Understanding commercial property lease agreements
Looking for help understanding your commercial lease agreement? Renting commercial property is a big commitment – and the wording in contracts often doesn’t make things any easier.
Before you sign on the dotted line, it’s important to understand your lease terms, your rights as a tenant, and your landlord’s obligations in detail. A commercial lease is a legally binding contract and offers less government protection than a residential lease, so you’ll want to have a clear picture of what you can and cannot do.
To help you, we’ve put together a guide explaining some of the standard commercial property lease terms. Whether it’s your first time renting commercial property, or you already have some experience, this should give you the clarity you need to move forward.
Elements of a commercial property lease
A commercial lease gives you, the tenant or lessee, the right to use a piece of property for business or commercial activity, for a set period of time. Typically, your lease agreement will include details on the:
- Type of property
- Tenancy term
- Rent payable
- Type of business permitted on the premises
- Security and damage deposit
- Rules for sub-letting
- Provisions for terminating the tenancy
Importantly, it will also outline who’s responsible for making any leasehold improvements and covering the insurance.
Standard commercial property lease terms
Type of property
Legal description of premises
This refers to how the property is identified in real estate legal transactions. It describes what’s being leased and often includes an address, a description of the boundaries and building and a plot or floor plan (though some of these may be included as appendices). It may also include descriptions of items inside the building, known as fixtures and chattels (fittings).
These are pieces of property that are attached to the premise in such a way that moving or removing them would cause damage. Examples of fixtures include sinks, toilets, carpeting and built-in cabinets.
Tenancy term and renewals
This section outlines the length of your commercial lease agreement and can include:
Fixed end date
Security of tenure
Net rent leases
Gross rent lease
As with residential leases, you’ll need to pay a security deposit. It’s usually equal to one month’s rent but can be up to three months’ depending on the property and business type. If during the tenancy, you damage the property or fail to pay rent, the landlord will use this deposit to recover the money. At the end of the lease, you’ll receive the deposit back less any deductions for repairs and restoration.
Schedule of condition
If your commercial lease permits it, sub-letting lets you rent out all or part of the premises to a third party for the remainder of your rental term. The third party then takes on all the necessary responsibilities, though as the original tenant you’re still liable for the monthly rent and condition of the property. Be warned, it is a complicated process, and you’ll need to draft a commercial sublease agreement everyone agrees to. The sublease agreement often follows the same terms as the head lease, though not always.
Assigning a lease
Terminating your lease