At some point in your business operation, you will become a party to a commercial lease agreement. Whether a commercial landlord, or tenant, there are five basic elements of commercial lease agreements that you should be aware of to ensure your agreement meets all the legal criteria necessary. Below we will identify the five essential clauses in your commercial lease agreement and how to make sure the clauses are drafted to meet all your needs.
- Parties clause: this clause should clearly lay out both the landlord and tenant in the agreement. The commercial business at hand should be named according to their registration with the Oregon Secretary of State Corporation Division, as well as any designations as a corporation, LLC, LLP, etc. If the corporation or LLC is the tenant, is there a personal guaranty? If so, make sure the personal guaranty is clearly identified and signed correctly.
- Premises clause: this clause lists the street address or unit of the relevant property. Should an entire building be leased, the street address is sufficient; however, if the lease pertains only to a specific office space, condominium, or room, that should be detailed here. You should also describe any other areas of access for the tenant, including, for example, parking lots, common areas, elevators, service elevators, and/or utility closets.
- Rent clause: this clause specifies the amount of rent to be paid and all other circumstances regarding its payment, as well as any utilities or other expenses to be paid. Is the rent Triple Net (“NNN”)? If not, clearly spell out what the landlord and the tenant are responsible for. If the lease is not NNN, are there any fees or maintenance costs for common areas or improvements shall also be included in the rent amount? If so, how will those be calculated?
- Term clause: this clause addresses the beginning and end dates of the lease, as well as any renewal options being granted. If the tenant has a chance to extend the lease’s term, then clearly identified how and when the tenant has to do this.
- Use clause: finally, this clause does exactly what it sounds like—it describes the permitted use of the space by the tenant. It may very well detail the exact kind of business being operated, the products and services offered, and any other permitted or prohibited use of the rental property.
While these key elements in commercial lease agreements do seem rather straightforward, it is important to have legal counsel either review your agreement, or prepare the agreement on your behalf. Experienced legal counsel will have a deeper understanding of any regional issues, as well as any desired or, in the alternative, superfluous clauses, in your agreement so that the document can help you reach all your business goals.