, and professional or legal advice is common before signing.

How to review a commercial lease step by step

1. Confirm the space and use. Check the square footage, the exact premises, and that the permitted use fits your business.
2. Total the real rent. Add base rent and every additional cost you will pay under the lease type.
3. Check the term and options. Note the length, renewal options, and notice periods.
4. Clarify repairs and improvements. Confirm who maintains what and who pays for build-out.
5. Look at flexibility. Review assignment, subletting, and early exit terms in case your needs change.
6. Review guarantees and deposits. Understand any personal guarantee and the deposit terms.
7. Negotiate, then sign. Raise the points that matter, get changes in writing, then sign and keep a copy.

Rules vary by location

Commercial leasing is governed by contract and by local property law, and the details vary by state and province. Some places have specific rules on deposits, notice, or how certain clauses are read, while much is left to what the parties negotiate. Zoning and permitted-use rules from the local government also affect what you can do in the space, regardless of the lease. Because a commercial lease is a significant, long term commitment, confirm the rules where the property is and consider having a lawyer review the lease before you sign.

Watch for CAM charges and other extras

Beyond base rent, commercial leases often add operating costs that can surprise a tenant who did not read closely. Common area maintenance, or CAM, charges cover the upkeep of shared spaces like lobbies, parking lots, and landscaping in a multi tenant property, and they are usually billed on top of rent. Leases may also pass along property taxes, building insurance, and utilities, and some include annual increases tied to an index. Ask how these extra costs are calculated, whether there is a cap on how much they can rise, and whether you can review the landlord's figures. Knowing the fully loaded cost, not just the base rent, is the only way to compare two spaces fairly.

How to negotiate a commercial lease

Because commercial leases are negotiable, the terms you accept are often the terms you asked about. Areas worth negotiating include the base rent and the size of any increases, a rent free or reduced period at the start while you fit out the space, who pays for build-out and improvements, the length of the term and any renewal options, and a cap on CAM or other pass through costs. You can also negotiate an exclusivity clause in a retail center so a direct competitor cannot move in next door, and flexibility to assign or sublease if your business changes. Landlords expect some back and forth, so it is normal to propose changes rather than sign the first draft.

Questions to ask before you sign

• What is my total monthly cost, including extras? Add every pass through charge to the base rent.
• Who handles repairs and building systems? Confirm responsibility for the roof, HVAC, and structure.
• Can I renew, and on what terms? Look for renewal options and how the future rent is set.
• Can I leave or transfer if my needs change? Check early exit, assignment, and subletting rights.
• Is a personal guarantee required? Understand what you are risking personally before signing.

Fill out and sign a commercial lease online

Whether you are a landlord preparing a lease or a tenant completing one, you can handle it on your computer. Open our fill a PDF tool, add a commercial lease template, type in the premises, rent, term, and responsibilities, and download the finished document. It is processed in your browser, so the details stay on your own device.

When it is ready to execute, the sign a PDF tool lets each party draw, type, or upload a signature and place it on the page. For related documents like a letter of intent, browse the form templates library.

Keep your lease documents together

A commercial lease comes with exhibits, amendments, and renewal notices over a multi-year term. Create a free account on fillable.ca to save your filled lease and related documents, update them as terms change, and keep everything in one place.