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Commercial Lease Agreement Template

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Updated on March 16th, 2023

A commercial lease agreement is a legal document between a landlord renting property to a tenant for any non-residential use. This commonly includes retail, multi-family, industrial, office, and mixed-use real estate.

Unlike residential property, a commercial lease is not bound to any limitations or maximum amounts related to security deposits, late fees, or obligated to give rent grace periods.

By State

By Type (3)

Gross Lease – Tenant is obligated to pay the monthly rent amount only, with no requirements to pay other property expenses.

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Modified Gross Lease – The renter is required to pay the standard rent with some obligations to pay property expenses.

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Triple-Net Lease – The tenant is obligated to pay the monthly rent amount with all obligations to pay for the property expenses.

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By Use (3)

Industrial – For warehousing, manufacturing, or other space used to produce and store goods. A portion may include some office space.

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Office – For services only. This may be for any administrative use, such as accountants, attorneys, or insurance companies. Goods are not generally sold in office space.

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Retail – For the selling of goods and products. There may be some office space on the premises, but retail space is primarily for selling items direct to the consumer.

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Contents

Sample

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COMMERCIAL LEASE AGREEMENT

1. THE PARTIES. This Commercial Lease Agreement (the “Agreement”) made on [MM/DD/YYYY] is by and between:

Lessor: [LESSOR NAME] with a mailing address of [LESSOR MAILING ADDRESS] (the “Lessor”) AND

Lessee: [LESSEE NAME] with a mailing address of [LESSEE MAILING ADDRESS] (the “Lessee”).

HEREINAFTER, the Lessor and Lessee (the “Parties”) agree to enter into an Agreement for the leasing of commercial real estate in accordance with the following terms:

2. PREMISES. The Lessee agrees to rent the property located at [FULL PROPERTY ADDRESS] (the “Premises”), together with the right of ingress and egress and the non-exclusive use of common areas.

3. RENTABLE SPACE. The total rentable space of the Premises consists of [#] Square Feet (SF).

4. USE(S). The Lessee shall be allowed to use the Premises for the following: [WRITE WHAT THE TENANT WILL USE THE PROPERTY FOR] the “Permitted Use(s).” Any use by the Lessee that does not correspond to the Permitted Use(s) shall be by prior written consent of the Lessor only.

5. INITIAL TERM. This Agreement shall have an initial period of [#] months beginning on [MM/DD/YYYY] and ending on [MM/DD/YYYY] (the “Initial Term”).

6. MONTHLY RENT. The rent amount shall be $[AMOUNT] paid on the [#] day of every month.

7. SECURITY DEPOSIT. Under the terms of this Agreement, the Lessee shall be required to pay $[AMOUNT] as a security deposit to secure the performance by the Lessee of the provisions and conditions of this Agreement (the “Security Deposit”). Should the Lessee comply with all of the covenants and conditions of this Agreement, the Security Deposit or any balance thereof shall be returned within [#] days of the expiration of the Term.

8. LATE FEE. If any payment or charges due by the Lessee to the Lessor are not made within [#] calendar days, the Lessor shall charge a late fee in the amount of $[AMOUNT] for each occurrence the Rent is late.

9. RENEWAL OPTIONS. The Lessee shall have the option to renew this Agreement by providing at least [#] days’ notice before any ending termination date. The Initial Term and any renewal periods shall be referred to as the “Term.”

10. UPFRONT PAYMENT. Upon the execution of this Agreement, the Lessee shall pay the Lessor the first month’s rent of $[AMOUNT] and the Security Deposit of $[AMOUNT], for a total upfront payment of $[TOTAL AMOUNT].

11. POSSESSION. Possession shall commence on [MM/DD/YYYY] unless otherwise agreed upon.

12. LESSOR INDEMNITY. The Lessee shall indemnify, defend and hold the Lessor harmless from all loss, liability, costs, damages, and expenses that may occur or be claimed with respect to any person or persons, or property on or to the common areas, resulting from any act done or omission by or through the Lessee, its agents, employees, invitees, or any person.

13. EXPENSES. The Agreement will be defined as follows with regard to the distribution of expenses:

☐ – GROSS. It is the intention of the Parties that this Lease is considered a “Gross Lease,” and as such, the Base Rent is the entirety of the monthly rent.

☐ – MODIFIED GROSS. It is the intention of the Parties that this Lease shall be considered a “Modified Gross Lease.” In addition to the Base Rent, the Lessee shall be obligated to pay the following monthly expenses: [LIST EXPENSES].

☐ – TRIPLE-NET (NNN). It is the intention of the Parties that this Lease shall be considered a “Triple Net Lease.” In addition to the Base Rent, the Lessee shall be obligated to pay all the expenses of the property, including real estate taxes, building insurance, and maintenance.

