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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.
When entering into a commercial lease agreement, both the lessor and the lessee will have a relationship that’s slightly different than they would have under a traditional residential lease. For example, unlike a residential lease, the term of a commercial lease tends to span into the years, if not decades. Additionally, when working with a commercial lease, there’s room for upgrades and improvements on the property, which can make the agreement very beneficial for the business owner.
Still, for a commercial lease to be valuable to both parties, the terms that it covers must be absolutely ironclad, which means that the lease agreement will need to cover a wide array of situations and have all of the appropriate disclosures for the property. Remember, the primary reason for one of these leases is to provide a stable place for a business owner to do business, so in order to be as protective of each party’s interest as it can be, certain factors need to be covered. Here’s a listing of a few types of commercial leases:
- The Gross Lease: With a gross lease, the landlord is considered responsible for many of the costs involved with a property. For example, with one of these leases, the landlord will pay for the property insurance, taxes, and maintenance costs, while the business owner will be responsible for rent and at least some of the utilities in the unit. With one of these, the rent may be slightly higher to help upset the costs of the property.
- The Triple-Net Lease: Triple-net leases, on the other hand, sees the renter paying many of the costs on the property. For example, for a business owner renting a gas station property, he or she will not only need to pay the cost for the rental, but will also need to pay property insurance, taxes, and maintenance fees as well as the other costs associated with the business.
- The Modified Gross Lease: This type of lease is a great middle ground for the lessee and the lessor. With a modified gross lease, the two parties agree on which operating costs are paid by which party.
Disclosures Required for an Idaho Commercial Lease
In the state of Idaho, there are no required disclosures for property owners with the exception of one federally-imposed one:
Lead Paint Disclosure
Based on federal law, building owners must disclose the presence of lead paint, especially if their building predates the year 1978. Before this year, the detrimental effects of lead paint on children and pregnant women were relatively unknown, and as a result, it’s still fairly easy to find properties that have this paint in Idaho today. Since this paint is a health risk for the aforementioned individuals, it’s required that any property owner disclose its presence to renters so that steps can be taken to ensure that there’s minimal exposure.
Additional Lease Considerations
For the sake of clarity and preventing liability, any commercial lease needs to ensure that certain aspects of the business agreement are covered. These include:
- Storage: Every agreement should explicitly state that no items should be stored on the premises that can be considered explosive, flammable, or inherently dangerous. This can include illegal drugs, harmful chemicals, or even explosive devices. It should also be clearly stated that the selling of these or any illegal items on the premises is also prohibited.
- Rules on Subleasing: For some properties, like gas stations, a business owner may sublease some space for another business that might enhance his or her bottom line. If this is acceptable on the property, it’s critical that rules are established so that there are no issues with the lessee. For example, a section stating that the landlord’s consent is required is relatively standard.
- Improvements to the Property: For a business to keep up with its competitors, it’s common for occasional upgrades to happen over the course of a lease. Typical enhancements can include upgraded signage, replaced fixtures, and building add-ons. This section of the lease is critical because it needs to outline what’s acceptable in this regard and what is not.
Writing a Commercial Residential Lease
Writing a commercial lease document will require that many factors are taken into consideration. Here are a few to include:
Party and Property Information
As with most legal documents, the involved parties must be explicitly stated in order for the document to be legally binding. This type of lease slightly differs because not only should the lessor and the lessee be included, but the name of the business and any management companies should be somewhere on the commercial lease as well. It’s also a good idea to include zoning info and the address of the property, including county and suite numbers.
Terms of the Lease
Since commercial rentals tend to have longer terms, the precise start date should be noted somewhere on the document. This makes it clear when the lease renewal happens, and it also can establish the procedure for renewing a lease when the time comes. In situations where a business fails, some landlords allow renters to exit the lease or not pay payments. If the landlord is willing to make this concession, it needs to be stated here as well.
Sometimes, the tenant is expected to pay for water, sewer, electricity, gas, telephone, or other services on a property. In those situations where the utility isn’t separately metered for a business, most landlords are required to pay the amount and invoice the tenant for their share of the utility. Additionally, if the landlord is picking up some services and not others, which utility is covered should be explicitly stated.
In many parts of Idaho, parking is at a premium, and having dedicated parking spaces for lessees and their customers is a significant luxury. If there is an additional monthly charge for assigned parking spaces, then the lease needs to make this clear.
Signatures and Notary
As with most legal documents, there needs to be a place on the lease where all the involved parties can sign. In total, there should be at least four spaces so that all parties can both sign and print their names in the required areas. One of the lines should also have a dedicated “date” section as well. While notarization isn’t required, it’s relatively easy to get a document like this notarized based on Idaho’s recent Uniform Law on Notarial Acts.