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Everything You Need to Know About the Commercial Lease Agreement in Minnesota
Ready to move your business to a bigger property, prime for the growth, and zoned for your kind of business? Start with a commercial lease agreement. It is a legally binding contract that binds a landlord/ lessor to a tenant/ lessee. It signifies the transfer of the rights to use the property to the tenant for a specific duration, in exchange for rent. Once signed, the agreement is legally binding. It could also be referred to as a business lease agreement or a commercial real estate agreement.
Unfortunately, the perfect commercial property may have unfavorable terms. As a result, you need to review the terms of your commercial lease agreement in Minnesota. The review involves looking at all the sections of the lease, and it helps in negotiating for the lease that will meet your needs best.
Essential elements of the commercial real estate lease agreement.
The description of the property to be leased
Other than the description, you need to confirm that the size of the space and its design features will meet your needs. The contract documents should have the exact dimensions of the property and other structural specifications.
Permitted use of the property
Before signing the lease agreement, you read through the lease and discuss with the landlord. In some cases, you won’t be able to run some business activities. So, make sure that the location you are considering is zoned for that kind of business.
Determining the length of a lease for your business depends on the type of business you are running and whether or not the business is stable. If yours is a startup or a small business, a short-term lease will be preferable to a long-term lease. A short-term lease prevents financial losses from the uncertainty around the success and growth of the business. A long-term lease, on the other hand, works best for stable and bigger businesses because of the leverage the business has and the fact that the owners are not worried about what will happen to the business in 1 or 3 years.
Regarding the lease term, you also have to choose between a fixed term and a periodic lease.
A fixed term lease has a predetermined end date, and there’s no need for a lease termination notice. The periodic lease, on the other hand, lacks a specific end date and the tenancy can be terminated at any time, by issuing a termination notice.
The amount of rent agreed upon in lease agreements varies depending on the type of lease you choose. The Minnesota commercial lease agreement will have checkboxes for four main types of leases: gross lease, net lease, modified gross lease, and the percentage lease.
The gross lease: it’s also called a full service lease. It represents a lease where the tenant pays a fixed rental fee. The fee charged includes the base rent and some of the operating expenses (taxes and utilities).
The Net Lease: this is the most common type of lease. Other than the base rent, the tenant pays the pro rata operating expenses (property taxes, the insurance, and common area maintenance or CAM). The tenant also pays for the janitorial services and utilities. Since the tenant pays the three main property expenses, this is also called the triple net lease (NNN). Note that the expenses are paid to service providers, and the landlord is only paid the base rent. Other than the triple net lease, there are single and double net leases where the tenant pays one or two of the three main expenses.
Modified Gross Lease: here, the cost of running the property is a shared cost for the landlord and the tenant.
Percentage lease: in this arrangement, the tenant pays their base rent as well as a percentage of their gross income.
Other elements to be aware of:
Tenant improvements – the landlord, is expected to give you an allowance to renovate the commercial space. You should, however, note that bargaining for a higher tenant improvement allowance is difficult if the property is on high demand.
ADA compliance improvements
Provisions for renovations, relocation, parking, renewal, and parking.
Escalation – this is the figure that the landlord can increase rent because of inflation.
The rights of the landlord
In Minnesota commercial lease agreements, landlords have specific rights. They include:
Right to inspect the property before the tenant moves in
Right to use the security deposit to repair damages
Right to forbid subleasing and assigning the property
The landlord can run a background check on the tenant.
Would you like to get started with the commercial lease? Download our free commercial lease agreement forms accessible easily from Minneapolis, Saint Paul, Duluth, St. Cloud, Minnetonka, Mankato, Edina, Bloomington, Eden Prairie or any other city in Minnesota.