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Commercial Rental Agreement

Commercial property is a type of property that is subject to business relationships with the purpose of making a profit out of it. Unlike residential property—the one you would rent to live in—commercial property is used to pursue business goals. Thus, commercial property is divided into several types depending on what kind of business it is used for.

The three main types of commercial property include:

  • Retail. A type of commercial property used for retail business. This property accommodates various stores, shops, marketplaces, showrooms, etc.
  • Office. This type of commercial property is used for administrative purposes accommodating workplaces for a company's office workers.
  • Industrial. This commercial property type includes large buildings and spaces leased for factories, workshops, warehouses, etc.

To rent or lease a commercial property, you will need to sign a special document called Commercial Rental Agreement.

What is a Commercial Rental Agreement?

A Commercial Rental Agreement is a real estate document that regulates the relationships between the lessor and the renter (lessee). By signing this form, both parties accept obligations regarding the property in question—its use, payments, and rental period. All of the nuances are typically discussed before the property owner (or their agents) and the renter sign the document. As soon as all the aspects of a future rental deal are approved and both sides have agreed upon each term, a Commercial Rental Agreement is created.

There are three types of Commercial Rental Agreement depending on how the future expenses will be covered:

  • Gross rent. This type of rent means that a renter will only pay the stated price for the rental service according to the terms of the agreement. The rental price is constant and is based on the square footage of the rental space. The lessor, in their turn, accepts the obligation to pay all the additional expenses, including utilities, taxes, etc.
  • Modified gross rent. With a modified gross rental agreement, a renter will pay the basic rental price plus a certain amount of extra expenses. In terms of what those expenses are, the two parties decide during negotiations prior to the signing of the rental agreement.
  • Triple net rent (commonly known as NNN). With the NNN rent, a renter will cover all the expenses related to the rental space, including the basic rental price, utilities, etc.

When to Use a Commercial Rental Agreement?

A Commercial Rental Agreement is required for any type of commercial rental deal. This form will be necessary for the rental of commercial spaces, including (but not limited to):

  • Garages
  • Parking spots
  • Workshops
  • Salons
  • Warehouses
  • Office spaces
  • Factory buildings

With a Commercial Rental Agreement, the two parties—the lessor and the renter—will settle down terms and conditions regarding a rented property. Such terms as the price, extra expenses, the use of rental space, the rental period, etc., are subject to regulation by every commercial rental agreement.

What Should Be Included in a Commercial Rental Agreement?

Since each separate rental deal is a specific case, each commercial rental agreement may vary in content. However, several necessary details must always be included in each rental agreement form.

These details include:

  • Lessor's name and requested details (address, phone number, etc.)
  • Renter's name and requested details (address, phone number, etc.)
  • The description of the rented space
  • The rental price
  • The rental period
  • Deposit details (if there is a security deposit)

Among other things that signees frequently add to rental agreements are:

  • The date on which the money transactions will be performed
  • Details regarding the return procedure
  • Fees (in case if the renter breaches the terms of the rental agreement)
  • The use of the property (how and for what exact purposes the renter will use the rental space)
  • Details regarding additional expenses

How a Commercial Rental Agreement Works

What should you begin with if you have a property that is fit for commercial rent? First of all, you will need to take measurements of the whole area. You will need to know exactly how much space your property occupies in square feet (or square miles if you own a larger space). The square footage will be necessary for subsequent negotiations with renters so that you will know how much to charge as the rent for your property.

When you're through with taking measurements, your next step is to advertise your property. But if you already have a potential renter, this step is not necessary.

Then, you will need to show your rental area to the renter. Make sure you have your property prepared for demonstrations—the better impression it will give, the quicker you will come to signing a rental agreement. When demonstrating your rental area to a renter, don't forget to bring all the necessary documentation. A renter must be fully informed on all the legal aspects of the property. And finally, prepare to answer any questions regarding the rental space.

If the renter is happy with the place, you can proceed with the negotiation.

During this step, you and your renter will discuss all the terms of the upcoming deal, including:

  • For how long will the renter lease the space?
  • What will be the basic rental price?
  • What kind of rent contract will it be (a gross rent, a modified gross rent, or an NNN rent)?
  • How exactly will the renter use the space?
  • Will the renter do any kind of alterations to the rental area?
  • Will there be a security deposit in case the renter damages the property? And what amount is the deposit going to be?

When all the terms and conditions are agreed upon, you will be able to sign the rental form. Signing the form will require the landlord's signature, the renter's signature, and the signing date.

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