Back to the Basics: An Overview of the Commercial Lease

Before drafting an effective commercial lease, it is essential to have a good understanding of the nature of leases and how they differentiate from licenses, as well as the differences between the various categories of commercial leases. A lease of real property is a contract between one party, the landlord, and another, the tenant, under which the landlord grants to the tenant the right of exclusive use of the identified property for a determinate period of time in consideration for which the tenant agrees to pay rent to the landlord. A license, on the other hand, is a simple contract under which the owner of property, the licensor, grants to another party, the licensee, permission to occupy or use the property; however, the licensee has no interest in the property.

Leases can be categorized based on different criteria. One way is based on rental structure. On one end of the spectrum there are net leases, under which the rent payable to the landlord is paid on a net basis with the intention that the tenant is responsible for the cost and expenses associated with the leased premises, such as real property taxes, maintenance, utilities, repair, insurance etc. On the other hand, under a gross lease, a tenant pays a stipulated rent and is not responsible for the costs of repairing, maintaining or operating the premises. There is also a hybrid of the two, called a semi-gross lease, as well as percentage rent leases. The rent in ground leases reflects the rental value of the land as opposed to improvements on the land.

Leases can also be grouped by type. Retail leases may involve a shopping centre, standalone building or mixed use project. The form of retail lease depends on the type of project. There are different forms for commercial retail units in enclosed malls and strip plazas, anchor and big box stores or for pad leases. There are also leases specified for office premises and industrial space.

To read more about the various types of leases, as well as tips on drafting an effective commercial lease, read the full article below.