Renting commercial space instead of buying it is the preferred choice for most small businesses. Your business needs should shape your choice of commercial space, and your expected gross monthly income will determine how much rent you can afford to pay. But although the rent is important, it isn’t the only factor to consider when negotiating with a prospective landlord. Lease terms covering items such as the deposit, common area use, insurance, and maintenance can make the difference between a punishing lease and one that you can live with.
Here are some common lease terms and their meaning. Additional articles about commercial leases on landlordtenantlawfirms.com discuss them in more detail.
|
Clause name |
What it’s about |
|
Parties, Lessor and Lessee, or Landlord and Tenant |
The names of the landlord and tenant |
|
Premises |
A description of the space for rent |
|
Rent |
Explains how the rent is calculated |
|
Term |
When the lease begins and ends |
|
Deposit |
The security deposit required by the landlord |
|
Hold Over |
The consequences of not moving out at the end of your lease |
|
Use |
Requirements and restrictions on how you |
|
Utilities |
How utilities are metered and |
|
Taxes |
Describes which taxes tenants will have to pay, and how much |
|
Insurance & Indemnity |
The insurance policies tenants must take out or pay for |
|
Security |
Building security and who pays for it |
|
Parking |
Describes available parking and how it’s paid for |
|
Maintenance |
Covers common area maintenance (CAM) costs tenants have to pay for |
|
Alterations & Repairs |
Explains alterations tenants may make and when they need permission; may delegate some repair duties |
|
Assignment & Subletting |
Describes when and how tenants can turn over space to another tenant |
|
Options |
Describes rights to extend, expand, or contract the amount of space rented or the lease term. May also cover the right to buy the property |
|
Defaults & Remedies |
The consequences if the tenant or the landlord fails to live up to the lease |
|
Destruction |
What happens if all or part of the building is destroyed |
|
Condemnation |
Describes what happens to the lease if a government entity condemns the building |
|
Subordination, Nondisturbance, & Attornment |
Financing clauses describing what happens if the landlord defaults on a mortgage payment or the landlord’s lender forecloses on a loan that’s secured by the building |
|
Estoppel |
Explains the tenant’s duty to provide a signed statement that tenant and landlord are complying with the lease terms |
|
Attorney Fees |
An agreement as to who pays the winner’s fees and costs if a disagreement ends in litigation |
|
Guaranty |
The name of someone who will guarantee the tenant’s financial responsibilities under the lease. The guarantor must also sign the lease |
|
Dispute Resolution |
The chosen mechanism for settling disputes, by using mediation or arbitration, before or in place of filing a lawsuit |