Creating a commercial lease involves careful attention, as it signifies a significant, long-term commitment between you and a business entity. After approving a rental application, you’ll need to draft this legally binding agreement. Navigating the essential components to include can be perplexing. There are mandatory provisions and disclosures, along with optional clauses that allow you to specify the terms of your contract.
Commercial Lease Agreement For Rental Properties
Your Comprehensive Guide To Commercial Lease Agreements In Texas
Inna Radford | 3rd June 2024 | 8 minute read
What Is A Commercial Lease Agreement?
A commercial lease agreement in Texas is a legally binding contract between a landlord and a tenant for the rental of commercial property.
Before we jump into the specifics of what your lease should cover, let’s take a moment to understand what a lease agreement really is. Think of a rental contract as a promise set in stone between a property owner and a renter for the use of a space.
Now, when we’re talking about leasing a spot for business purposes—like a warehouse, an office complex, or a storefront—that’s where a commercial property lease comes into play. This document lays out all the nitty-gritty of renting out a commercial property.
It’s like a safety net for both you, the landlord, and your tenant. It’s the go-to document if any disputes arise and you need to take things to court. And remember, in Texas, there are specific rules for leasing out commercial spaces that you’ve got to keep in mind while drafting your lease.
Please toggle the elements below for a quick guide.
– Landlord (Lessor): The owner of the commercial property.
– Tenant (Lessee): The business or individual renting the commercial space.
A detailed description of the commercial property being leased, includes the address, square footage, and any specific areas included in the lease (e.g., parking spaces, storage areas).
The duration of the lease, including the start and end dates.
Options for renewal or extension of the lease term.
The amount of rent to be paid, payment frequency (e.g., monthly, quarterly), and the due date.
Details about late fees, security deposits, and acceptable payment methods
Gross Lease: The tenant pays a fixed rent, and the landlord covers all property expenses.
Net Lease: The tenant pays a base rent plus a portion or all of the property expenses (taxes, insurance, maintenance).
Percentage Lease: The tenant pays a base rent plus a percentage of their business’s gross sales.
The amount of security deposit required, the conditions for its return, and any deductions for damages or unpaid rent.
Responsibilities of the landlord and tenant for maintaining and repairing the property.
Specific provisions for common areas, structural repairs, and routine maintenance.
Conditions under which the tenant can make alterations or improvements to the property.
Requirements for landlord’s consent and restoration obligations at the end of the lease term.
Permitted uses of the property by the tenant.
Restrictions on certain activities or business operations.
Insurance requirements for both the landlord and tenant, including liability and property insurance.
Proof of insurance and indemnification clauses.
This is your responsibility for paying property taxes, utility bills, and other operating expenses.
Provisions for prorating expenses if applicable.
These are conditions under which either party is considered in default of the lease agreement.
Remedies available to the landlord, such as eviction or termination of the lease.
Remedies available to the tenant, such as repair and deduct or termination of the lease.
Terms under which the tenant can sublease or assign the lease to another party.
Requirements for landlord’s approval and potential fees.
Rules and regulations regarding signage on the property.
Approval process for installing signs and responsibility for maintenance and removal.
Methods for resolving disputes between the landlord and tenant, such as mediation, arbitration, or litigation.
Jurisdiction and governing law provisions.
Conditions under which the lease can be terminated by either party.
Notice requirements and procedures for early termination or lease expiration.
Any additional terms and conditions specific to the lease, such as renewal options, exclusivity clauses, or co-tenancy requirements.
The lease must comply with the Texas Property Code, which governs the rights and responsibilities of landlords and tenants.
Disclosure Requirements:
Certain disclosures may be required, such as information about hazardous materials or compliance with the Americans with Disabilities Act (ADA).
Customary Practices:
It’s common for commercial leases to be customized based on the specific needs and negotiations between the landlord and tenant. Therefore, consulting with a legal professional familiar with Texas commercial real estate law is advisable.