14. LESSOR’S RIGHT OF ENTRY. The Lessor or the Lessor’s agent may enter at reasonable hours to inspect or show the Premises to prospective lenders and purchasers and to do anything the Lessor may be required to do hereunder or which the Lessor may deem necessary for the good of the Premises or any building of which they are apart.

15. NOTICES. Any notice hereunder shall be sufficient if sent by certified mail and addressed to the addresses entered in Section 1. If either party wishes to be mailed to a different address, it may be entered below:

  • Lessee: [LESSEE NOTICE ADDRESS (IF APPLICABLE)]
  • Lessor: [LESSOR NOTICE ADDRESS (IF APPLICABLE)]

16. ASSIGNMENT AND SUBLETTING. The Lessee shall not assign, transfer, or encumber this Agreement in any way, and shall not sublease the Premises or any part thereof or allow any other person to be in possession thereof without the prior written consent of the Lessor.

17. SIGNAGE AND ALTERATIONS. The Lessee shall not place any signs, billboards, or advertisements upon the Premises without the prior written consent of the Lessor.

18. TOXIC OR HAZARDOUS MATERIALS. The Lessee shall not store, use, or dispose of any toxic or hazardous materials in, on, or about the Premises without the prior written consent of the Lessor.

19. CONDITION OF PREMISES. The Lessee acknowledges that it has inspected the Premises and accepts the Premises in its current condition.

20. PERSONAL PROPERTY. The Lessor shall not be liable for any loss or damage to any inventory, goods, fixtures, improvements, or personal property of the Lessee on or about the Premises.

21. APPLICATION OF LAW. The Lessee shall comply with all laws, ordinances, regulations, and other legal requirements affecting the Premises and the use thereof, and the Lessee shall indemnify, defend, and hold the Lessor harmless from expense or damage resulting from failure to do so.

22. FIXTURES. Except for the Lessee’s personal property and trade fixtures, all buildings, repairs, alterations, additions, improvements, installations, and other non-trade fixtures installed or erected on the Premises, whether by or at the expense of the Lessor or the Lessee, shall belong to the Lessor and shall remain on and be surrendered with the Premises at the expiration or termination of this Agreement.

23. DEFAULT. If: (a) the Lessee fails to comply with any term, provision, condition, or covenant of this Agreement; (b) the Lessee deserts or vacates the Premises; (c) any petition is filed by or against the Lessee under any section or chapter of the Federal Bankruptcy Act, as amended, or under any similar law or statute of the United States or any state thereof; (d) the Lessee becomes insolvent or makes a transfer in fraud of creditors; (e) the Lessee makes an assignment for the benefit of creditors; or (f) a receiver is appointed for the Lessee or any of the assets of the Lessee, then in any of such events, the Lessee shall be in default.

24. WAIVER. The rights and remedies of the Lessor under this Agreement, as well as those provided by law, shall be cumulative, and none shall be exclusive of any other rights or remedies.

25. SUBORDINATION. This Agreement shall be subject and subordinate at all times to any existing mortgages and any mortgages hereinafter obtained on the Premises.

26. SUCCESSORS. The provisions, covenants, and conditions of this Agreement shall bind and inure to the benefit of the legal representatives, heirs, successors, and assigns of each of the parties hereto.

27. AUTHORITY. The Lessor and the Lessee further covenant and represent that each has full right, title, power, and authority to make, execute, and deliver this Agreement.

28. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties, and no modification of this Agreement shall be binding upon the parties unless evidenced by an agreement in writing signed by the Lessor and the Lessee after the date hereof. If more than one Lessee is named herein, the provisions of this Agreement shall be applicable to and binding upon such Lessees, jointly and severally.

29. GOVERNING LAW. This Agreement shall be governed by the laws of the State of [STATE].

30. ADDITIONAL TERMS AND CONDITIONS.

[TYPE ANY ADDITIONAL TERMS AND CONDITIONS HERE].

31. SIGNATURES. IN WITNESS WHEREOF, the parties have indicated their acceptance of the terms of this Agreement by their signatures below on the dates indicated.

Lessor’s Signature: ________________________ Date: [MM/DD/YYYY]
Print Name: [LESSOR PRINTED NAME]

Lessee’s Signature: ________________________ Date: [MM/DD/YYYY]
Print Name: [LESSEE PRINTED NAME]

Agent’s Signature: ________________________ Date: [MM/DD/YYYY]
Print Name: [AGENT PRINTED NAME (IF APPLICABLE)]

What is a Commercial Lease?

A commercial lease is a contract used by the owner of a non-residential property to rent their space to a qualified business or individual. Unlike a residential lease, the term is typically longer (3-10+ years), and the tenant may be responsible for some or all property expenses (real estate taxes, insurance, common area maintenance, and so on).

