What to Ask Before You Sign a Commercial Lease Agreement in Commercial Lease Agreement in Maryland

A commercial lease agreement refers to a document or a contract drawn up between a landlord and a tenant looking to rent space in a commercial property for business purposes. It costs less to lease property than it does buying an entire space. For the space, the tenant pays the landlord rent agreed upon by the parties. In return, the tenant gets all the rights to use the space for business. Being legally binding, the document may be presented in court as evidence should a dispute ensure.

Hiring a legal profession is a sound decision. However, you may not afford one. Or, you may be a hands-on person who prefers doing through the fine print before you sign any contracts. In any case, we recommend reviewing all the terms of the lease, including the miscellaneous ones. You are trying to run a business and make money – do that by avoiding expensive disputes.

In your review, there are specifics you should seek clarifications for, even when you are not negotiating for better terms.

But first, what is the difference between a commercial and a residential lease agreement?

With a commercial lease agreement in Maryland, you have reduced access to legal protection and more varied terms than you get with a residential lease. On the flipside, there’s the fact that a commercial lease agreement comes with negotiable terms and the terms are also longer.

So, what should you ask about when reviewing the lease contract for commercial property?

Does The Lease Meet Your Business’ Needs and Structure?

To determine this, look at the size of the space, it’s desirability, the zoning rules, accessibility, and availability of customer and employee pool.

Does The Terminology Make Sense?

Most of the terms are unheard of, but we’ll explain what they mean here now. For example, CAM. It’s a common term in the commercial real estate lease agreements scene. CAM, is the common area maintenance cost.

Do You Understand The Lease?

A Maryland commercial lease agreement is lengthy, and like the Terms and Conditions section of products, it appears boring. But, this is a document you must read through. Read through all the paragraphs, sections, and clauses. For instance, a standard commercial lease agreement is also called a commercial real estate lease agreement or an office lease agreement.

But, the name is only the tip of the iceberg. You need to confirm the start/ effective date, the rent payable, the rent escalation rate, base rent, and lease term, among other terms.

Check what the lease says regarding whether or not you can terminate the lease, what the obligations of the landlord are, and if you can renew or sublease the space.

To help you understand the terms of the lease better, here’s a look at the confusing types of leases at your disposal.

• What Are The Main Types of Commercial Lease Contracts?

• • Gross/ Full Service Lease

• This lease creates an arrangement where the tenant pays the base rent (minimum amount payable), as well as the operating expenses for the office space. The expenses included in the rent include utilities, taxes, and maintenance costs. The rent payable is fixed for the duration of the lease, hence a predictable cost to the business.

• • Net Lease

• This lease can be single, double or triple net lease.

• We’ll start with the most common lease. The triple net lease (NNN). In this rental payment arrangement, the tenant pays the property taxes, insurance and CAM on top of the base rent. The expenses are payable to the service providers directly while the landlord receives the rent. The landlord pays for the maintenance of the property, improvements, and repairs.

• The double net lease is where the tenant pays the property taxes and insurance on top of the basic rent. The single net lease is an arrangement where the tenant pays the property taxes and the base rent only.

• • Modified Gross Lease

• In this leasing arrangement, the operating expenses for the commercial space are shared between the landlord and the tenant. So, the tenant pays the base rent and a portion of the expenses.

• • Percentage Lease

• Here, the tenant pays the basic rent and a predetermined percentage of their gross income. It’s common in retail stores in malls and shopping centers.

• • Fixed Term Lease

• In this lease, the duration of the lease is predetermined. And the terms of the lease change upon expiration of the tenancy.

• • Periodic Lease

This lease renews automatically. And the terms can change as long as due notice is given.

Is That The Best Deal?

You can negotiate for favorable terms always. So, keep an open mind and negotiate most of the terms of the lease. Negotiable terms include rent, lease term, leasehold tenant improvement, parking, escalation, subleasing and assigning, termination, renewal, relocation, and parking, among others.

Is there An Arbitration Clause?

In most contracts, an arbitration clause is included allowing both parties to settle their disputes out of court. In some cases, arbitration is mandatory.

• Other questions to ask include

• • How much will the landlord charge account for inflation (escalation)?

  • Do you need a personal guarantee?

  • Are you responsible for capital expenditures?

  • Asking these questions ensure that you don’t sign a lease agreement that will bite you later.

Are you ready to sign the business lease agreement? Get started with our easily downloadable and free commercial lease agreement forms accessible from Baltimore, Annapolis, Ocean City, Frederick, Columbia, Spring Valley or any other city in Maryland.