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Things every commercial lease should have

On Behalf of | Nov 30, 2022 | Commercial Real Estate

Unless your business model relies on having a permanent, fixed location, leasing a commercial space is the best option for companies in California. Most rental agreements are pretty basic and straightforward. They contain a description of the property, terms and duration of the lease, and how the occupant may use it during their tenancy.

However, commercial real estate transactions need to be a little more detailed and specific than residential agreements. This is for the protection of the property owner and the business itself.

For instance, many commercial rental properties house more than one business on the premises. Who is responsible for utilities and how is that cost assessed?

Essential components of a commercial lease

When it comes to drafting a lease agreement, clarity, transparency, and detail are essential.

For example, some business activities are prohibited in a school or residential zone. Your commercial lease should clearly outline what use is permitted, and you should be candid about your intentions before signing a lease.

It’s also important to determine the length of your tenancy and identify any loopholes that could end it abruptly, such as what would happen after a transfer of ownership. Will the lease automatically renew each year or will you need to renegotiate annually? Is there a penalty if you need to break the lease?

If you need to remodel certain areas or make improvements, who is responsible for the cost and any added maintenance expenses? Will you be responsible for additional insurance due to the nature of your business and potential damage to the property as a result? For example, production facilities and restaurants carry with them the potential for chemical spills and fire.

Finding a good business location in California isn’t easy. Knowing the terms of the lease will keep you in compliance and support a long and profitable partnership between commercial property owners and their tenants.