The commercial real estate sector in India has slowly but surely bounced back after the deadly pandemic. It is one of the fastest-developing industries in India and is growing by leaps and bounds. There is increasing demand to not only purchase commercial space but to lease them as well. But before you sign on to the dotted line, it is extremely vital to understand the commercial lease agreement.
What is a Commercial Lease?
A commercial lease is an agreement between the landlord and the business for the rental of property. The majority of businesses will elect to rent a property instead of purchasing it since it needs less capital.
A commercial rental agreement is more complex when compared to residential leases since the terms are negotiable and fluctuate greatly from lease to lease. Before you sign on to a commercial lease, it is significant to note the lease terms that describe the rights and responsibilities of every party.
Commercial Lease Agreements vs. Residential Lease Agreements
Let’s take a look at some of the key differences between a commercial lease agreement and a residential lease contract.
Varied Terms: In several cases, a landlord can make use of a standard form for residential leases since there is not much need to make space for various tenant requirements. On the other hand, commercial leases have varied terms since the requirement for every tenant is different.
Negotiable Terms: Commercial lease agreement terms are typically negotiable.Terms that can change comprise the rent amount, rent increases, the duration of the lease, the capability to designate a lease and allowable improvements.
Longer Terms: The majority of residential leases are only for a year. But a commercial rental agreement can often be for numerous years.
Significant Commercial Lease Agreement Terms
Before signing a commercial lease agreement, you need to ensure that the terms will meet the requirements of the business. The failure to decide the needs before signing the dotted line can result in bad consequences.
Commercial leases generally have the following terms:
Rent Amount: A landlord will determine the rent amount based on the square footage of the commercial space. You need to be aware of what footage the landlord uses to compute the rent. If possible, try to negotiate which party is responsible for other expenses such as utilities, insurance, property taxes, and repairs. It is important to be aware of the rent amount before you sign a commercial rental agreement.
Rent Increases: Acommercial lease agreement will generally offer a yearly percentage-based rent increase. It is important to negotiate with the landlord for a cap on the percentage increase to avoid uncontrollable rental expenses later.
Security Deposit: The lease needs to verify the security deposit amount as well as the terms regarding its return. Be sure to know about this before you sign the commercial rental agreement.
Length of the Lease: The majority of landlords prefer long-term lease contracts. This may not be conducive to new business. You can ask the landlord to offer you a short-term lease with an option to renew further. This may increase the rent amount, but it is a better alternative than opting for a lengthy term. Ensure you’re aware of this before you sign on to the commercial rental agreement.
In a nutshell, it is important to keep track of every single commercial lease agreement term before signing on to the dotted line.
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