A commercial lease is an agreement between a lessor and a lessee to use an office, warehouse, industrial property or a similar facility to run a business. This agreement allows the lessee to have exclusive rights to use the property for a fixed period of time. Entering into a Commercial Lease Agreement is a significant business decision and therefore, proper due diligence should be conducted to analyse the terms and conditions of the agreement and to understand the rights and obligations assigned under the agreement. Since a commercial lease is a legally binding agreement affecting the value of a business, it is always recommended to seek legal advice in drafting and negotiating the lease.

Essentials of a Commercial Lease Contract

A commercial lease, in order to be legally binding, must contain some essential elements of a contract which are outlined below:

Offer: An offer is an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed;

Acceptance: It is the unequivocal statement by the lessee agreeing to the offer;

Intention to create legal relation: A contract does not exist simply because there is an agreement between two parties. The parties to the agreement must intend to enter into a legally binding agreement; and

Consideration: It is the price asked by the lessor in exchange for the promise.

Features of a Commercial Lease

Before signing a commercial lease, it is important to know the rights and responsibilities of each party. The main issues to consider when drawing up a Commercial Lease Contract are:

Details of lessor, lessee and premises – Every Commercial Lease Contract should include:

The name of the lessor and the lessee;

All the details regarding the premises; or

Any other requirements like easement rights, car parking spaces, lifts or stairs, toilets or any facility required depending on the work performed.

Term of the lease: The term of a commercial lease or the time period of a lease allowing occupancy of a commercial property is an important factor for both the lessor and the lessee. This clause must be checked before signing the lease contract.

Lease amount: The most significant part of a Commercial Lease Contract is perhaps the lease amount. The initial lease amount is basically decided after rounds of negotiation between the parties to the lease agreement. Lease amount varies from property to property depending upon their location, size, term of lease and type of business to be carried out in the premises.

Permitted use: The permitted use clause in a Commercial Lease Agreement plays an important part. This clause determines the type of business which is allowed to be carried out in the leased premises as per the agreement.

Trading hours: This clause in the Commercial Lease Agreement specifies the core trading hours. For example, a retail shop in a shopping centre has a specific allowable hours or set core trading hours for trading and this allowable hours should be mentioned specifically in the Commercial Lease Agreement.

Common areas: A Commercial Lease Agreement must specify the common areas available to a lessee for usage on a shared basis. These common areas include:

Stairways, escalators, and elevators;

Malls and walkways;

Common parking areas;

Toilets and restrooms; and

Gardens and fountains.

Maintenance and Repairs: This clause sets out the provisions regarding the maintenance of the premise. All the outgoing costs incurred every month and all the repairs to be done must be pre-decided by the parties before entering into the Commercial Lease Contract.

Renewal: This clause provides an option both to lessor and lessee to renew the term of the lease in the manner provided in the lease and within the time-frame specified.

Sub-letting and assignment: This is an important clause and must be kept in mind before signing the lease contract. For example, if sub-letting a premise is not allowed and the business fails or relocates, then the lessee cannot recover the rent.

Dispute resolution: This provision gives both the parties a chance to resolve any disagreement by way of arbitration between themselves on a number of issues including rent increase, default or sub-letting.

If you are thinking of entering into a Commercial Lease Contract feel free to contact our team of experts at Owen Hodge Lawyers.

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