A watertight commercial lease agreement is a must-have document for property and business owners alike. Being a legally binding agreement, a commercial lease needs to be accurately drafted within the California commercial rental property laws. In addition, it must be updated on a regular basis to ensure that landlord-tenant disputes are kept to a minimum.
Understanding the components of a commercial lease agreement is critical to the smooth relations between the tenant and the landlord. Here are some of the provisions that should be included in a commercial lease agreement.
The parties to the contract
Every contract must clearly outline the parties to it. While signing the agreement, it is important that you do so on behalf of your business rather than as an individual. It is not unusual for a commercial lease to require a personal guarantee. If you are the business owner, it is important that you find out the limitations of the personal guarantee such as time or dollar limitations.
Contract terms
While most residential lease contracts are valid for 12 months, commercial lease contracts can last for as long as 10 years or even more. Before signing a commercial lease contract, it is important that you consider both the initial term as well as the renewal rights. A lease contract might automatically grant renewal rights to the tenant while others may require both parties’ mutual consent before renewal. While considering terms, it is also important that you understand what will happen to the rental payments upon renewal.
Rent payment terms
Besides negotiating the rent amount it is important that both parties review other expenses related to the property in question and clearly state who will pay for them. Common expenses in commercial property may include maintenance fees, utilities, taxes, and insurance. Since these expenses are usually passed on to the tenants, it is important to understand how they are calculated and divided among the existing tenants.
A lease contract outlines the duties and responsibilities of both parties and minimizes disputes. Before signing a commercial lease contract, it is important that you understand the provisions you are getting into.