How Do Commercial Leases Work?

A commercial lease binds a tenant and a landlord to a set of rental conditions for a property that may be used for business-related use. In short, the process works by the landlord offering their property for lease, negotiating with a tenant, and signing the commercial lease.

Step 1 – Finding / Leasing Property

A tenant often finds commercial property for rent using websites like Loopnet, Showcase, and CityFeet. Tenants are advised to always use a real estate agent as they will rarely be obligated to pay while receiving representation. The real estate agents for both the landlord and tenant will split the commission as stated in the landlord’s listing agreement.

A commission is calculated based on the total lease amount for the term of the lease. For example, if a tenant signs a lease for $12,000/yr for 5 years and the commission is 5%, the commission owed would be $3,000.

The average real estate commission in a commercial lease listing agreement is between 3% to 8%.* For properties in “neighborhood centers,” the average commission is higher. For properties in “mall centers,” the commissions are lower due to the average lease being longer (remember that commissions are based on the length of the lease term).

  • *Any statement mentioning an “average commission” could be construed as price-fixing according to anti-trust laws (15 U.S. Code § 2 of the Sherman Act).

Step 2 – Tenant Screening

Especially for local tenants, the landlord will want to know the kind of business or individual they are dealing with before negotiating any price in rent. Therefore, tenants should be asked to fill out a Commercial Lease Application and submit their personal information, including Social Security number (SSN) and, if a business entity, their Federal Employer Identification Number (FEIN).

Best Websites to Screen Commercial Tenants

Documents Required by Applicant

Step 3 – Negotiating

After the tenant views the space and shows interest in the property, the negotiating begins. When negotiating the price per square foot ($/SF), the parties should contact nearby properties that have recently been leased to find similar comparables. The best way to find out the “market rent” is to know what other tenants are actually paying in the area.

Step 4 – Agreeing in Principal

Most commercial leases take 1-2 weeks for the attorneys/agents to handle. Therefore, a written arrangement outlining the agreed-upon rent, responsibilities of utilities and services, and any other expenses of the property is established before the official lease agreement. This information can be written in an e-mail or entered into a letter of intent. At this stage of the negotiation, the parties remain unbound to each other.

Step 5 – Writing and Signing the Lease

Notarizing – A lease should be drafted and signed by all parties. For any lease totaling $50,000 or more in rent, it is highly recommended that the commercial lease be notarized. Using a notary verifies the identity of both parties through government-issued identification.

eSignature – For lesser leases, it’s recommended that the parties eSign the commercial lease.

Security Deposit – Unlike residential leasing, there is no maximum limit on the amount that can be demanded as a security deposit; the landlord can charge as much as desired.

Step 6 – Certificate of Occupancy

Most properties that are remodeled or new construction for a tenant must receive a Certificate of Occupancy to ensure the building was constructed within the rules of local codes. This is commonly done by applying to the specific building department in the municipality and scheduling an inspection.

After a successful inspection, the property and tenant will be given a Certificate of Occupancy, which allows the tenant to move in and begin business activities.

How to Get Out of a Commercial Lease

Getting out of a commercial lease legally and with minimal effect on your credit score relies on the landlord’s consent. Any change to a lease requires the consent of both parties. Therefore, the landlord will require some type of termination fee or sublease option so they can be compensated appropriately.

Step 1 – Approach the Landlord

The tenant should approach the landlord and state why they cannot continue with the current lease arrangement. If the landlord recognizes that the tenant can no longer afford the rent, they will most likely be agreeable to terms that allow them to vacate the property.

Step 2 – Negotiate the Termination

There are three (3) common ways the landlord will allow the tenant to terminate a commercial lease.

  1. Good Guy Clause – The landlord releases the tenant from the lease after they have vacated the property. This may also include a penalty such as payment of one (1) or two (2) months’ rent.
  2. Pay Until a New Tenant is Found – The landlord only releases the tenant from the lease after a new tenant signs a lease. The tenant will be obligated to pay rent until a new tenant is found.
  3. Option to Sublease – The landlord does not release the tenant but allows subleasing. This would be an amendment added to the original lease that permits the tenant to market the property and sign a sublease with a new business or individual. The tenant will remain obligated to keep paying rent under the original agreement with the landlord.

Step 3 – Moving Out

After the negotiations are agreed upon, the tenant may now vacate the property. The tenant will be required to leave the property in a similar or like condition as it was presented upon moving in.

In most situations where the tenant leaves early, the security deposit is forfeited to the landlord.

Frequently Asked Questions

What is price per square foot?

Rent in a commercial lease is usually calculated on a price per square foot ($/SF) basis. This is calculated by dividing the annual rent amount by the leasable space’s total square footage.