A retail lease is a legal document outlining the terms under which one party agrees to rent property from another party. A lease guarantees the lessee (the renter) use of an asset and guarantees the lessor (the property owner) regular payments from the lessee for a specified number of months or years. Both the lessee and the lessor must uphold the terms of the contract for the lease to remain valid.
A commercial lease is meant to be an Agreement between the owner of a property and the person looking to initiate some sort of Businesses on that land. A retail lease is a kind of commercial lease in premises that are wholly or predominantly used for retail shop businesses. These leases attract additional protections under the law, so it is important to choose what type of lease the business is entering into. Leasing lawyers are specialists in the field of leasing and may be consulted for legal advice when entering a lease. Owning commercial property also means a company has to manage it as well and a business may not be prepared to do that. Newer businesses usually require to pick commercial leasing over property possession as they often do not have the funds flow necessary to buy adequate business space.
A commercial leasing agreement is also called a commercial property, commercial real estate, business, industrial, and office space lease. [1] The individual in ownership of the property to be rented is called the lessor or landlord. [2] The lessee or tenant uses and rents the property owned by the lessor and provides them with monetary compensation. [2]
A commercial property lease is different from a residential lease. Residential leases are for tenants looking for property to rent to live in, while commercial leases are intended to be used for business purposes. [2] Generally, commercial leases have less protections in place for the tenant as compared to residential leases. [2] The government assumes tenants involved in businesses agreements are more knowledgeable and are better able to negotiate a pleasurable agreement for themselves, thus allowing each party more bargaining power. [2] Residential leases in most cases contain more protections for the tenant, as of state law. [3] The landlord and tenant could be represented by sophisticated legal counsel, which is not common in residential leases. [4] Also, commercial leases tend to involve a greater significant amount of money. [4]
Another way commercial leases differ is that they are more negotiable. [4] In residential leases a tenant is given a lease contract with little to no opportunity for negotiating the terms. [4] It's not uncommon for commercial landlords to take this approach too, but most are willing to negotiate terms. [4]
Commercial leases on average are also longer than residential leases, at about ten to twelve years. [4] A lease for office space will typically have a five year term with the potential option to renew or extend the lease. [4]
It is not uncommon for commercial leases to involve a commercial real estate broker, unlike residential agreements. [5] A broker often works for the landlord on commission. [5] This commission amount is based on the agreement they are able to secure with the tenant in regards to terms such as rent and square footage. [5] Given this information it is known that the broker has a duty to the landlord not the tenant. [5] However, the tenant can hire their own independent broker to aid them in their search for commercial property to rent. [5] This addition would affect the split in broker commission fees, as they would then split them amongst a group of four as opposed to two individuals. [5]
There are several advantages and disadvantages to hiring a broker as a landlord. Utilizing a broker can give the landlord access to the broker's network with members of the community, help them to understand complex tax and zoning laws, negotiate with buyers, etc. [5] A disadvantage comes from the fact that real estate brokers are normally paid by commission. [5] This could lead them to favor higher priced property. [5] Though, with compensation of a flat fee as opposed to commission this behavior could be counteracted. [5]
Warranty of Habitability
A landlord of commercial property does not have to ensure that the space is habitable, other than there being heat and hot water in addition to the other codes or laws. [6] In a residential property the space has to be safe, clean, and in decent condition. [6] However, the landlord in a commercial lease doesn't have to maintain the premises or common areas. [6] More of that responsibility is passed onto the tenant, who would likely take the space “as it”. [6]
Commercial agreements can also have rent fees much more expensive than those in residential agreements, because there is not a ceiling on how high they can go. [6] Residential properties are more controlled. [6] This is another reason a tenant may benefit from having legal counsel aid in their negotiations with a landlord. [6]
A prospective tenant or landlord some become familiar with differences such as these to further their understanding of the law before entering into a lease agreement for the first time.
