Are You Brushed Up on These Commercial Lease Terms

Commercial Lease

Legal documents such as lease agreements can be confusing for someone new to commercial lease management and even budding homeowners can get tripped up by an unrecognizable term here and there. While it’s advantageous to always go through your lease agreements alongside your solicitor to ensure a complete understanding. Sometimes time restraints and commitments can complicate getting appointments and getting documents returned in good time. We’ve put together this handy guide to ensure you are familiar with the types of terms that could be used on your commercial lease;

Rent Payable

One of the most self-explaining terms to be found on a lease agreement. “Rent Payable” is the name given to the agreed payable amount that is paid on the agreed given dates. Quarterly payments are the most common, occurring in March, June, September and December, however, alternative dates can be chosen between the landlord and tenant.

Base Rent

A base rent amount is the minimum agreed amount to be paid before any extras are added to the rental rate, which could include percentage rents and/or maintenance or operating costs.

retail or restaurant space for lease
retail or restaurant space for lease

Percentage Lease

A percentage lease is most commonly found on commercial lease agreements concerning retailers such as shopping centers and multi-tenanted malls and is an additional payment that is expected on top of the base rent amount. The percentage lease payment amount is usually agreed as a percentage of the retailer’s gross income and in your lease agreement may be written as “Base Rent plus percentage amount of Gross Profits”.

Gross Rent Lease

A gross rent lease is similar to a percentage lease, although there is no percentage amount, instead the extra amount added to the agreed base rent is a fixed cost covering specific expenses related to the rental property. These expenses can include fittings and fixings and upkeep to internal appearance, while the main expenses occurring from the operation and maintenance costs are still to be covered by the landlord.

FRI Lease

An FRI lease can be looked at as a fully comprehensive lease to the tenant as they are expected to cover all costs in addition to the agreed-upon base rent amount. This includes the cost of maintenance, repair and insurance.

Premiums

Although most commonly found on residential leases, a premium is a name given to the amount paid by the tenant to the landlord in order to purchase the lease. When discussing premiums, tenants should be able to inquire after a rent reduction, however, this will be an agreement between the landlord and the tenant and there is no legal requirement.

Are You Brushed Up on These Commercial Lease Terms 3

Easement

An easement is a term used to define permission given for an individual or business to use the land of another, in residential terms this might mean crossing onto your neighbor’s property to fulfill a household task, such as tree trimming or taking the bins out. In commercial leases, an easement might mean similar access for waste, use of step-free entrances or shared use of a private car park. Check your commercial leases carefully for easement clauses, not only for your business, but for other businesses that have been granted permission to use or access land you are renting a property on.

Tenancy-in-Common

A tenancy-in-common lease is similar to a joint tenancy, leading to some confusion around the two. However, rather than shares automatically passing to other members of the agreement, in a tenancy-in-common lease, the individual interest shares can be inherited by named recipients.

Joint Tenancy

Joint tenancy is an agreement between multiple parties who each have a shared interest in a property they have joint ownership of. When one person passes, their interest share passes automatically to the remaining individuals in the joint tenancy agreement.

These are some of the most common terms you can expect to come across on your commercial lease and we hope you can use the above information to ensure you are well-versed during the agreement process. If you are unsure, always contact an impartial solicitor to go through unsure terms and clauses, rather than relying on the property management company or estate agent.

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