Commercial Property Lease and Triple Net Lease Agreement

Landlord-Tenant Relationship

When a business decides to rent an office, warehouse, factory, store or shop it is important to realize that when a business entity rents a property for commercial activities that the Commercial Lease Agreement is unlike renting a residential piece of real estate. And therefore needs special legal treatment using the right documents so that tax, insurance and maintenance liabilities are understood. Both by the landlord; who is frequently a corporate business and the tenant who is also a business that may fall into one of the following categories of operation: Sole Trader, Partnership, Limited Liability Corporation , (LLC) or an ‘S’ / ‘C’ Type Corporation.

For the landlord who is leasing-out property it is important to know what type of organization is entering into the Commercial Lease Agreement contract because the people who operate as a Sole Trade, Partnership or Joint Venture types of business entity are set-up carrying liabilities for debt and rent arrears personally.

The LLC and Corporation business models have limited liabilities against debt which could include rent arrears or debt accurred through poor business management and control. In all these business models it is important to establish the strengths and weaknesses of their balance sheets for risk management assessment.

In the case of having a corporation as a tenant it is important to know the type of corporation and how that operation is organized. For example it is quite possible for a sole trader to become a single person ‘S’ Corporation with one shareholder which means that the liability of the business is limited to the single directors shareholding value which may be closer to zero than lets say $1000 which is not very helpful if the landlord-tenant relationship runs into problems.

For success to prevail in the commercial business to business leasing and renting of property arena then both the tenant and the landlord have to assess and evaluate the risks in there respective businesses to create a stable financial environment where risks are known minimized and controlled.

What is a Commercial Lease and Triple Net Lease Agreement?.

Most Commercial Lease Agreements are designed by reputable form providers. They are kept up-to-date with each states real estate legislation and regulations and are generally in an easy-to-use format because of the complexities of the various business models the package guidance notes specifically relate to commercial lease transactions.

These property lease agreements are contracts are on property where the tenant agrees to pay the following Triple Net fees in addition to other fees specified in the agreement: Real Estate Net Taxes, Net Building Insurance, Common Area Maintenance Net; hence the term Triple Net.

In these types of agreement the tenant is responsible for paying all repair and structural building replacement costs of the property. The agreement will have either fixed or periodic payment and review terms; which means that the premises may be paid for on a monthly basis with a rent/lease review every three years or it may be a six monthly fixed renewable contract.