The Louisiana commercial lease agreement is a written contract that allows a business owner (tenant) to rent office spaces, retail stores, or other commercial properties. Only business or commercial entities can use this type of lease. This document describes the terms and conditions associated with renting a commercial property.
It 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.
A commercial lease in Louisiana is a very important document for a business owner. The terms and conditions need to be carefully considered because moving an operating business from one location to another can be impactful on the success of the business. Also, landlords need to carefully check the backgrounds of potential tenants.
Sometimes moving to a better location will improve the business operations, if it brings more customers. In this case, the business owner will need to plan the move carefully. The timing of the move should be scheduled to occur at or near the lease termination date to avoid having to pay a significant amount to terminate a commercial lease early.
The opposite may happen as well. A successful business, operating in a great location, may be forced to move when the lease expires. Otherwise, the business may face an overwhelming rent increase that reduces the profits substantially. In such a circumstance, the business owner may feel like a hostage to the landlord’s demand for higher rent. Business owners prefer to avoid having to put up a sign that says Lost Our Lease – Everything Must Go. Negotiate renewal terms upfront to mitigate this risk.
For a business, the matter of entering a lease is significantly different than what many individuals experience when signing a fixed-term residential lease. Still, one of these leases is very advantageous as they provide a place of stability for nascent or well-established businesses. One of the key differences between a residential and commercial lease is that commercial leases tend to have much longer terms, and as a result, both the lessee and the lessor will want to ensure that their best interests are well-represented in the commercial lease document. In fact, it’s entirely possible that a business lease will have a 10-year term, and over this period, there can be upgrades and significant changes that should be incorporated into the form of the lease.
As a result of the uniqueness of the fixed-term commercial lease, these leases will need to be shored up against any potential vulnerability. This will ensure that the lease will be more stable across the entire term. For this reason, there are multiple types of leases for commercial businesses and their landlords, which make it easier for both parties to identify a structure that can be beneficial for both parties. Here are a few to consider:
- The Percentage Lease: This kind of lease is typically utilized by retail properties. In a percentage lease, the tenant pays a relatively low rent, but the landlord will also receive a percentage of the profits. As a result, this can feel like a very safe style of commercial lease for new business owners.
- The Triple-Net Lease: With a triple-net lease, the renter pays a sizeable portion of the running costs of the property. Effectively, the tenant will not only pay the rent and utilities, but he or she will also be responsible for payments like the property taxes, common area maintenance, and insurance as well. As a result, the business owner will feel much more in control, and the actual landlord will be able to enjoy a hands-off style of management while still making profit.
- The Gross Lease: With a gross lease, the tenant pays only the rent on the property. This means that the landlord will handle the running costs like the insurance and property taxes. As a result, this may increase the rent value.
- The Modified Gross Lease: For those that don’t want to settle into a triple-net or gross lease, the modified gross lease works as a good hybrid option. With this lease, it’s decided which party will pay which cost at the beginning of the rental period.
Louisiana Commercial Landlord/Tenant Laws
A commercial lease is something that typically has a longer lease period that a residential lease. In fact, many commercial leases have a term of 10 years or more.
A percentage lease is when a tenant pays rent on the property, but they have a lower rate. This lower rate is offset for the owner when the tenant is making money at the business, they will need to give the landlord a percentage of what they make.
With any type of commercial lease, the landlord will need to provide the tenant with a lead-based paint disclosure if the building was constructed before 1978. This can be a hazard to babies, pregnant mothers, and elderly individuals, so it is important for the tenant to know if this threat exists in the property where they are planning to do business.
How the utilities are paid, and the expenses that the tenant will need to be aware of will need to be covered in the rental agreement. This will include things like water, trash removal, sewage, phone, and internet. Some landlords may agree to pay some of the utilities, especially if the building has units that use the same meter.
When the tenant and the landlord sign the document, it is a good idea to have a notary stamp the agreement as well.
Commercial Leases from the Tenant’s Point of View
Work with a competent attorney when preparing a commercial lease agreement. It is usually easier for a tenant to negotiate favorable terms during the initial agreement. Consider including a stated dollar amount as a penalty for early termination of a lease to allow a reasonable way out of the agreement. Alternatively, negotiate the inclusion of a sublease provision that allows a tenant to sublease the rental property to another party for the remaining lease term. Perhaps, have a renewal provision that limits the amount of rent increases to a percentage of the monthly lease payment amount, when the lease is renewed.
Commercial Leases from the Landlord’s Point of View
Have a competent attorney review the commercial lease agreement. If a sublease provision is included, insist on the landlord’s approval, not to be unreasonably withheld, of any sublease applicant. Having an agreement that includes stated rental increases for a lease renewal is not necessarily a negative thing. This may help make a tenant into a stable, long-term renter. It also makes predicting future cash flows easier while reducing the chance of having an extended vacancy.
Landlord’s Legally-Required Disclosures
There are a few legally-required disclosures under Louisiana law regarding lead hazards, material facts, and regulations.
Lead Paint Disclosure
Lead paint is a material that has come out of favor, but in decades past, it was a typical paint used in many households and properties. This paint is dangerous for small children and pregnant women, so it isn’t used in modern buildings. If the property was built before 1978, there’s a chance that this material was used. If the building predates this date, then the landlord is required by federal law to disclose the presence of lead-based paints on the property and may be required to provide the tenant with a copy of the EPA’s pamphlet on lead-based paints.
Writing a Commercial Residential Lease
For those looking to enter into a commercial lease, it’s imperative that the lease contain all of the sections that will provide a working framework for the business arrangement. In this section, how to write a commercial lease will be explained.
Party and Property Information
Before getting into the main body of the commercial lease, it’s important to identify the parties and the property that will be affected by the lease rules. For this reason, the first step should be to name both the lessee and the lessor so that it’s understood who is being represented in the document. Both should at least provide their first and last names, and it usually is better for the document to also include either a middle initial for both parties or their full middle names. If the landlord is being represented by a management company, then the name of the company and its address should be provided.
Secondarily, the property needs to be identified clearly as well. This means that the name of the property and the physical address will need to be provided. Be sure to include unit numbers, building numbers, and side streets if these are needed for identification purposes.
The Terms of the Lease
In addition to the span of time that is covered by the lease, the document should also set rules for the occupancy. For example, does the lease allow for subletting? Some commercial tenants may sublet at least part of their spaces to other businesses to make more profit. Subleasing is permitted in Louisiana as long as it’s allowed in the lease. Also, it’s a good idea to set rules for maintenance and upkeep of the property. Is the tenant allowed to do renovations? What about signage?
The lease needs to be clear about this so that the tenant understands his or her ability to alter the property. Finally, since businesses tend to store materials on the premises, it’s a good idea to establish which materials are allowed to be stored on the property. This will usually ban the storage of dangerous or illegal chemicals and materials.
Utility payments vary from property to property, and in some cases, the landlord will cover some utilities in order to sweeten the deal for the renter. Which utilities are covered should be clearly stated in the agreement. If the landlord is paying the utilities and billing his or her tenants, then the breakdown per tenant should be disclosed as well as how the metering is done on the property.
Signatures and Notary
As a business arrangement, it’s a good idea to notarize the agreement, but this isn’t required in Louisiana. After this is done, both parties will need to sign, print their name, and date the agreement to verify consent.