Signatures: The lease agreement must be signed by both the landlord and the tenant to be legally binding.
Notarization: While not typically required, notarizing the lease can add an extra layer of authentication.
Record Keeping: Both parties should retain a copy of the signed lease agreement for their records.
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Why A Texas Specific Lease?
Even though a lot of the content in a Texas commercial lease agreement might look familiar across various states, there are specific details that Texas landlord-tenant laws require you to include. In the upcoming section, we’ll guide you through the must-have elements of your contract, as well as some additional features you might consider incorporating for a comprehensive agreement.
1. Personal and Property Details
Your commercial lease begins with a list of all parties involved. This includes the name and forwarding address of the commercial landlord, tenant or business owner, and anyone authorized to act on behalf of either party. You will also need to include the name of the business, the property address, and, if relevant, the unit number.
Identify the precise room or area your tenant will have exclusive access to in buildings with several occupants.
Another vital thing to include is specific zoning regulations for your commercial property. Add a few sentences outlining the zone restrictions and another phrase stating that your tenant must abide by them.
2. The Lease Term
Include a clear statement of the start and end dates of the lease. Explain in the commercial lease agreement what will happen if the lessee stays on after the lease expires or closes their business. You can also mention whether the tenant has a right to sublease the property here.
Additionally, you must provide information about lease termination in this section. Clearly state any notice demands or early termination penalties. Discuss what would happen if the renter sold the company to a third party. Mention whether the lease will be immediately assumed by the new business owner or whether a new lease must be signed.
3. Abandonment
The Texas Property Code discusses a landlord’s authority to take and store a tenant’s belongings whenever a rented commercial property has been abandoned in Section 93.002 (e). You might want to include a subsection in which you affirm this right. Mention that if the items are not recovered within 60 days of being stored, you will use your legal authority to dispose of them.
4. Security Deposit
Another essential thing to mention in a Texas commercial lease agreement is the security deposit. List the permitted payment options and the amount the tenant will be required to pay as a security deposit.
Commercial landlords must reimburse a tenant’s security deposit within 60 days of leaving the property, according to Section 93.005 of the Texas Property Code. Add a clause saying as much and mention that the tenant is accountable for providing you with a forwarding address.
Moreover, your tenant must also know that you retain the right to deduct a percentage of the security deposit to compensate for unpaid rent or significant damages above and beyond typical wear and tear.
5. Rental Amount
In this section of the commercial lease agreement, you must indicate the monthly, yearly, or biennial rental amount. Commercial leases usually apply for a significantly longer duration. As a result, you could want to raise the rent before the lease’s term is over. Inform the tenant of how and when this will be done.
You might say, for instance, that rent will increase by a specific percentage each year. A different option would be to include the actual amounts with a list of particular dates on which the increase would take effect.
Rent paid after the due date may be subject to additional fees or fines. If so, these should also be mentioned in this section. Provide details about late fees and the duration to which they apply.
6. Utilities
Next, you’ll need to list each utility related to the commercial property and indicate who is in charge of maintaining it. You might need to specify what portion of a service your tenant is accountable for instead for shared facilities.
List waste disposal details separately and provide more information about how this is to be handled in your commercial lease agreement.
7. Repairs and Maintenance
Typically, landlords are responsible for upkeep and repairs. There might be some cases, though, when the tenant would be in charge. This includes routine housekeeping and mowing the lawn.
You will also need to mention upkeep and repairs for the parking area. State who is responsible for repaving, patching potholes, painting lines, and more. Remember that you will probably be in charge of significant repairs like road repairs but that you could want your tenants to take care of routine maintenance.
8. Renovations
Your tenant may need to renovate the space, so it is important to specify who will be responsible for such changes and improvements to the property.
9. Other Inclusions
Here are some of the other details you may need to include in your Texas commercial lease agreement:
- Insurance coverage. Who will be responsible for paying this expense?
