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The Basics of the Commercial Lease Agreement in South Carolina
A commercial lease agreement refers to a legally binding contract that documents the transfer of use and occupation rights for commercial property from a lessor/ landlord to a lessee/tenant. It is also called a commercial real estate lease agreement or a commercial property lease agreement. Being the most influential and also the most expensive business decisions and documents you have to make for your business, you should ensure that the lease has favorable terms for your business. The location of the business and its specifications should meet your business needs, be within your budget, and the terms favorable for business growth. The obligations of either party should be clearly outlined in the contract well.
Wondering why else you need to pay extra attention to the commercial lease agreement in South Carolina? Well, unlike the residential leases, the commercial leases do not receive as much consumer protection from the government because of the assumption that the landlords and tenants of commercial properties are a lot more informed than the residential tenants.
To ensure that all these happen, you need to review all the terms of the South Carolina commercial lease agreement.
Types of leases
The lease you sign up for often determines how much rent you pay. The most common leases include:
Gross Lease: in this lease arrangement, the tenant pays only pays a fixed amount in base rent. The landlord may, however, include some of the expenses in the fixed amount.
Net lease: in this lease arrangement, you know upfront that you will have to pay for some of the expenses on top of the base rent. The difference lies in the expenses you pay. The expenses include property taxes, insurance premiums, and CAM (Common area maintenance. This brings us to the three main types of net leases:
Single net leases –here, a tenant pays the base rent in addition to the property taxes.
Double net lease – this is where a tenant pays the property taxes and the insurance costs in addition to the base rent.
Triple net lease – in this case, the landlord benefits the most because the tenant pays for all the property expenses – taxes, insurance, and CAM in addition to the base rent, utilities, and the janitorial services.
Modified Gross Lease: this lease is a hybrid of the net and the gross lease. Instead of allowing one party to cover all the property expenses, the expenses are shared between the landlord and the tenant. So, the tenant pays the base rent plus a portion of the property expenses.
Percentage Lease: if you are leasing out commercial space in a mall or a shopping center, you may have to pay the base rent in addition to a percentage of your gross profits.
When negotiating the rental rate, don’t overlook the terms on escalations – rent increase as a result of inflation. If the landlord calculates the annual rental increase using a percentage or the Consumer Price Index, you may ask for a cap on the rate.
Lease Term – The length of the lease
Before signing the lease, evaluate your current and business needs then choose the lease term that will best encourage business growth. The length of the lease may be short term or long term and fixed term or periodic. Whether you choose a short-term or a long-term lease will depend on your business’s stability and also your willingness to put your eggs in one basket for a long period or not. A long-term lease may mean paying more rent should the market rates decline but it also gives you leverage over the landlord, and when negotiating the lease, you stand a higher chance of getting excellent concessions like free rent and a higher tenant improvement allowance. The safer option is negotiating a short-term lease with the option to renew.
The fixed term lease has a definite end date and during that duration of the lease, the landlord may or may not change the terms of the lease or even increase the rent charged, only if it’s provided for in the lease. With a known end date, there is no need for a lease termination notice. The only problem with this commercial property lease arrangement is that you don’t have the option to renew the lease and you may have to sign a new lease if you need the space after the expiry of the current lease.
The periodic lease, on the other hand, is renewable and the terms of the lease provide for rent increase or the change of the terms. To terminate the lease, either party can issue a lease termination notice within the statutory time frames.
The other elements of the business lease agreement you should review include:
Compliance with the Americans with Disabilities Act
The permitted uses of the property
Subleases and assignment terms
Termination and relocation rights.
To get started with the commercial leases in Charleston, Greenville, Myrtle Beach, Florence, Spartanburg, Aiken, Anderson, Summerville or any other city in South Carolina, download our free commercial lease agreement form today.