Demystifying Commercial Lease Agreements: What You Need to Know

Demystifying Commercial Lease Agreements: What You Need to Know

In a program to reduce office vacancies in 2023, Montgomery County supported 22 businesses that leased almost 93,000 square feet. The county Economic Development Committee hopes to expand the program.

As the commercial real estate market gains traction, commercial lease agreements are especially important.

Residential leases are usually highly regulated to protect tenants. Commercial leases don't have the same level of regulation. The commercial landlord and tenant need to consider the contract terms carefully.

Learn more about commercial lease agreements and what you can expect in your next contact.

Types of Commercial Lease Agreements

Commercial lease agreements usually fall into one of three main types. Each type has its own rent, fee, and expense structure.

Full-Service Lease

In a full-service or gross lease, the rent covers all operating expenses for the property. The commercial landlord uses the rent to pay expenses like property taxes, utilities, and maintenance.

Gross leases usually have a higher rent than other types of lease agreements. However, tenants benefit from a streamlined billing process. The rent is fixed even if expenses fluctuate throughout the year.

Net Lease

In a net lease, the commercial tenant pays a share of the building's operating expenses in addition to rent. These expenses include:

Different types of net leases divide the expenses differently.

In a single net lease, tenants pay part of the property tax. They pay utilities and other services directly. The landlord pays the building expenses.

In a double net lease, tenants pay some of the property insurance with the property tax. The landlord pays building expenses.

In a triple net lease, tenants pay part of the building insurance, property tax, and building operating expenses.

Modified Gross Lease

In a modified gross lease, tenants pay utilities and some of the operating costs in addition to rent. Negotiating the terms of the operating expenses is easier than in a net lease.

Important Terms to Verify in a Commercial Lease

The rent and building expenses are only part of a commercial lease agreement. Rental contracts for commercial property have other key provisions.

Security Deposit

The contract should specify the amount of the security deposit. It should state under what conditions the commercial landlord can refuse to refund it.

Lease Term

The lease term tells how long the agreement will be in effect. The lease could end on a fixed date or be subject to conditions. Tenants may want to negotiate the option to end the lease early or to extend it.

Permitted Use or Exclusive Use

Tenants may want an exclusive-use contract depending on the commercial property they'll be renting. This prevents a competing business from opening in the same building.

Find the Help You Need for Commercial Real Estate

Commercial lease agreements can be complex. Key provisions include how much the tenant will pay in rent and other expenses. The length of the lease and whether the tenant has exclusive use in the building are also important to understand.

PMI Maryland Solutions has over 20 years of experience in commercial real estate. From the lease agreement to property management, we're ready to help. We're dedicated to providing excellent customer service to property owners and tenants.

Learn more about commercial real estate services from PMI Maryland Solutions and schedule a free consultation today.