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The Basics of a Commercial Lease Agreement in Vermont
A Vermont commercial lease agreement is a legally binding agreement that grants the lessee of commercial space the right to use or occupy that space for business, and in exchange, the lessor receives periodic rent payments. This arrangement is cheaper than buying a property. And if you are looking for commercial space to kick start your business or to expand, then you’ll have to deal with and sign a lease. But before you sign the lease, you need to make sure that the location you have in mind will be ideal for business. By ideal, we mean that the location selected will promote a positive brand image from your business, it will give you access to human resources and customers, it has all the necessary infrastructure, the size is right, and zoned for that kind of business.
Once you have the right location, review the terms of the lease. The terms of the lease will always vary, but there are things you should confirm before you sign that commercial property lease agreement. They include:
The permitted use of the commercial space
While most commercial spaces are zoned for business, office or industrial use, you need to be sure that the landlord will allow you to run your unique business in the property. This is an essential step to take especially when your line of business is not in the list of general business categories.
The specifications of the commercial space
Don’t take the landlord’s or the realtor’s word for it. You need to check out the space to ensure that the size is right. You also need to check the elevations and other amenities available. The commercial lease agreement in Vermont has a section for the commercial space’s specifications. Enter the dimensions, location, and other features in the premises.
The term of the lease
The length of the lease varies and is determined by your business needs. You may choose a short-term, long-term, fixed term or a periodic lease.
Your choice of the short-term or the long-term lease depends on the size of your business and whether it is established or not. For small and uncertain businesses, the short-term leases are preferable, especially if they come with the option to renew the lease. The long-term leases, on the other hand, work well for established business – just make sure that space is enough to meet the needs of your growing business.
Then, there are the fixed-term and the periodic leases. A fixed term lease has a predetermined end date, and neither party has to issue a lease termination notice to end the lease. Also, the terms of the lease may not be changed, or the rent increased unless there is a provision for change of lease or rent increase in the lease.
The periodic lease, on the other hand, is also called an automatic renewal lease. Even though it lacks a specific end date, the terms of the lease allow tenants to renew the lease at the of a period. The lease also features provisions and terms of a rent increase or general change in terms. To terminate a periodic lease, the landlord or the tenant should file a lease termination notice within the time frame stipulated in the lease.
In the state of Vermont, any lease whose term is longer than 1year should be recorded and acknowledged for its enforcement against third parties. Often, a memorandum of the lease will be recorded in lieu of a full lease. The memorandum protects the lessee in that it gives the third party notice of the interest in real estate or even land without having to give all the details of a negotiated contract. Note that all the contents of the memorandum of the lease are provided for by the statutes and that it should be executed and acknowledged for enforcement against the third parties.
Types of commercial leases in Vermont
Since there are no standard commercial lease forms in the state, the leases will vary depending on the business one runs or their intended use of the commercial premise. The leases also differ in terms of the tenant payments. They include:
Gross Lease: this is the most common lease. The tenant is responsible for the paying a fixed base rent while the landlord pays the property taxes, insurance premiums and CAM (common area maintenance).
Net Lease: in this arrangement, a tenant will pay the landlord a fixed base rent, as well as a proportionate share of the operating expenses: taxes, insurance, and CAM. Note that the landlord only gets paid the base rent. While there are single and double net leases, the most common net lease is the triple net lease where the tenant pays for all the above expenses.
Modified Gross Lease: this is a hybrid of the net and the gross leases. In the arrangement, the tenant pays the base rent as well as a portion of the operating expenses shared with the landlord.
Percentage lease: if you are a retail seller, you may have to pay the landlord the base rent in addition to a percentage of your gross profits.
Note: while the state has no restrictions on the amount of rent that can be charged, the business lease agreements have a covenant of fair dealing and good faith. And, for leases over 50 years with renewal periods, rights or options to acquire, the commercial property lease should be recorded and also subjected to the state’s property transfer tax. The long leases also attract a state land gains tax.
Escalations: the escalations costs are used by landlords to cover the effects of inflation. Fortunately, these increase in rent is negotiable and based on a fixed adjustable schedule or the Consumer Pricing Index.
Other elements of the lease contract include:
Subleases and assignment
Lease termination and property relocation rights
To get started with commercial leases in Rutland City, Stowe, Burlington, Montpelier, Bennington, Brattleboro, Essex, Killington or any other city in Vermont, download our free commercial lease agreement forms now.