Understanding commercial leases

Whether you are a Pennsylvania entrepreneur starting a new company or an established business owner seeking to expand, you likely will face the necessity of signing a commercial lease. As you know, few businesses operate out of premises they own, and instead  lease property out of which to conduct business.

If you have previously dealt with commercial leases, you know that, unlike a typical residential lease, a commercial one affords you the opportunity to negotiate many of its terms with the property owner. But while you have more freedom to negotiate a commercial lease, you also have fewer protections than you do once you sign a residential lease. The reason for this is that when you negotiate and sign a commercial lease, the law presumes that both you and the property owner have fairly equal amounts of business savvy or will hire attorneys who do.

Common negotiable commercial lease terms

While you and the property owner can negotiate any lease terms that either of you wishes, common negotiable lease terms include the following:

• The rent you will pay
• The security deposit you will pay
• The term of time during which the lease will run
• How you and the property owner will handle rent increases
• Which of you is responsible for which property improvements during the lease term
• The size, type and placement of any business signage you want

Common commercial lease types

Generally speaking, commercial leases come in one of the following five types: 

1. Net leases, often called single net leases
2. Double net leases, often called net-net leases
3. Triple net leases
4. Gross leases
5. Modified net leases, often called modified gross leases

Owners of multi-tenant buildings generally want to negotiate a gross lease or a modified gross lease. Why? Because such leases usually provide for a landlord/tenant split in cost regarding building repairs and maintenance. Often they also split the building’s operating expenses such as taxes and insurance.

Whichever type of commercial lease you and the property owner agree upon, you need to make sure that you fully understand its terms and your obligations under it before you sign it.