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Read further to learn more about commercial lease agreements in Delaware, such as what disclosures are required and what else should be included.
What is a Commercial Lease Agreement?
A commercial lease agreement is a legally binding contract between a landlord who owns a commercial property and a tenant who wishes to rent the commercial property with the intention to operate a business. The commercial property being rented generally falls into a retail, office or industrial space category.
Commercial Lease Types
There are three general categories of commercial leases that differ in respect to whether the tenant or the landlord pays certain expenses.
Here are the categories of commercial leases and a description of each:
Under a gross lease, the tenant pays only an amount for rent that is inclusive of almost everything else regarding the property and its use.
Each commercial lease agreement may differ in the details; however, under the typical gross lease, the landlord is responsible for paying the utilities, property taxes, and insurance (excluding insurance for the tenant’s personal property). Insurance maintained by the landlord includes general liability insurance plus property and casualty (P&C) insurance that typically has a policy limit of $1,000,000 or more. The tenant is named in the insurance policy as a co-insured party.
Additionally, the landlord is responsible for the maintenance of the exterior of the rented commercial space, the parking lot, landscaping, all major systems such as HVAC, plumbing, electrical, water heaters, and for any other expenses associated with maintaining or operating the property.
Modified Gross Lease
A modified gross lease start with the gross lease format as its basis. Instead of the landlord having the responsibility for paying everything and the tenant only paying rent, under this form of a commercial lease the expenses are allocated between the parties according to the contract terms.
In a modified gross lease contract it is important to be very specific. List the items that are paid by the landlord and the items that are paid by the tenant. If there is any shared responsibility for expense payments, then describe the mathematical calculations that will be made to determine the amounts of a shared responsibility paid by each of the parties. Also, it is helpful to have a provision for the allocation of any unforeseen expenses that may come up in the future while the lease is in effect.
A triple net (NNN) lease is the most common kind. In essence, it is the reverse of a gross lease. A NNN lease puts the responsibility for all the operating expenses of the rental property, property taxes, and insurance, to be paid by the tenant. It is important to list all the expenses and include a clear description of them.
Examples of these expenses include such things as management fees, property taxes, assessments, general liability insurance, and other insurance. Expenses also include making repairs and maintaining major systems such as the HVAC, electricity, water, sewer, and waste disposal systems. It also includes any janitorial costs, landscaping, and lawn care. Include the costs of maintaining the parking lot or structure and building security. Have a general provision that covers expenses that are not specifically listed in the agreement.
Commercial lease agreements in the state of Delaware must follow the laws found in Title 25 of the Delaware Landlord-Tenant Code. Most of the Title 25 laws concern residential properties. Only specific parts of Title 25 apply to commercial properties in Delaware.
The applicable laws under Title 25 for commercial leases include the laws found in Title 25 Chapter 57 about summary possession (eviction proceedings). The procedures for jurisdiction, giving notice, reasons for eviction, damages, and more are the same for both residential and commercial properties in Delaware.
There are some general provisions specifically for commercial leases under Title 25 Chapter 61 that all landlords must follow, which include the following:
- No Surcharges Allowed on Utilities: If a landlord purchases services from a public utility and redistributes them to tenants and meters a tenant’s use of services, the landlord may only charge the tenant the same amount as would be charged by the direct metering of the public utility
- Limit of Liability for Assets Pledged: If a tenant pledges goods, personal property, crops, or other assets as security for paying the rent and fails to pay the rent, the landlord is limited to the maximum amount of damages of one year’s rent, if the assets are attached by judgment or otherwise and then sold to pay the liability.
- Confession of Judgment Prohibited: A “confession of judgment” is legal terminology that means a tenant agrees in advance to accept liability for a certain thing for a certain dollar amount that the landlord can enter as a judgment with the court without needing to have any other legal proceedings. This type of provision is prohibited and not enforceable under Delaware law.
- Taxes Paid by Tenant: If there is no contractual agreement to the contrary, if a tenant pays taxes, which are the landlord’s responsibility, the amount of the taxes paid can be deducted by the tenant from the rent. The taxes can also be recovered from the landlord if the rent amount is not sufficient. The landlord and tenant may contract with each other to override this provision.
Writing a Delaware Commercial Lease Agreement
Here is a checklist of how to create a commercial lease agreement in Delaware.
- Enter the names and the contact information for the parties.
- Enter the address and physical description of the rental property.
- Describe the authorized use of the premises and list any use restrictions.
- Give the lease terms in the number of years or months.
- State the start date and end date of the lease.
- If the lease allows an option to renew, list the renewal terms including any rent increase.
- List the monthly rent amount and the day of the month the rent is due.
- List acceptable payment methods and where the rent should be paid. If checks are accepted as payment for rent, list the amount of the fees charged for a check returned unpaid by the bank.
- List the day that rent payment will be late and the late penalty fees.
- Describe the terms and the conditions of the payment of expenses under the lease and whether it is a gross lease, a modified gross lease or a triple net lease according to the details explained above.
- List the amount of the security deposit and describe the procedures for its refund after lease termination.
- If improvement or alterations are allowed, describe who pays for them and if there is a requirement of returning the property to the original conditions when the lease is terminated.
- Enter any restrictions, imposed by the municipality or otherwise, on exterior signs if they exist.
- Add any special provisions that relate to the specific rental property.
- List the addresses and methods to be used for legal notices given by one party to the other one.
- Have a place for the parties to print their names, date, and sign the agreement.
- Have a place for the agreement to be notarized.
- Give a signed copy of the agreement to all parties.