Comprehensive Guide to a Fair Commercial Lease Agreement in Illinois
A deep understanding of the elements and the terms of a commercial lease agreement determines whether you get to negotiate for fair terms that will boost the growth of your business or cripple the business with high rental and maintenance expenses. Ask if your lease will be renewed automatically and confirm that the landlord will not raise the rent after the end of a 2-year lease. Seeking clarity in these terms, and also the availability of parking, or whether or not you can redesign the space will save you a lot of money in the long run. In this web page, we look at all the matters that pertain to Illinois commercial lease agreements.
What is a Commercial Lease Agreement?
It is a legal contract that binds a landlord and a tenant. The document grants the tenant ownership rights over a named commercial property for a specific duration for an amount of money agreed upon by both parties. The terms of the lease vary with some remaining unchanged for the entire lease term, and others having clauses that allow change of terms or increase in rent after a specific time. The contract is also called a business lease agreement or a commercial real estate lease agreement.
Since your business’ success relies upon how favorable the terms of your lease are, you should pay attention to specific elements that determine which lease you sign and the ones you pass.
Identify Your Business Needs
Before you sign a commercial lease agreement in Illinois, you should look at your business and note down the things you require for your business to run efficiently in the prospective new space. Evaluate your ideal customer or employee pool, determine the desired office space you need, your maximum budget, property type, and its zoning, and accessibility.
The pool of human resources of clients is crucial especially when foot traffic drives the success of your business.
In terms of zoning, you are looking for a commercial property that you can run the type of business you have in mind; some local zoning laws are against setting up of some categories of business in some parts.
Keep your budget in mind and evaluate the affordability of the base rent, the property taxes, insurance, common area maintenance (CAM), future repairs and utility costs.
Evaluate The Types of Leases Available
The type of lease will determine how much you pay monthly, whether you can predict the amount payable, how long the lease runs, or the renewal option for the lease. The main types of leases you should be aware of include:
1. Full Service/ Gross Lease
This lease is predictable. It’s a fixed amount that covers the base rent and the agreed upon expenses like utilities, maintenance, insurance, and taxes.
2. Net Lease
On top of the base rent, a tenant with a net lease pays for property taxes, property insurance, and/or CAM. When paying the base rent and the property taxes alone, yours is a single net lease, base rent, property taxes and insurance results in a double net lease, and the payment of base rent, property taxes, insurance, and CAM results in the triple net lease (NNN). Though unpredictable, a net lease is among the cheapest rent payment arrangements and in most cases, it results in a reduction in the total payable rent.
3. Modified Gross Lease
This is a hybrid of the net and the gross lease. The tenant pays rent in a lump sum. Paid rent is the base rent and a portion of the property taxes and utilities.
4. Percentage Lease
This lease involves payment of the base rent plus a percentage of your gross income. It’s common with malls and retail outlets.
5. Fixed Term Lease
This lease runs for a predetermined duration. During that time, the landlord cannot change the terms of the lease or increase the rent.
6. Periodic Lease
This is also called the automatic renewal lease. It runs for a predetermined amount of time. Despite lacking a specific end date, the tenant or the landlord can terminate the tenancy by issuing a specific notice. For example, an annual periodic lease will require a 30 or 60-day notice for termination, an increase in rent or change in terms of the agreement.
Permitted Use of The Space
If you’ve found an ideal location for your business with favorable terms, you should confirm that the landlord has no issues with you setting up shop. Spaces zoned for retails use cannot be used as office space.
Assigning and Subleasing
If you think you will want to sublease the space, later on, the lease you sign should be assignable.
Rent and Escalation
Besides the determination of rent payable under the types of lease, you also need to check the terms for escalation. Escalation refers to the legal increase of rent during the lease. In most cases, the escalation rate is 3 percent. So, examine the lease to ensure that there are no abnormal escalation rates.
How much is the security deposit and how will you get it back?
This is the clause stipulating that the tenant will not pay rent or pay a reduced amount until the damage is fixed.
Other elements you should check include the clause for lease termination, terms on signage, parking, and lease improvements.
After you negotiate the terms of the lease and are in agreement, you can sign the lease. Keep in mind that the landlord and the tenant must sign the lease, and in some cases, the lease should be notarized by the notary public.
Whether you are thinking of setting up a business in Peoria, Chicago, Richford, Champaign, Joliet, Naperville, Elgin, Carbondale, Moline, Evanston, or any other city in Illinois, you can get our free commercial lease agreement forms online today.