- Landlord entry. Specify the terms for your entry onto the premises.
- Child safety zones. If your city has enforced child safety rules that strict sex offenders from entering a particular public area, you will need to notify your tenant of this.
Texas Lease Disclosures
According to Texas law, landlords must make the following disclosures:
- Lead-based paint disclosure. You must inform your tenants of potential hazards posed by exposure to lead-based paint. This typically applies to properties built before 1978.
- Criminal activity. Include a clause stating that your tenant may not engage in illegal activities on the property or permit anyone else to do so. Inform your tenant that preventing crime related to the business is their responsibility and that they should take the necessary precautions.
- Identification of third parties. According to Texas law, commercial landlords must provide tenants with detailed information that includes the identity of anyone permitted to act on behalf of the landlord and the tenant’s rights if the landlord fails to make repairs.
FAQ
What information is included in the Personal and Property Details section?
- This section lists all parties involved in the lease, including the landlord, tenant, and any authorized representatives. It also includes the business name, property address, unit number, and details about the exclusive area the tenant will occupy. Zoning regulations and compliance requirements are also outlined here.
How are the start and end dates of the lease defined?
- The Lease Term section clearly states the commencement and conclusion dates of the lease. It also explains the protocol if the tenant remains after the lease expires or if they close their business, including details on subleasing and lease termination procedures.
What happens if a tenant abandons the property?
- According to Section 93.002(e) of the Texas Property Code, landlords have the right to take and store a tenant’s belongings if the property is abandoned. If items are not claimed within 60 days, the landlord can legally dispose of them.
What is required for the security deposit?
- The Security Deposit section specifies acceptable payment methods and the amount required. It also states that landlords must return the deposit within 60 days of vacancy and outlines the conditions under which deductions can be made from the deposit.
How is the rental amount determined?
The Rental Amount section indicates the frequency of rent payments and the process for rent increases during the lease term. It also details late fees and the applicable time frame for these charges.
Who is responsible for utilities and maintenance?
- The Utilities section lists each utility and who is responsible for its maintenance. The Repairs and Maintenance section typically assigns the landlord responsibility for major repairs, while the tenant may handle routine upkeep.
Can the tenant make renovations to the property?
The Renovations section should specify who is responsible for changes and improvements to the property. It’s important to define the scope of permissible renovations and who will oversee them.
What other details are important to include in the lease?
Other Inclusions may cover insurance coverage, landlord entry terms, and local child safety zone regulations. These details help ensure both parties understand their rights and responsibilities.
What disclosures are landlords required to make in Texas?
Landlords must disclose the presence of lead-based paint for properties built before 1978, prohibit criminal activity on the property, and provide identification of third parties authorized to act on the landlord’s behalf.
What should I do if I need to make repairs that are the landlord’s responsibility?
If repairs fall under the landlord’s duties and they have not been addressed, you should first notify the landlord in writing. The lease agreement should outline the process for requesting repairs. If the landlord does not respond, you may have certain rights under Texas law, including the right to withhold rent until the repairs are made.
How are rent increases calculated and communicated?
Rent increases are typically calculated based on a predetermined percentage annually or at specific intervals during the lease term. The lease agreement should clearly state how and when the tenant will be notified of any rent increases.
Is the tenant responsible for insurance coverage?
The lease agreement should specify who is responsible for insurance coverage. In most cases, the tenant is required to maintain liability insurance and, depending on the lease terms, may also need to carry property insurance for their personal belongings and improvements.
Can the landlord enter the leased property at any time?
Landlord entry is usually subject to certain conditions. The lease should state the circumstances under which the landlord may enter the premises, such as for inspections, repairs, or in emergencies, and how much notice will be provided to the tenant.
What are child safety zones, and how do they affect my business?
Child safety zones are areas designated by local regulations that restrict certain individuals, such as sex offenders, from entering. If your business is located within such a zone, you must comply with these regulations, and the lease agreement should inform you of this requirement.