How to Create a Commercial Lease Agreement in Arizona and The Responsibilities of a Commercial Property Landlord
Planning to lease property for commercial use? You’ll need a commercial lease agreement or a commercial real estate lease agreement. But, before you sign the document, you must understand how to use the document, your roles, and obligations as stipulated in the agreement, and the responsibilities of the landlord with regards to the commercial property?
What is a commercial lease agreement?
It refers to a legally binding contract that binds a landlord (lessor) and the tenant (lessee). It shows that the landlord has given the tenant the right to use the commercial space to run the business named in the document for a specific duration, and for a specific amount of money paid by the tenant as the leasing fee. It only takes effect after the parties (lessor and lessee) sign it in the presence of a notary public. The notary acknowledges the agreement. Signing the lease is important because most businesses start paying the rent after they receive sufficient income from sales. The document’s role is to protect the landlord from potential financial losses.
Reasons for the agreement
To the landlord
It prevents the loss of a potential opportunity cost resulting from unpaid rent or late payment
You’ll find a good/ reliable tenant
It means that payment of utility bills for a space lies with the tenant
You hardly have to pay an expensive lawyer to seek remedy in the event of defaulters, unlawful use of the space, or the removal of any unpermitted liens on your property
The contract will also eliminate mental anguish
To the Tenant
The contract ensures that the landlord meets their obligations
It prevents mental anguish associated with evictions without notices, unfair competition, or signage and advertisement issues
With the contract, a tenant doesn’t have to deal with property damage that results from poor security, poor janitorial services, or the landlord’s failure to repair
No loss of money, for example, if the landlord fails to return the security deposit.
Getting it right and Making it Work in Arizona’s Commercial Real Estate Scene
If you are setting up shop for the first time in this state, you should know that the statutory laws govern several areas of the commercial property lease agreement from taxes to zoning and maintenance among others.
What are the essentials of a complete lease contract?
Like all other contracts, a contract that gives a tenant the right to use leased property for business must name the parties to the agreement. The parties are the lessor and the lessee (landlord and tenant). It also carries the street addresses of the parties, as well as the date that the agreement comes to life.
Next is a description of the leased property: the physical address and the physical description of the space such as the size. Once you’ve described the space, you have to highlight what the premise will be used for. Specificity is crucial when it comes to the use of the premises. So, avoid blurred lines to avoid legal issues in the future.
You also need to give the details of the term of the lease. The term outlines the number of months or years that the tenant will lease the property. Again, this should be specific hence the need for the date the lease comes to life and the termination date for the contract. The term should be in words then in numbers. If there’s an option to renew, input the details under the Option to Renew section. Renewal options are optional, and the landlord doesn’t have to make the contract terms renewable.
Then comes the Rent and Expenses section. While the other sections discussed above are important, this is a deal breaker for most tenants. This section outlines the base rent for the premises, as well as the details of the person who shoulders the premise’s operating costs. The responsibility over the operating costs and whether or not the tenant pays for them is important. Leases outline who shoulders this burden using the type of leases chosen.
This brings us to the types of leases: gross, modified gross and the net lease (Triple Net Lease). Under the gross lease, the agreed rental rate is inclusive of rental expenses like the property taxes, although the landlord might reserve rights to pass down some expenses to the tenant in future. The triple net lease (common option), on the other hand, is exclusive of operating expenses meaning that in addition to base rent, the tenant has to pay for property taxes, the property’s insurance, and CAM (Common area maintenance costs). You also have the modified gross lease which is a hybrid of the net lease and the gross lease – the operating expenses are shared between the landlord and the tenant.
Having determined your best type of lease, you have to input the amount of the security deposit required by the landlord and then read the terms under default and possession.
A commercial lease agreement in Arizona also has sections for miscellaneous terms, notices, and the Binding Effect. The latter is crucial because it is where you both sign the contract. Note that you have to sign the document in the presence of the notary public.
Duties of the landlord
Note that unless it’s expressly stated in the agreement, the landlord has no implied duty assure you of the suitability and fitness of the premise in the Arizona commercial lease agreement. You should, therefore assess the state of the property and its value before signing the lease. There are, however, specific things you can expect from the landlord. They include:
Delivering the possession of the premise: after signing the agreement, the landlord is legally required to transfer the possession of the premise to the named tenant at the time agreed upon in the lease contract.
Tenant’s right to quiet enjoyment: Arizona laws make it the duty of a commercial property landlord to offer tenants a quiet working environment. This duty does not, however, extend to the acts of other tenants.
Repairs: unless indicated in the lease, the landlord has no obligation to repair the commercial property. The only time the landlord takes care of repairs is when cover up defects at the time of signing the lease.
Acting in good faith: the parties to the agreement are required to act in good faith at all times and to engage in fair dealings to benefit from the lease. In this case, fair dealings include rent adjustments, lease negotiations, evictions, and assignments and subleasing.
What happens if the tenant breaches the terms of the contract?
The landlord has the permission to seize the tenant’s personal property if the tenant fails to or refuses to pay their outstanding rent. However, exempted property cannot be seized.
So, are you looking for a lease contract in Phoenix, Tucson, Mesa, Scottsdale, Sedona, Flagstaff, Yuma or any other city in Arizona? Get started with our easily downloadable and free commercial lease agreement forms today.