Your Trusted Commercial Lease Attorney
We help commercial landlords and commercial tenants protect their interests
The Right Lease Terms for a long-term deal
The commercial lease is one of the most important contracts your business will sign. This is true regardless of whether you are a commercial tenant or commercial landlord.
Each lease is significant in terms of cost, impact, and length of time. If you’ve seen or drafted a commercial lease, you know they vary widely. In fact, commercial leases are often tailored to each deal and each space. While some terms are fill-in-the-blank, many provisions change based on business and legal negotiations.
Negotiation the right terms in the commercial lease context is similar to most negotiations. To be successful, you often need to use time, knowledge, and power to your benefit. A Virginia commercial lease attorney can help evaluate and capitalize on your position so that you can obtain your desired objectives.
Commercial Tenants
Obtaining a commercial space is a big deal for any business owner. When it comes to commercial tenant’s, we excel at helping businesses negotiate the right terms. Our goal is often to limit expenses, limit exposure/liability, and ensure the parties are aligned on rights and obligations.
As a commercial tenant, the lease protects your rights to use the space and imposes certain restrictions or duties upon you as the tenant.
Typically, the commercial lease process starts with a template lease agreement prepared by the landlord. Naturally, the terms are often one-side and thats not in favor of the tenant. Negotiating a fair and balanced lease requires a partnership between business and legal. Our commercial lease attorney will work hard to understand what matters to you and tailor redlines to match your objectives and risk tolerance levels.
Commercial Landlords
Commercial landlords rely on tenant leases (and tenant payments!) to protect their financial and legal interests in the property. For landlords, the lease is quite literally the most important contract impacting the business. There are hundreds of business and legal considerations taken into account when drafting an initial lease and when responding to tenant negotiation attempts.
Simply put, there is never a one-sized-fits-all approach to drafting, revising, and responding in the commercial lease context. The first step is to develop a solid template lease agreement. In many cases, tenants will lack the know-how to negotiate terms that have a significant impact on your business. For that reason, a solid foundation is indispensable. However, many prospective tenants will seek to negotiate both business and legal terms.
A commercial lease attorney is a necessary cost of doing business for commercial landlords. As Virginia commercial lease attorneys, Waldrop & Colvin work with clients on an ongoing basis to develop the initial document set, tailor agreements, review and respond to redlines, and provide ongoing legal support.
Why is it important to hire a commercial lease attorney with specialized knowledge?
Simply put, commercial leases come in all shapes and sizes. From the business side, there are various forms of commercial leases, which impact the cost of rent and shift or absorb the obligation to perform certain services or pay for certain items.
The terminology and options can often be confusing to a first-time commercial landlord or commercial tenant. The various types of lease agreements are intended to account for diverse business needs of landlords and tenants. To illustrate our point, we will briefly discuss the various types of commercial lease agreements.
The most frequently encountered commercial leases are:
Gross Lease
A gross lease is a full-service lease where the landlord covers most of the operating expenses of the building in exchange for a fixed rental amount.
net Lease
In a net lease the tenant pays a fixed base rent amount plus some or all of the property’s operating expenses. Net leases come in three forms:
- Single Net Lease (N Lease): Base rent + property tax.
- Double Net Lease (NN Lease): Base rent + property taxes + insurance
- Triple Net Lease (NNN Lease): Base rent + property taxes + insurance + maintenance costs (often referred to as CAM or common area maintenance)
Percentage Lease
In a percentage lease, the tenant pays a dynamic rent amount based on a fixed based rent plus a percentage of gross sales. The percentage may be fixed or variable.
Modified Gross Lease
A modified gross lease is a hybrid approach where the lease contains elements of both a gross and net lease.
Ground Lease
In a ground lease the tenant only leases the land and is responsible for constructing any structures on the property.
How do you choose the right lease type?
The type of commercial lease often depends on the needs and preferences of both the landlord and the tenant, as well as the specific characteristics of the commercial property and the nature of the business being operated by the tenant. It is also important to consider the right term length.
A short-term lease provides flexibility, but it often involves higher rental rates.
A long-term lease provides stability for both parties, but can be increase exposure for a new business. Its best to obtain legal and financial advice before entering into a commercial lease agreement. Commercial landlords typically require a personal guaranty for small business owners, and its important to understand the implications of the business and legal terms.
What Business and legal terms are negotiated in a commercial lease?
The first step in the commercial lease process is to determine the business terms of the transaction.
The parties typically document these key terms by executing a non-binding letter of intent.
The letter of intent will outline the agreement reached in principal between the parties. In many cases, both the tenant and landlord are represented by real estate brokers, and the brokers prepare the letter of intent. In some cases, commercial lease attorneys are involved in these early stages of the commercial lease process and draft the letter of intent.
The letter of intent provides a 10,000 foot overview of the agreement of often contains the make or break terms. Often, this will include information on the rent structure, use of the premises, landlord contributions, duration and cost, and more.
Common business and legal terms negotiated include:
- identification of the space (before and modification after occupancy)
- rent rate, type (for example, a triple net lease) and exclusions
- term length
- renewal rights
- contingencies
- tenant improvement contributions
- improvement schedules
- rent commencement date and rent abatement periods
- maintenance and repair obligations
- permitted use
- exclusive use
- security deposit amounts and schedules
- guaranty requirements
The breadth and scope of negotiations and changes are limited only by the parties imagination and tolerance. Every landlord and tenant has their walk away point, but there are often compromises to be made. This is an area where a commercial lease attorney helps separate the sharks from the minnows by identifying big picture items over the minutia.
