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What is a Commercial Lease?

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  • Written By: Sheri Cyprus
  • Edited By: Heather Bailey
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  • Last Modified Date: 05 November 2016
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A commercial lease is a rental agreement for office, warehouse or other space to use to run a business. Commercial leasing agreements vary widely in their terms, but the specifics in leases tend to be written to benefit landlords. It may be possible to negotiate leasing terms with commercial landlords, but the success of this may depend on how many other potential business tenants are interested in renting the property.

Net and gross are two main types of leasing options common in a commercial lease. In a gross commercial leasing agreement, the tenant agrees to pay a predetermined rent amount that has the landlord's expenses included. In a net lease, the tenant agrees to pay a set rent plus a part of the landlord's monthly taxes and maintenance expenses. A commercial lease of any type usually requires the tenant to pay the first and last month's rent at the same time. This protects the landlord with a month already paid in case a tenant leaves without giving notice.

For retail space in shopping centers, the leasing rate may be calculated by a price per square foot. Shopping center lease agreements usually contain specific terms about the hours of operation allowed, where deliveries may be conducted and rules about store displays. A commercial lease agreement for a retail tenant in a shopping center may also specify that a certain percentage of the tenant's profit is to be paid to the landlord monthly.

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Owning commercial property is an alternative to leasing it. If a business has the money for a down payment on the property and can expect to make a good return on investment (ROI), then buying rather than leasing commercial space may be a good idea. If that isn't the case, having a commercial lease and using the down payment amount for better business investments may be the preferred choice. Owning commercial property also means a company has to manage it and a business may not be prepared to do that. Newer businesses usually need to choose commercial leasing over property ownership as they often don't have the cash flow required to buy adequate business space.

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