Real Estate

Real Estate Lease: What You Should Know

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Being informed about commercial lease agreements could keep you from receiving a surprise bill from your landlord for an expense reconciliation or adjustment. Commercial lease agreements are not standard and can be as unique as the tenants and landlords who negotiate them. Whether you are a tenant or a landlord, it is important to be aware of the different lease options that can be negotiated so that you can come to an agreement that is beneficial for both parties. Being unfamiliar with the different commercial lease Understand Commercial Real Estate Lease possibilities available could prevent a landlord from using all the available tools to make a deal work with a tenant. In many cases, landlords have more experience with commercial leases and a better understanding of these leases than tenants do, which could lead to an unbalanced negotiation to the detriment of the tenant.

Elements of Real Estate Lease Agreements

Possession of the Property

This element of a real estate lease addresses the rights of possession of the tenant. The landlord promises the tenant the possession of the property for their enjoyment and promises that the landlord will not interfere with that possession.

This does not mean that the landlord cannot enter the property, as it is usually part of the lease agreement that the landlord have the right to enter the property for repairs or other activities outlined in the lease.

Names of all tenants

When first signing on new tenants, it’s imperative that the names of every person living at the property be included. This ensures all tenants are responsible for obeying the terms of the lease. If any of the tenants break these terms, you have legal recourse. If you fail to obtain the signature of every adult, that person could break the lease and you couldn’t do anything about it.

If one tenant decides to move out before the lease is up, he or she is still responsible for the rent because of his or her signature on the lease. This means he or she has to continue paying rent or find a sub-leaser. To make sure you are protected, it’s important to know who this sub-leaser is and have him or she sign an agreement, as well.

Renewal Terms

If you give your tenant the ability to renew, it should be stated specifically in the lease. This area might also include statements about the new rental rate for this period. Some property managers place escalation clauses for rent.
It is best if you require the tenant to give you written notice of their intent to renew and that they sign a new lease extension document. If you allow them to continue on a month-to-month basis, be clear in this area about the new rules for vacating the property when in this monthly status.

How the Tenant Can Use the Property

There are many types of leases, residential, office, retail, etc. All of these types may have reason to specify restrictions on the use of the property by the tenant. A residential lease might forbid use for any business purpose. An office lease might state that the property can only be used as a “real estate” office. A retail lease might specify what types of product that could be sold in the space.

In the absence of restrictions on use, the tenant can normally utilize the property for any lawful purpose.

The Security Deposit

Most leases have a provision for one or more security deposits against the possibility of non-payment of rent or damages to the property. Most states have stringent rules for how deposits should be handled and for whether interest should be paid to the tenant while the deposit is held. There are many times deadline timelines for refunding of deposits once the lease period is ended, the property is vacated and inspected for damage.

Repairs and Maintenance

As a landlord, maintaining and performing repairs on your property is part of your responsibility. To avoid miscommunication and hassle, it’s best to indicate on the lease the responsibilities of the tenant and the landlord. A tenant should keep the property clean, and any damage he or she causes as a result of abuse or neglect is his or her financial responsibility. The lease should require a tenant to inform you of any unsafe conditions on your property so you may fix them immediately.

Don’t forget to indicate what changes a tenant may or may not make to a property. Your lease may state that a tenant must ask permission before making any alterations.