Components of a Commercial Lease Agreement in Delaware
Owners of commercial properties and property managers use the commercial lease agreement to lease out their properties because the document makes the tenant responsible for paying rent or even maintaining the property. Tenants, on the other hand, look for lease agreement forms when getting ready to lease property for commercial use because once signed, the terms of the contract allow them to run their businesses without worry of getting an eviction notice or a sudden increase in rent.
The commercial lease agreement is, therefore, a legally binding contract that gives a tenant the right to possess or lease named commercial space. The contract is often time-specific, and the landlord receives payment in the form of rent for the use of the property. The document is also called a commercial property lease agreement or a business lease agreement.
In most cases, the agreement will have the details of the type of business that is allowed in the leased spaces and other cases; the lease outlines the acceptable business hours once one leases the space. A tenant may negotiate the terms of the lease and only sign the lease once both parties are in agreement. It is, however, highly recommended that the tenant reads all the terms of the agreement before they sign the document especially when the contract has confusing legal jargon.
So, which are the main terms you should know about before you sign the Delaware commercial lease agreement? You don’t want to sign a lease only to realize that the landlord can rent the adjoining space to your competitors, right?
Components of the business lease agreement
Introduction section: the first paragraph of the commercial lease contract should have the date that the lease comes to life. It should also have the full names and the street addresses of the lessor and the lessee.
Item 1 – description of space to be leased. The description includes the size of the property to be leased, as well as the address and any other physical description.
Item 2 – Permitted use of the property. The lessee can only run a business that is allowed in the lease.
Item 3 – Lease term. This is the section with the details of how long the lease will stay active. It should have a start and an end date. Lease terms include:
Fixed end-date lease: with this lease, the date that the tenancy ends is predetermined, and neither party has to issue a notice of termination. The lessor cannot increase the rent charged when the lease is active.
Fixed number of weeks/ months/ years lease: this lease has the specific date that the lease comes to life and the number of years, months or even weeks that the lease will run. Like the lease with a predetermined end date, the lessor cannot increase the rent.
Periodic lease: this is a lease that comes with periodic renewal, and it runs until either party terminates the lease. The lessor can raise the rent or change the lease by issuing a legal written notice as required in the statutes.
Item 4 – Option to Renew. In this section, it should be noted whether or not the tenant will have the right to renew the commercial lease, and when the renewal will take place.
Item 5 – Rent and Expenses. This is one of the more important sections. First, it has the net monthly rent paid – the base rent. In the commercial property leasehold setting, the total rent payable depends on the type of lease selected. These terms are negotiable.
Gross lease: refers to a situation where the figure inputted only covers the base rent. The amount is fixed.
Net Lease: with this lease, a tenant agrees to pay the base rent as well as the cost of operating expenses. The net lease may be single, double or triple. The triple net lease involves payment of base rent plus the cost of property taxes, insurance and CAM (Common area maintenance). The triple net lease is the most common type of lease.
Modified lease: here, the tenant and landlord share the operating expenses for the property.
Percentage lease: in this type of lease, the tenant pays the base rent and a percentage of their gross income.
Item 6 – Security deposit. This is also called the damage deposit. It represents the amount of money that the landlord receives as a guarantee of the tenant’s willingness to fulfill all the obligations named in the lease. This section also outlines what happens to the security deposit at the end of the tenancy.
Item 7 – Leasehold improvements. This section clears the air on what should happen at the end of the tenancy if the lessee modifies the space.
Item 8 – Defaults and Possessions: in the event of late payment, this item outlines the maximum number of days that should elapse before a penalty is awarded. It also outlines how the penalties are calculated.
Item 9 - Miscellaneous terms: this item covers the acceptable terms for signage and advertisement, as well as parking.
Item 10 – Notices: the lessor and the lessee input their contact details here.
Item 24 – Binding effect. The binding effect has the date the lease is signed, so, it must have the signatures of the lessor and the lessee against their printed names.
Finally, the commercial lease agreement in Delaware should be acknowledged by the notary public. The acknowledgment has the state name, county, name of the principal party, the notary’s signature and the notary commission’s expiration date.
Note that the landlord may charge the tenant extra for metering and delivery of utility services if the landlord purchases the utilities from the public then redistributes to the tenants in the commercial unit or if the landlord continuously meters tenants’ use of a utility then redistributes the service and meters the common areas.
If you are looking for a commercial property lease agreement in Newark, Wilmington, Dover, Rehoboth Beach, New Castle, Lewes, Middletown or any other city in Delaware, we’ve got you covered. Get started with our easily downloadable and free commercial lease agreement forms today.