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Everything You Need to Know About the Commercial Lease Agreement in Indiana
A commercial lease agreement refers to a legally binding contract between a landlord and a tenant in a commercial setting. The lease runs for a specified duration, and the tenant pays the landlord a specific amount of money. By signing the contract, it means that the tenant and the landlord are on the same page on the negotiated terms and either party accepts responsibility bestowed on them by the lease.
For its effectuation, you have to use a standard Indiana commercial lease agreement form or template created as per the statutory provisions of Title 26 of the Commercial Laws and Article 1 of the Uniform Commercial Code. Landlords and property managers must abide by these statutory regulations. To ensure that the two parties (landlord and the tenant) adhere to the regulations, your commercial lease agreement in Indiana features several sections that describe the roles and responsibilities of the parties.
But first, a look at the main types of leases you have to choose from.
1. Gross or Fully-serviced lease
This is a type of lease that outlines the amount of rent to be paid as a fixed amount. The fixed amount is inclusive of the base rent and the operating expenses of the enterprise as determined by the landlord, negotiated by the tenant, and agreed upon by both parties.
2. Net Lease
This type of lease, on the other hand, recognizes the operating expenses payable by the tenant on top of the base rent. In most cases, tenants sign up for the triple net lease (NNN) which signifies that on top of the base rent, the tenant will also pay shoulder responsibility for the property taxes, insurance, and CAM (Common area maintenance). Other versions of the net lease include the single and the double net leases where the tenant pays the property taxes and both taxes and insurance respectively; in addition to the base rent.
3. Modified Gross Lease
In this type of lease, the tenant and the landlord share in the operating expenses.
4. Percentage Lease
This lease involves payment of the base rent as well as a percentage of the gross income.
5. Fixed Term Lease
With this lease, the end date signifying the termination of the tenancy is well known ahead of time. The tenant can decide if they wish to sign a new lease or not, but the terms might change without any notice from the landlord.
6. Periodic Lease
This lease runs for an unspecified duration, and it’s easy to renew on the same old terms. While the landlord might include a clause indicating a potential increase in rates after some time, nothing in the lease happens out of the blues. Understandably, this is the most common commercial property lease agreement on the market. Note that either party can terminate this lease by issuing a notice to terminate tenancy as per the statutory regulations.
Sections and Terms of the commercial property lease agreement
Description of commercial property
After you put down the names and addresses of the tenant and the landlord, it is important to describe the details of the commercial space you are interested in. Note that before you decide on that property, you must have evaluated elements like zoning, accessibility, your maximum budget, how close the space is to your desired office space, and your customer pool. As crucial business needs, you need to ensure that the location selected will be great for the growth of your business. Only agree to the terms of the lease if the location of that space is ideal for your business now and in the next few months or years. You need room for expansion during the duration of the lease, and you also need to make sure that the interior and exterior décor will meet your business needs.
To avoid finding a perfect space for business only to be told that you cannot run your specific business activity in that space after getting invested, confirm whether or not the space can be used for your kind of business. The zoning might affect the use of the business space.
If you are getting a long-term lease, your landlord’s exposure to inflation increases because the rental rates increase. To counter the effects of inflation, the landlord will charge a specific percentage every few years so expect a rent rise after a specific number of years. Escalation is legal. Besides a standard rate, the escalation can be calculated per square footage. Escalations are good because they allow tenants to pay lower rent rates in the beginning. Escalations are of different types including the amount, percent, and indexed escalations.
Rent and Expenses
This section of the lease outlines how much you pay as base rent, and if expenses are included, you choose whether you prefer a net lease, a modified gross lease, gross or a percentage lease.
Other sections covered include:
Options to renew
Assignment and subleasing
Relocations, renewal, termination and expansion clauses
Signage and advertisement
ADA Compliance: according to the Americans with Disabilities Act, landlords and tenants are responsible for ensuring the commercial space is easily accessible by disabled individuals. Accessibility should be ensured inside and outside the building. The lease should have a clause that makes the landlord the party responsible for ADA-compliant improvements.
Once in agreement, both parties should sign the contract against their printed names. You may have to notarize the document in front of the notary public.
Are you ready to prepare a commercial real estate lease agreement in Indiana? Get started with our free commercial lease agreement forms accessible online in Gary, Indianapolis, Fort Wayne, Evansville, Bloomington, South Bend, Anderson, or any other city in Indiana.