Some things to be aware of when entering into a commercial lease

Date: Jun 01, 2012
Document Type: Newsletter

Most people who sign a residential lease will easily understand what they’re signing up to, as well as the associated rights and obligations. Commercial leases are no different in that the terms of the lease must easily understood and that all of the essential elements of the agreement must be outlined in the lease. If you’re about to sign a commercial lease, there are fundamental conditions in a commercial leasing agreement that should always be evident in order to ensure that you are protected in the event that an agreement has gone awry.

Letter of intent

In some instances, when entering into a commercial lease, the real estate agent or the lessor (owner) might require that you (the lessee), sign a ‘letter of intent’ which is a display of good faith that you will agree to pay the rent for the first month, and that the lessor promises to hold the premises for you until the execution of the formal documentation.

The interesting aspect of a letter of intent is that all of the essential elements of a formal agreement will usually be evident; such as the terms of the agreement, as well as any special conditions that are attached. It’s probably a good idea that any draft lease should have a letter of intent attached in order to avoid any later misunderstandings when negotiating the terms for the final agreement.

What should be in a commercial lease?

Like all other property interests, commercial leases should contain the following details:

  • the parties to the agreement
  • the property to be leased
  • the date of commencement
  • the length of the agreement
  • how the premises will be used.

Similar to residential leases, a commercial lessee has the right for quiet enjoyment of the property, but must also allow a lessor to enter and inspect the property, carry out repairs, and finally, to re-enter and take possession if necessary.

Although commercial leases are more businesslike in its construction, the reasonable person should still be able to understand the substance of the agreement, as well as the purpose and object of the transaction.

Do I have to repair any damage to a commercial property?

Commercial leases have similar provisions to their residential counterparts, which require the lessee to keep the premises in good condition and to make minor repairs when necessary.

However, if a lessor increases the rent to be paid for the provision of additional services – but fails to provide the promised service – the courts may find that the lessor is in breach of an implied term of the agreement.

This article is meant to be a general guide to the essential elements of a commercial lease and is by no means exhaustive. If you have any queries relating to commercial leases, always seek the appropriate legal help. 

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