Free commercial lease agreement template

How to fill it in

A commercial lease has more negotiable levers than a home lease, so fill it in deliberately and settle the cost structure before anything else.

• Parties and premises: the landlord, the tenant's legal business entity, the address, and the square footage.
• Term and renewal: the start and end dates, and whether the tenant gets an option to renew and on what notice.
• Permitted use: state exactly what the tenant may do on the premises, broad enough for the business to grow but specific enough to be clear.
• Rent: the base rent, the due date, and any annual increase or escalation.
• Lease type: choose gross, net, triple net, modified gross, or percentage, and set the tenant's proportionate share of operating expenses.
• Deposit, improvements, and guaranty: set the deposit, any build-out allowance, and whether a personal guaranty is required.
• Sign: both parties sign and date, plus any guarantor, and each keeps a copy.

Commercial vs. residential leases

The most important thing to know is that a commercial lease does not come with the protections a residential lease does. Residential tenants are shielded by consumer-protection laws: an implied warranty of habitability that requires the place to be livable, statutory caps and deadlines on security deposits, and strict rules on eviction. Most of that does not apply to commercial tenancies. In most states there is no implied warranty of habitability for commercial space, so a commercial tenant generally takes the premises as-is unless the lease says otherwise, though a minority of states, Texas among them, recognize a limited implied warranty of suitability. Security-deposit statutes generally do not cap a commercial deposit the way they do a residential one, so the amount is negotiated and often larger, and state-specific rules can still apply. The relationship is governed mainly by whatever the two sides negotiate into the contract. Commercial leases also run longer, often three to ten years, and they are expected to be negotiated rather than signed as-is. The upshot is simple but easy to forget: in a commercial lease, the contract is the protection. If a term is not written into the lease in your favor, you generally do not get it, so read every clause and negotiate before you sign.

Lease types: gross, net, and triple net

The lease type decides who pays the building's operating costs, and it changes the real cost of the space far more than the base rent alone. In a gross lease, sometimes called a full-service lease, the tenant pays one rent and the landlord covers the property taxes, insurance, and maintenance out of it; it is simple and predictable, and common for office space. A net lease shifts some of those costs to the tenant on top of base rent. The three steps are a single net lease, where the tenant adds property taxes; a double net lease, adding building insurance; and a triple net lease, written NNN, where the tenant pays property taxes, building insurance, and common area maintenance, known as CAM. A modified gross lease splits the costs in a negotiated middle ground, for example the tenant paying its own utilities and interior upkeep while the landlord keeps the taxes and insurance. A percentage lease, common in retail and malls, has the tenant pay a lower base rent plus a percentage of its gross sales above a set breakpoint. Before you sign, make sure you know which type you are agreeing to, because a low base rent on a triple net lease can cost far more than a higher gross rent once the added charges are counted.

NNN and CAM: the costs tenants miss

The charges that surprise commercial tenants most are the ones hidden in the letters NNN and CAM. In a triple net lease the tenant pays its proportionate share of three costs on top of base rent: property taxes, building insurance, and common area maintenance. CAM covers the upkeep of the shared parts of the property, things like parking lots, lobbies, landscaping, snow removal, and shared utilities, and the tenant's share is usually its square footage as a fraction of the building's. Two things make CAM tricky. First, it is often billed as an estimate during the year and then reconciled against the actual cost, so a tenant can get a true-up bill at year end. Second, CAM and the taxes and insurance can rise over the lease, sometimes sharply, which turns an attractive base rent into a much bigger number. A careful tenant negotiates protections here, such as a cap on annual CAM increases, the right to see the landlord's expense records, and a clear list of what is and is not included. Ask for the last year or two of actual operating costs before you sign, so the total is not a surprise.

Use, escalations, improvements, and renewal

A few other clauses shape how the lease works day to day. The permitted-use clause defines what the tenant may do on the premises; too narrow and the business cannot pivot or expand its offerings, too broad and the landlord may resist, so aim for language that covers the business and its likely growth. Rent escalations set how the base rent rises, commonly a fixed percentage each year or a step schedule, and they compound over a long term, so a small percentage matters. Tenant improvements, or the build-out, are the changes needed to make the space usable; negotiate whether the landlord gives an allowance, who does the work, and what happens to the improvements at the end. Finally, a renewal option gives the tenant the right, but not the obligation, to extend the lease on set terms, which protects a business that has invested in a location and built a customer base there. For retail especially, an option to renew can be worth as much as the rent itself.

The personal guaranty

One clause deserves special attention because it can reach past the business and into the owner's own pocket. Landlords often ask the owner of a small-business tenant, particularly a new LLC or corporation with no track record, to sign a personal guaranty. That makes the individual personally responsible for the lease if the business cannot pay, which undoes much of the liability protection people form an LLC to get. If you sign a full personal guaranty on a five-year lease and the business closes in year two, you can personally owe the remaining rent. It is often negotiable. Two common compromises are a limited guaranty, capped at a set dollar amount or a number of months' rent, and a good-guy guaranty, common in some markets, under which the owner is personally liable only until the tenant properly vacates and hands back the space, not for the full remaining term. Before you sign any guaranty, understand exactly what you are putting on the line and try to limit it.

Common mistakes to avoid

Most commercial-lease regret traces back to a handful of clauses a tenant did not fully weigh.

• Focusing on the base rent and ignoring the NNN and CAM charges that make up the real cost.
• Signing a full, unlimited personal guaranty without trying to cap or limit it.
• Accepting a permitted-use clause too narrow for the business to grow.
• Taking no renewal option, then losing a location the business has invested in.
• Not asking for the last year or two of actual operating costs, or a cap on CAM increases.
• Assuming residential protections apply; in a commercial lease, the contract is the protection, so negotiate before signing.

Signing it

A commercial lease is a binding contract, and both the landlord and the tenant, plus any guarantor, should sign and date it. It does not normally need to be notarized, and an electronic signature is valid under the ESIGN Act and UETA, so you can fill it in and sign online. Because a commercial lease is long, negotiated, and expensive to get wrong, it is the kind of document where having a real estate attorney or broker review the terms, especially the cost structure and any guaranty, before you sign is worth the cost. Keep a signed copy along with any exhibits, such as a floor plan, a build-out schedule, or an insurance certificate.