Legal Basics of Leases in Commercial Real Estate Transactions

Whether you are an entrepreneur seeking to launch a new venture or an established business aiming to expand, managing the intricacies of commercial leases in Pittsburgh’s dynamic market requires local expertise. Leasing commercial real estate is a complex process with numerous legal considerations. It involves a binding agreement between a landlord (lessor) and a tenant (lessee) that allows for the use of property for business purposes in exchange for rent. Commercial lease transactions are more than just agreements, though – they represent opportunities for those about to enter these agreements. 

Key Legal Aspects Of Leases In Commercial Real Estate

Types of Commercial Leases

There are various types of commercial leases that you can enter into.   In a Net Lease, the tenant pays not only rent but also some or all of the property taxes, insurance, and maintenance expenses. The tenant is responsible for rent, property taxes, and insurance premiums in a Double Net Lease. In a Triple Net Lease, the tenant pays all costs of the building, including maintenance, on top of the rent. If an individual enters a Gross Lease, the tenant pays a flat rental amount, and the landlord pays for all property charges regularly incurred by the ownership.

 Lease Terms and Renewal Options

Most commercial leases are fixed for a certain period, ranging from one year to ten years or more, depending on the business needs and negotiation outcome. Tenants often negotiate renewal options, allowing them to continue leasing the property at predetermined terms.

The monthly payment made by the tenant is usually calculated per square foot. To address the increasing costs of property management, most leases include an escalation clause that allows the landlord to increase rent annually based on a fixed percentage or tied to a cost-of-living index. Landlords often require a security deposit for potential damages or unpaid rents. Its amount and conditions for return are typically outlined in the lease agreement. In some cases, especially with startups or new businesses, landlords may require a personal guarantee from the business owners.

Use of Premises

The lease should specify what the tenant will use the premises for, and the tenant cannot use the property for any other type of business. Tenants may want to attempt to negotiate an exclusive use clause to prevent the landlord from renting out other spaces on the premises to direct competitors.

 Maintenance and Repairs

The landlord is typically responsible for structural repairs and maintenance of common areas. Depending on the lease terms, the tenant must maintain the leased space in good order and condition.

 Subletting and Assignment

Tenants may wish to sublet some or all of their space to another business, which is usually subject to the landlord’s approval. It is an assignment if the entire lease is transferred to another party. Like subletting, assignments generally require landlord approval.

Termination and Default

If either party fails to comply with the lease terms, it may result in default, leading to termination of the lease. Some leases may contain an early termination clause that allows either the tenant or the landlord to terminate the lease early under specific conditions.

 Legal and Regulatory Compliance and Dispute Resolution

Tenants should ensure that their business activities comply with local zoning laws. For example, properties must comply with the Americans with Disabilities Act (ADA), requiring accessibility for disabled individuals.

Disputes can arise in these types of lease situations. To avoid litigation in a conflict between the landlord and tenant, the parties may put a clause in the commercial lease that mandates mediation or arbitration instead of litigation.

Contact Our Pittsburgh Real Estate Attorneys

The above elements and clauses form the backbone of commercial lease agreements and highlight the need for careful negotiation and thorough understanding of the terms by both landlords and tenants. Both parties should consult with experienced commercial real estate attorneys to navigate these complexities effectively. Jones Gregg Creehan & Gerace can assist you with your commercial real estate needs and will ensure terms that protect you in your lease negotiations. Contact our office today.