How to Negotiate as Favorable Commercial Lease Agreement in Rhode Island
Contained in Chapter 34-18.1 are the laws that govern commercial leases in Rhode Island, these laws ensure that the landlord and the tenant meet their obligations and it also protects their legal rights. The purpose of these laws is to ensure that the right course of action is taken should one party try to infringe on the rights of the other. However, before we look at the specific elements of the Rhode Island commercial lease agreement, an introduction.
A commercial lease agreement refers to a legally binding agreement/ contract drawn between a landlord and a tenant. It outlines the obligations of the landlord and those of the tenant. The lease agreement, once signed, outlines the fact that the named tenant has the right to use the property in question for a specific or even an unspecified duration, and that that the landlord will receive a specific amount of money as rent monthly.
While landlords all over the state have standard commercial leases waiting to be signed, you need to review the terms of the lease and negotiate for even better terms before you put pen to paper.
Types of leases
Generally, there are four main types of leases that determine how much money you will be paying to the landlord.
The Gross Lease: this refers to a lease arrangement that involves payment of the monthly base rent only. The landlord caters for and pays all other expenses related to the property.
Net Lease: this type of lease can be single, double, or triple net lease, depending on the property expenses the tenant pays for. The triple net lease is the most common net lease – it is an arrangement where the tenant pays for the base rent and all other property expenses. These expenses include the cost of property taxes, insurance premiums, common area maintenance (CAM), utilities, and janitorial services, among others. These expenses make this the most expensive lease.
Modified Gross Lease: in this arrangement, the operating expenses for the commercial property are shared between the landlord and the tenant. The tenant pays the base rent and a portion of the expenses monthly.
Percentage Lease: here, the tenant pays the base rent and a percentage of their gross income.
Given the differences in these leases, you should take time before signing the lease and always negotiate a favorable deal.
This is another pertinent part of the lease. The length of your lease will depend on the needs of your business, as well as its age and how much progress you anticipate from the location.
On that note, there are fixed-term and periodic leases. With the fixed-term lease, you know about the lease’s end date from the start. You also know that during the duration of that lease, you will not pay for anything more or have to deal with changes in the lease, unless this is provided for in your business lease agreement.
The periodic lease, on the other hand, is a lease that can be renewed automatically. It doesn’t have a specific end date. The terms of this lease may change annually or after a few years, as long as these terms are provided for when you sign the lease. Since it lacks an end date, either party can terminate the lease by issuing a lease termination notice in advance.
Speaking of the lease term, we also have to talk about the lease commencement date.
Your commercial lease agreement in Rhode Island will have a commencement date section. In some cases, the lease is effective the moment it’s signed. However, there are many cases when improvements to the property delay the commencement date. When this happens, the commencement date doubles as the rent commencement date. Differentiating the commencement date from the effective date (signing) is important because it protects you from paying rent before you start using and earning from the property.
Alternatively, you may negotiate for free rent. A free-rent period can be approved if you need time to renovate the property or when you are waiting for the business to gain momentum. Your chances of getting a few rent-free months’ increase when you sign a lease in a new property.
Leasehold/ Tenant Improvements
If you are setting up shop in a new building that needs a lot of improvement, will the landlord give you a tenant improvement allowance? Do you have to refund part or the whole amount when the lease terminates?
Can you negotiate a shorter term for your lease with the option to extend and renew the length of the lease after some time? And are the lease termination or renewal terms favorable?
Subleases and Assignment in Rhode Island
Even if yours is an established business that will benefit from a long-term lease, your commercial property lease agreement should be flexible should you outgrow the space or have the need to vacate the property before the end of the lease. Negotiate the terms of the lease to allow for the assignment of the lease – being able to transfer your rights and responsibilities to a third party.
Other things to consider and negotiate before signing the lease include termination and relocation rights, escalation, parking, and identification of the party responsible for improvements needed for the commercial space to be ADA compliant.
If you’d like to get started with commercial leases in Warwick, Cranston, Providence, Newport, Pawtucket, Woonsocket, Bristol, Cumberland or any other city in Rhode Island, download our free commercial lease agreement forms here.