Understanding the Commercial Lease Agreement in Tennessee
If you’ve finally faced your fears and you are ready to start a small practice or business, know that you are entering a world riddled with responsibility. And on top of that list is your search for a favorable commercial lease. A commercial lease agreement gives you the right to use a commercial space for business for an agreed duration, and in exchange, you pay rent. However, these do not define the elements of a commercial lease agreement (office lease agreement or a business lease agreement). The document exceeds these basics and goes into the responsibilities of the parties to the lease, as well as their respective rights.
With landlords seeking for ways to protect themselves like running background and financial checks before one signs the lease, they may also include clauses that make the document more protective to landlords than to the tenants. And given the absence of strict state laws on commercial leases, you have to take a little more time to review every aspect of the lease. Should a dispute arise, the terms of the lease will determine the outcome of that dispute. As a result, you need to make sure that you understand everything in that lease and negotiate some of the terms to make sure that the Tennessee commercial lease agreement you sign is effective in protecting your business interest.
Importance of Location
Now, allow us to digress a little. Before you sign your commercial lease agreement, you should ensure that your prime business location is actually primed for the success of your business. What this means is that the location should have adequate human traffic, communicating a positive brand image, accessible with enough parking, and zoned for that kind of business, within your size and budget requirements, and in a place with a customer and human resources pool. A location with all these features as well as the technological features necessary for development will help your business growth. Any location short of these features should be avoided.
Also worth mentioning is the fact that the commercial lease agreement differs from the residential lease agreement in that the former gets reduced consumer protection, it has comprehensive forms, but it’s for a longer term; though with reduced flexibility.
Elements of a Commercial Lease Agreement in Tennessee
The Lease Term
Your commercial lease agreement in Tennessee features a section that stipulates how long that contract will last. Under the lease term, there also exist details for the lease’s commencement date, and the renewal options, if any. The lease term may be fixed or periodic. In the fixed term, the lease had a definite end date, and the lease expires naturally – no need for lease termination notice. The terms of a fixed term lease are hardly renewable.
The periodic lease, however, lacks a definite end date and it allows the tenant or the landlord to issue a lease termination notice within the stipulated time frames at any point in the lease. The terms of the lease can be changed during the lease term if provided for in the lease.
This is also an important element of the office lease agreement. It has the details of the base/ minimum rent, as well as the allowable rent increases, and the acceptable conditions for escalations.
On top of the base rent, most tenants end up paying a little (or a lot) more monthly because they have to pay for other expenses. The extra amount payable depends on the type of lease chosen. The options available include the gross, net, modified gross, and the percentage lease.
Gross lease – base rent only; a fixed amount payable monthly.
Net lease – base rent plus all or some of the pro rata expenses: property taxes, insurance and CAM (common area maintenance). The common net lease is the triple net lease where the tenants pay for all these expenses, including the base rent, janitorial services, and the base rent.
Modified lease – this is a hybrid of the net and the gross lease. The tenant pays the base rent in addition to a portion of the property expenses agreed upon.
Percentage lease – in this arrangement, the landlord gets the base rent and a percentage of your gross income.
The business lease agreement should have the details of the value of the security deposit, as well as the conditions for returning the security deposit
Permitted Uses of The Property
Once you’ve established that the city zoning allows you to run your business in the location, confirm with the landlord whether or not your specific kind of business is acceptable in that establishment.
As you confirm these details, write down the exact dimensions of the space to be leased. Here, you may indicate if the common areas are included in the lease.
Who is responsible for leasehold improvements needed to make the property accessible to people with disabilities?
Subleases and Assignment
Get the landlord’s take on subleasing property and assignment of the rights and obligations of the lease to a third party.
Other things to review include:
Signage and advertisement rules and specifications
What happens in the event of leasehold improvements and modifications?
The parameters for resolving disputes
Termination and relocation rights.
To get started with commercial leases in Nashville, Knoxville, Memphis, Chattanooga, Gatlinburg, Murfreesboro, Jackson, or any other city in Tennessee, get our free commercial lease agreement form here today.