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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.
This type of rental agreement is something that business owners will take advantage of when they are looking for a storefront that they can use. It will allow the tenant to have a longer lease term than a residential option; in fact, some commercial leases in the state of Hawaii can even last for more than a decade. There are a number of different types of commercial leases that can be used, which include:
- A Triple Net Lease: This is the type of commercial lease that is designed to help the landlord because it requires the tenant to pay the rent as well as all of the additional expenses that will need to be paid each month. This can include the taxes on the property, the insurance on the space, and the electric and the other expenses for the area that is shared if any common space exists.
- A Gross Lease: This is the type of agreement that caters to the tenant. They will be required to pay the rent that is due each month, but all of the other expenses like the taxes and the insurance on the building will be taken out of the rent that is paid to the landlord to cover the bills. With this type of commercial rent, some landlords will try to get more rent monthly to help cover the price of these expenses.
- A Modified Gross Lease: This is a type of commercial lease that is designed to create a middle ground for the tenant and the landlord. All of the expenses of the property will be negotiated, and each party will have the responsibility to pay some of the expenses. As a result, the tenant may be required to pay the rent and the insurance for the property, while the landlord takes care of the taxes and the expenses for the common space.
Guarantees, Disclosures, and Additional Concerns
It is critical that this agreement covers all of the disclaimers and disclosures for the state. Some of the things that will need to be discussed in the state of Hawaii include:
Use of the Premises
When a commercial lease is written, the first thing that will need to be discussed is the use of the premises. This is often written out in detail so that the landlord is not liable for the tenant selling items that they are not allowed to sell because of the zoning laws in the state. Tenants will most likely keep a broad category in this section to allow for a more versatile business, but a landlord will want to keep the category narrow so that they cannot be held responsible for going outside of the zoning regulation allowances.
Lead-Based Paint Disclaimer
If the building was built before the year 1978, there is a possibility that lead-based paint was used. If this is the case with the property being rented, the tenant will need to know because it can be a hazard to the customers visiting the location.
If there are specific changes that need to be made to the property before the tenant can open the doors to do business, then the landlord will often offer a build-out period where the tenant can use their own money to make the changes during a certain period of time without paying rent. If they need more time than is permitted by this agreement, they may need to start paying the landlord rent before they are ready to open the doors, but all of the specifics should be listed in this section.
Writing a Commercial Lease Agreement in Hawaii
When writing a commercial lease, the sections that will need to be included in the document will include:
The first thing that should be noted on any commercial rental agreement is the names of the parties that are agreeing to do business together. The landlord’s name and the management company should be listed as well as a phone number where they can be reached. The renter and the name of the business should also be listed with a phone number to reach the tenant as well.
Terms of the Lease
In this section, the amount of rent that is due to be paid each month will be written down as well as the total annual rent that is due for each year. Most of these leases are designed to last for at least five to 10 years, so since there is such a variation on the terms of a commercial lease, it should be clearly written in this section so that there is no reason for a dispute down the road. In addition, if there is anything that the tenant needs to do to renew the terms of the agreement, they should be listed here as well.
So that the landlord does not disrupt the business hours of the tenant’s business after they open up, it’s essential that they list the hours that the store will be open for customers to visit. If there are specific hours that will be best for the landlord to reach the tenant, they should be listed in this section as well.
Utilities and Additional Expenses
Even if the expenses are spit for the building, the tenant is going to be responsible for paying the bills that their business is using. This could include gas, electric, water, phone, and even the internet. If there is not a lot of space for the employees to park, the landlord may reserve some spaces for the business to use, but there will most likely be a fee each month that the tenant will be required to pay.
Once the terms of the commercial lease agreement have been written down and discussed, both of the parties involved will need to sign and date the bottom of the document to acknowledge that they fully understand and agree to the terms that were outlined in the document.