Customize an Illinois commercial lease agreement (above) and read further about required disclosures in Illinois, optional addendums by business type, and what Illinois landlord tenant laws apply to commercial lease agreements.
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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.
One of the best aspects of a commercial lease agreement is the fact that they can be much more robust than standard leases. Commercial lease agreements are specially designed to be between a landlord and a business owner, and these provide a sturdy framework that can be used to ensure that the business owner has a stable place in which to do business. These are considered stronger than conventional leases because, unlike regular leases that have a term that spans one or two years, a commercial lease can easily have a term that covers a decade.
These also allow for the landlord to establish rules for the business so that both parties can be satisfied with the agreement, and the document itself presents an ironclad structure that is backed by the law. In Illinois and in other states, there are typically three commercial lease types that are most common:
- Gross Leases: In most cases, tenants tend to prefer this kind of lease because the tenant is only responsible for the rental value of the property. With this kind of lease, the landlord pays the property insurance, taxes, maintenance costs, and at least some of the utilities.
- Triple Net Leases: With a triple net lease, the landlord has a more favorable arrangement. The tenant is required to not only pay the rental value for the property but the insurance, property tax, and any additional expenses as well.
- Modified Gross Leases: For many, this is a hybrid option that can be very attractive for both parties. With a modified gross lease, both parties determine which building costs each party will be responsible to pay. For example, with a modified gross lease, the tenant may pay the rental value, the insurance, and the maintenance costs, while the landlord will pay the property tax and any additional expenses.
Disclosures Required for an Illinois Commercial Lease
The state of Illinois requires that every landlord ensure that every prospective commercial tenant is made aware of any defects or information that is expected to be disclosed by law. Here are a few to consider:
Lead Paint Disclosure
Based on federal law, all landlords are required to disclose if there is the presence of lead paint on the property, primarily if the property was constructed before 1978.
Radon Gas Disclosure
During a prospective sale, landlords must also disclose whether the property has tested positive for radon gas. They must also provide two pamphlets to renters:
- Radon Testing Guidelines for Real Estate Transactions
- Illinois Disclosure of Information on Radon Hazards
Additional Lease Considerations
There are a few other aspects of the lease that should be covered in the agreement. These include:
- How the Premises are Used: In the contract, it’s important to firmly establish the use of the property. This means that the renter should outline specifically the business that will be transacted in the rental unit. It’s important for the outlined business to be as narrowly-defined as possible so that potentially illegal activities aren’t engaged in during a tenancy.
- Steps Towards Renewing the Lease: Since commercial leases have a longer term than residential leases, it’s a good idea to explicitly define the renewal process for the renter. This can include noting any management companies that are associated with the property and their contact info/address.
- Rules for Eliciting Improvements: With commercial property, it’s fairly common for a renter to want to improve the space so that it better fits their business needs. This can include adding signage, changing fixtures, or even building add-ons. Creating a framework for tenants to use when these improvements are designed is critical.
Writing a Commercial Residential Lease
Writing a commercial lease document will require that many factors are taken into consideration. Here are a few to consider including:
Party and Property Information
To start, the names of all involved parties will need to be included at the top. Unlike a standard lease, the names of both the landlord and the renter, as well as the business name, should be included. If there is a management company for the property, this name should be included. Finally, zoning info and the property address needs to be recorded towards the top as well.
Terms of the Lease
Another aspect of the lease agreement that must be firmly established is the terms of the lease. This is because these rentals tend to last for years, if not decades. For this reason, the date that the rental agreement begins and ends needs to be noted. Additionally, since sometimes businesses fail, a plan of action should be created. Sometimes, landlords permit an owner of a failed company to not pay rent on the property, but this is typically on a case-by-case basis, and policy regarding this should be clearly established in this section.
Utilities and Additional Expenses
Services like heat, internet, phone, and electricity can be in different hands during a commercial lease, so it’s important for the agreement to clearly state which party is responsible for the specific utilities. This can also include insurance for the space.
Maintenance, Repairs, and Improvements
It’s critical to consider who will be eliciting repairs and improvements to the property. While this is typically carried out by the landlord, some leases attribute some repair and maintenance duties to the renter. The terms that the property falls under should be firmly established here.
Parking spaces can be a major luxury for a business that they can extend to their customers. If additional rent is required for the upkeep and maintenance of allocated parking spaces, the agreement should clearly state this.
Signatures and Notary
Finally, a space that is designated for the names of each party will need to be provided. In total, barring any subleases, there should be at least four spaces so that each party can both sign and print their names. After this, a space to date the signatures should also be provided. In Illinois, a notary may be used, but it is not required by law to have the document notarized.