There is no universal, standard commercial property lease. Each business is different as are their owners, so each require different needs. [3] The following are examples of the different types of lease agreements parties will likely find themselves in:
In this type of agreement, the landlord will undertake none of the operational expenses associated with the commercial property. [7] Instead, the tenant assumes the cost of base rent as well as a percentage of the property costs depending on the amount of the property they occupy. [8] Double Net and Triple net are two variations of this agreement type. [8]
In this type of agreement, the tenant pays one lump sum amount to the landlord in exchange for various services. [8] Those services vary but generally include utilities, maintenance, security, and janitorial. [8] It's also common for this lease agreement to be used in office buildings with more than one tenant. [8]
In this type of agreement, the landlord receives a gross payment of rent from the tenant, who is also responsible for paying their own utilities. [8] The other property expenses are to be paid by the landlord. In some cases, however, the tenant is responsible to share in the costs of associated with the property if they go over a certain amount. [8] These are the variations for this gross lease:
This agreement is a variation of the gross lease in which the tenant pays a fixed price for a set period of time. This agreement is often used by small businesses. [8]
This agreement is also a variation of the gross lease. This contract takes into account the rise in the expenses covered by the landlord by increasing the tenant's base rent each period. [8]
In this agreement type, a percentage of the tenant's gross revenue earned in operating their business may be required as payment to the landlord. In addition, a portion of landlords may also require base rent payments each period. [8] What is described to be gross revenue can vary by lease agreement, some items are deducted in this calculation such as sales tax or returned products. [8]
In most cases, the terms of a commercial property lease agreement are negotiable between the tenant and landlord. [8] There are however several factors that effect how much the different terms can be negotiated. [8]
This section of a lease agreement details what remodeling to the property will be covered by the tenant or landlord. [8] This could include improvements such as ceiling tiles or security systems. [8] This section will also detail when each improvement will be made, by whom, and at what cost. [8] These things may be contingent on the duration of the lease and the amount of space the tenant is occupying during their stay. [8]
The amount of time agreed upon for an occupant to use rented property can generally be negotiated. [8] It's common for landlords to argue for longer leases and for tenants for argue for shorter or mid length terms, each offering the tenant and landlord different benefits or disadvantages. [8]
This section is not generally included in a basic business lease agreement, but it may be requested by the tenant. [8] It prevents the landlord from renting out additional property for use by another business operating in the sell of a similar product or service. [8]
This clause details what business operations are allowed or not allowed by the tenant while occupying the rented space. [8] This clause often favors tenants already present on the premises owned by the landlord, as it can aid in eliminating additional competition between existing tenants. [8]
The amount of bargaining power a party has during negotiations for in a commercial lease agreement can vary based on the amount of leverage they hold. [8] This can include “the vacancy rate in the relevant geographic locale, prestige of the rental space, tenant mix, tenant's business and industry, and tenant's economic goodwill”. [8] Reputable or influential tenants can be of benefit to a landlord with several vacant properties to fill, as that tenant may attract others to the area. [8] The same could be said for a valuable location. [8]
Lease contracts may include terminology allowing a landlord the legal right to terminate a tenant's stay if they sell, tear down, or rehabilitate their building. [6] The landlord however is required to give notice to the tenant. [6]
In many spaces permission is required before a tenant can make alterations to the space. [6] This could include something as simple as decorations. [6] Therefore, the choices, preferences and the division of responsibilities should be clearly mentioned in the agreement to avoid any confusion and legal issues. [9]
Permission from the landlord may also be necessary for someone wishing to sublease their space, even from someone looking to takeover the business. [6] A tenant may request special language be added to the agreement preventing the landlord from preventing the reassignment with good reason. [6]
There are various factors a small business owner may consider before deciding to enter into a lease agreement or purchase property for their business. [8] The SBA compiled a list of some of those factors to take into consideration: [8] Operating Requirements, Capital supply and Needs, Financing and Payment Flexibility, Resale Value, Equipment, and Taxes.
Other common clauses of this lease that are added and negotiated may include: Hours of Operation, Repairs, and Defined space to be leased. [8]
This clause is used in commercial leases to lay out the rights between a tenant, landlord, and third party. [10] It consists of three parts: subordination, attornment, and non-disturbance. [10] The circumstances in which this clause comes into play is very common.
