The Negotiable Terms of a Commercial Lease Agreement in Mississippi
Running a successful business involves getting all the documents needed to run the business. Licenses from the county offices and registration documents are essential. However, you have to start from the commercial lease. The lease determines whether your biggest expense (rent) is fair or not and whether the terms of the lease will help the business grow or not. That means that you should know the terms you can negotiate and when to walk out of a negotiation.
Here we’ll discuss your important negotiation points in the commercial lease agreement.
But first: what is a commercial lease agreement?
A Mississippi commercial lease agreement is a legally binding contract between a lessor or landlord and a lessee or a tenant. It adheres to the Mississippi code, the Uniform Commercial Code under Leases – Title 75, Chapter 2A. This code has the legal provisions that should be followed to make the document valid. The items in the code are negotiable, and they determine whether or not the terms of your lease are negotiable.
The negotiable items include:
This is the duration that the lease remains active. Depending on your business needs, you can negotiate for a long-term or a short-term lease. Under the terms of your commercial lease agreement in Mississippi, there are three main categories of leases:
Fixed end-date lease: with this lease, you know the exact date that the lease will expire. The terms and rent are unchanged during the duration of the lease unless the landlord has a provision to the contrary. Other than the predictability, this lease is also appealing in that you don’t have to issue a termination notice – the lease expires naturally.
Fixed number of Weeks, Months or Years Lease: this type of lease has a specific start date, and the end date is after a specific number of weeks, months or years. This lease makes it possible for either party to give a termination notice. The terms of the lease and the rent charged might change depending on the provisions of the lease.
Periodic Lease: this lease renews automatically after the end of a specific period. The lease runs continuously until its termination by either party. Notice is also required to increase the rent or change the terms.
In commercial properties, all tenants pay a base rent. However, the amount of money payable varies depending on the operating expenses pays. As a result, there are four types of leases that determine how much rent you pay.
These leases include:
Gross Lease: in this lease, the rent payable is fixed and doesn’t change monthly. The rent is inclusive of the base rent and expenses like property taxes, maintenance, insurance, and utilities. The landlord pays for repairs.
Triple Net Lease: there are three types of net leases: single, double and triple. We’ll focus on the triple net lease because it is the common one. This lease allows for payment of the base rent, commercial property taxes, the cost of insurance for the space, and the common area maintenance (CAM) costs. You also pay for the janitorial services and utilities. The single and net leases involve payment of taxes and tax/insurance, respectively, in addition to the base rent, utilities, and janitorial services.
Modified Gross Lease: you can negotiate the terms of the lease so that the operating expenses for the commercial space are a shared cost between you and the landlord. Doing this creates a modified gross lease.
Percentage lease: If your business runs in a mall or a shopping center, you might have to pay a percentage of your gross income to the landlord on top of the base rent.
In most cases, the security deposit charged equals the value of one month’s rent. However, that could change.
To protect landlords from the effects of inflation, it’s legally accepted for the landlords to raise rent by a specific amount annually or after a specific number of years, before you sign the lease, find out how the escalations will be calculated and if the rate can be reduced. The advantage of escalations is that they allow you to spend less on rent when starting, and plan for higher rental rates in the future.
Escalation can be calculated using a predetermined amount per square footage, a certain percentage, or the escalation value could be indexed. Indexing will create a little more variability in the rental rate charged.
You could negotiate for a few months of free rent or lower rent after you move into a commercial space. Note that you won’t get free rent offer when moving into a busy space with high demand. However, you can easily get this offer if your landlord relocates you to a new building with a lot of free space.
Your landlord can give you a tenant allowance for improvements quoted per square footage. This is common with new properties that require a bit of work.
Before signing the lease make sure that the property is ADA compliant. If it isn’t compliant, ask the landlord to make the necessary improvements.
Other negotiable elements include:
Subleasing and assigning clauses
Termination and renewal clauses
Are you ready to prepare a commercial lease in Jackson, Biloxi, Tupelo, Mississippi City, Vicksburg or any other city in Mississippi? Get started with our free commercial lease agreement forms today.