Understanding The Commercial Lease Agreement in North Carolina
If you are looking for a commercial space for your new business or are setting in motion expansion plans, then you will come across and deal with North Carolina commercial lease agreements. The agreement is a legally binding contract between a landlord (lessor) and tenant (lessee). It communicates the fact that the landlord has given the tenant the right to use the property for business, for a specific duration. In exchange, the landlord is paid rent.
But, this is only a small part of the commercial lease agreement. In it, the obligations of either party are outlined. Therefore, you have to read and review the fine print thoroughly before you sign it. Keep in mind that the lease agreement has 28 sections, and all of them matter. In this article, however, we’ll look at the most important sections of the lease. These are the sections you must be sure about and the ones you might want to negotiate before you sign the commercial real estate lease agreement.
Before signing the lease, review your business needs and its level of growth. While an established business needs a long-term lease, a new or small business requires a short-term lease because of the uncertainties of the business. But, even when on a short-term lease, ensure that the terms of your lease are favorable.
This brings us to two of the main types of leases – the fixed term and the periodic leases.
The fixed term lease is as the name suggests a lease with a predetermined end date. Since the end date, week, month, or year is known, neither party has to issue a notice to terminate the lease; it ends naturally. And, unless stated or provided for in the terms of the lease contract, the landlord may not increase the rent or even change the terms of the agreement in the duration of the lease. Upon expiry of the lease, the tenant is expected to move out but if they don’t they have to sign a new lease, pay higher holdover fees, or the landlord begins the eviction process.
Periodic leases, on the other hand, represent the kind of leases that are automatically renewed at the end of a lease period. Often, the terms of the lease change or the rent increase during the renewal period. Note, however, that the change in the lease should be outlined in the fine print when you sign the lease the first time. And, notice should be given before the change is initiated.
With a periodic lease, either party can issue a tenancy termination notice within a stipulated duration.
Before signing the lease, confirm how much you will pay in rent, as well as expenses by picking the appropriate type of lease. This is a negotiable instrument, and you can pay as much as or as little as you agree. But, knowing that some landlords may make you pay for all costs associated with the property, exercise caution. The main types of leases you should know about include:
Gross Lease: in this arrangement, the tenant pays the base rent only. It is a fixed amount, and the landlord caters for every other cost.
Net Lease: this lease comes in three forms, depending on the operating expenses the tenant caters for, in addition to the base rent. It can be single – where the tenant pays the base rent and the property taxes; double net lease where the tenant pays the base rent, property taxes, and insurance premiums; or triple net where the tenant is responsible for the base rent, the property taxes, insurance costs, and the common area maintenance cost (CAM). The triple net lease is the most expensive rental payment arrangement in commercial rental agreements.
Modified Gross Lease: this is the hybrid of the gross and the net lease. It is a favorable arrangement that involves sharing of the operating expenses between the landlord and the tenant.
Often, the permitted use of a commercial property depends on the city’s zoning. However, that may change where the landlord is against a certain business running in the premise. So before you sign that commercial lease agreement in North Carolina, make sure that you can run your business there.
Subleasing and assignment
Can you sublease and assign the lease to someone else when you need to sell the business? Do the leasing rights and obligations transfer to the third party you are leasing to? Confirm these elements before you sign your lease.
Is the building in compliance with the ADA regulations which indicate that landlords and tenants should make their places of business accessible to persons with disabilities? Before you sign the lease, make sure that the space is ADA compliant and if it isn’t, have a clause that outlines the role of the landlord in making the relevant improvements to the property.
While some landlords give tenant improvement allowances for the improvement in the interiors and exteriors of commercial spaces, it isn’t a given. So, ensure that the lease outlines these terms in detail before you sign the lease.
Other elements of the lease worth reviewing include the clauses on parking, repairs, signage, building rules, defaults, condemnation, escalation, renewal, and termination rights.
To get started with the commercial rental agreement in Charlotte, Wilmington, Raleigh, Asheville, Greensboro, Durham, Cary or any other city in North Carolina, download our free commercial lease agreement forms online today.