This first clause impacts the tenant the most. [10] It moves the interests of the tenant, or leasehold, up to a junior position above a third party. [10] This position comes into play if the landlord decides to use the building as collateral. [10] This may disadvantage the tenant as it gives the landlord the ability to terminate their lease if the building is foreclosed upon. [10]
Given the terms of the subordination section, this non-disturbance clause gives the tenant more protection. [10] It allows them to continue operating in the space as long as they make their payments, subordinate their interests, and agree to recognize a new landlord if the property is sold or foreclosed. [10] If a tenant did not include this clause they could be at risk of loss of business and an influx of new expenses due a change in location if there lease is terminated. [10]
Finally, the attornment clause involves the relationship between the tenant and a new owner. [10] As mentioned before, the tenant must recognize and accept a new landlord. This means that they would assume all the previous landlord's rights and responsibilities listed and agreed upon in the lease agreement with the tenant. [10]
It some instances a commercial lease may not be a good fit for an entrepreneur. In that case they may consider alternatives, so here are some of the most common:
This alternative is common with tech start ups. [11] They offer an array of terms that are generally short not long term options. [11]
These also offer short term options for working space, about two to three years. [11] Spaces such as these are similar to commercial leases in that they are open to a variety of different business types, but several of the facilities within the building are shared. [11]
These offer business owners the opportunity to operate without a commitment to a commercial lease. [11] However, it still requires the necessary licenses, permits, and compliance with regulations [11]
A landlord is the owner of a house, apartment, condominium, land, or real estate which is rented or leased to an individual or business, who is called a tenant. When a juristic person is in this position, the term landlord is used. Other terms include lessor, housing provider, and owner. The term landlady may be used for the female owners. The manager of a pub in the United Kingdom, strictly speaking a licensed victualler, is referred to as the landlord/landlady. In political economy it refers to the owner of natural resources alone from which an economic rent, a form of passive income, is the income received.
A lease is a contractual arrangement calling for the user to pay the owner for the use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial or business equipment are also leased. Basically a lease agreement is a contract between two parties: the lessor and the lessee. The lessor is the legal owner of the asset, while the lessee obtains the right to use the asset in return for regular rental payments. The lessee also agrees to abide by various conditions regarding their use of the property or equipment. For example, a person leasing a car may agree to the condition that the car will only be used for personal use.
A leasehold estate is an ownership of a temporary right to hold land or property in which a lessee or a tenant has rights of real property by some form of title from a lessor or landlord. Although a tenant does hold rights to real property, a leasehold estate is typically considered personal property.
Key money is one of several forms of payment made to a landlord. The term has various meanings in different parts of the world. It sometimes means money paid to an existing tenant who assigns a lease to a new tenant where the rent is below market. It sometimes means a bribe to a landlord. In other parts of the world, it is used synonymously with normal security deposits, which are used to cover nonpayment of rent and excessive damage to a rental unit.
A Lease-Purchase Contract, also known as a lease purchase agreement or rent-to-own agreement, allows consumers to obtain durable goods or rent-to-own real estate without entering into a standard credit contract. It is a shortened name for a lease with option to purchase contract. For real estate, a lease purchase contract combines elements of a traditional rental agreement with an exclusive right of first refusal option for later purchase of the home.
Property management is the operation, control, maintenance, and oversight of real estate and physical property. This can include residential, commercial, and land real estate. Management indicates the need for real estate to be cared for and monitored, with accountability for and attention to its useful life and condition. This is much akin to the role of management in any business.
Assignment is a legal term used in the context of the laws of contract and of property. In both instances, assignment is the process whereby a person, the assignor, transfers rights or benefits to another, the assignee. An assignment may not transfer a duty, burden or detriment without the express agreement of the assignee. The right or benefit being assigned may be a gift or it may be paid for with a contractual consideration such as money.
A rental agreement is a contract of rental, usually written, between the owner of a property and a renter who desires to have temporary possession of the property; it is distinguished from a lease, which is more typically for a fixed term. As a minimum, the agreement identifies the parties, the property, the term of the rental, and the amount of rent for the term. The owner of the property may be referred to as the lessor and the renter as the lessee.
Attornment, in English real property law, is the acknowledgment of a new lord by the tenant on the alienation of land. Under the feudal system, the relations of landlord and tenant were to a certain extent reciprocal. So it was considered unreasonable to the tenant to subject him to a new lord without his own approval, and it thus came about that alienation could not take place without the consent of the tenant. Attornment was also extended to all cases of lessees for life or for years. The necessity for attornment was abolished by the Administration of Justice Act 1705.
Commercial property, also called commercial real estate, investment property or income property, is real estate intended to generate a profit, either from capital gains or rental income. Commercial property includes office buildings, medical centers, hotels, malls, retail stores, multifamily housing buildings, farm land, warehouses, and garages. In many U.S. states, residential property containing more than a certain number of units qualifies as commercial property for borrowing and tax purposes.
A lease option is a type of contract used in both residential and commercial real estate. In a lease-option, a property owner and tenant agree that, at the end of a specified rental period for a given property, the renter has the option of purchasing the property.
A hell or high water clause is a clause in a contract, usually a lease, which provides that the payments must continue irrespective of any difficulties which the paying party may encounter, usually in relation to the operation of the leased asset. The clause usually forms part of a parent company guarantee that is intended to limit the applicability of the doctrines of impossibility or frustration of purpose. The term for the clause comes from a colloquial expression that a task must be accomplished "come hell or high water", that is, regardless of any difficulty.
Leaseback, short for "sale-and-leaseback", is a financial transaction in which one sells an asset and leases it back for the long term; therefore, one continues to be able to use the asset but no longer owns it. The transaction is generally done for fixed assets, notably real estate, as well as for durable and capital goods such as airplanes and trains. The concept can also be applied by national governments to territorial assets; prior to the Falklands War, the government of the United Kingdom proposed a leaseback arrangement whereby the Falklands Islands would be transferred to Argentina, with a 99-year leaseback period, and a similar arrangement, also for 99 years, had been in place prior to the handover of Hong Kong to mainland China. Leaseback arrangements are usually employed because they confer financing, accounting or taxation benefits.
Canadian contract law is composed of two parallel systems: a common law framework outside Québec and a civil law framework within Québec. Outside Québec, Canadian contract law is derived from English contract law, though it has developed distinctly since Canadian Confederation in 1867. While Québecois contract law was originally derived from that which existed in France at the time of Québec's annexation into the British Empire, it was overhauled and codified first in the Civil Code of Lower Canada and later in the current Civil Code of Quebec, which codifies most elements of contract law as part of its provisions on the broader law of obligations. Individual common law provinces have codified certain contractual rules in a Sale of Goods Act, resembling equivalent statutes elsewhere in the Commonwealth. As most aspects of contract law in Canada are the subject of provincial jurisdiction under the Canadian Constitution, contract law may differ even between the country's common law provinces and territories. Conversely; as the law regarding bills of exchange and promissory notes, trade and commerce, maritime law, and banking among other related areas is governed by federal law under Section 91 of the Constitution Act, 1867; aspects of contract law pertaining to these topics are harmonised between Québec and the common law provinces.
In the field of commercial real estate, especially in the United States, a net lease requires the tenant to pay, in addition to rent, some or all of the property expenses that normally would be paid by the property owner. These include expenses such as property taxes, insurance, maintenance, repair, and operations, utilities, and other items. These expenses are often categorized into the "three nets": property taxes, insurance, and maintenance. In US parlance, a lease where all three of these expenses are paid by the tenant is known as a triple net lease, NNN Lease, or triple-N for short and sometimes written NNN.
Landlord–tenant law is the field of law that deals with the rights and duties of landlords and tenants.
In commercial real estate leases in the United States, the landlord, rather than the tenant, is usually responsible for real estate taxes, maintenance, and insurance. In a "net lease", in addition to base rent, the tenant or lessee is responsible for paying some or all of the recoverable expenses related to real-estate ownership. As the rent collected under a net lease is "net" after expenses are passed through to tenants to be paid, the rent tends to be lower than rent charged under a "gross lease".
The South African law of lease is an area of the legal system in South Africa which describes the rules applicable to a contract of lease. This is broadly defined as a synallagmatic contract between two parties, the lessor and the lessee, in terms of which one, the lessor, binds himself to give the other, the lessee, the temporary use and enjoyment of a thing, in whole or in part, or of his services or those of another person; the lessee, meanwhile, binds himself to pay a sum of money as compensation, or rent, for that use and enjoyment. The law of lease is often discussed as a counterpart to the law of sale.
Lessor is a participant of the lease who takes possession of the property and provides it as a leasing subject to the lessee for temporary possession. For example, in leasehold estate, the landlord is the lessor and the tenant is the lessee. The lessor may be the owner of the property or an agent authorized on the owner's behalf. Commercial banks, credit non-bank organizations, leasing companies often act as lessors.
Arnold v Britton[2013] EWCA Civ 902 is an English contract law case on implied terms.