Most businesses require a physical location. While purchasing your own property is one option, for many new or small businesses, leasing property is the more affordable option. This option also often offers more flexibility if the business outgrows the space or otherwise needs to leave a particular property behind. However, commercial leases can be confusing. In some ways, they are quite similar to the residential leases that most people are familiar with. However, there are some significant differences that can cause problems if you do not understand what you are signing. Before signing your first or next commercial lease, make sure you are familiar with the essential elements of these leases. If you have other questions about commercial leasing, call Business Law Group at (504) 446-6506 to schedule a consultation with one of our commercial real estate attorneys and learn more about how the terms of these leases impact you and your business. 

Types Of Commercial Leases

There are several kinds of commercial leases. The most common are net, full-service, and percentage leases. Net leases require a set rent plus all utilities, which allows the amount paid each month to vary based on the cost of the utilities. Full-service leases require a set rent and the landlord is responsible for everything. Percentage leases require a base rent plus a percentage of the business's gross income.

When leasing commercial property in Louisiana, any of these leases may be an option, but it is important to understand the specific terms of each before signing one. The elements vary slightly depending on the type of lease, but most leases share certain elements. 

Essential Elements of Commercial Leases

Commercial leasing can differ from residential leasing in many ways. Before signing any commercial lease, whether as a landlord or tenant, understanding the essential elements of commercial leases is important to making sure it is a fair contract to both parties. 

Parties Involved

This clause is critical as it identifies the parties involved in the lease. This should include the full legal names and contact information for both the tenant and the landlord. Business names should also be included. If there is more than one property owner or more than one tenant, each person should be named in the lease. This clause should also outline the roles and responsibilities of each person named, such as whether two or more tenants are responsible for the rent together or separately. 

Property Description

While this clause would also be useful in residential leases, it is essential for commercial leasing. This clause should include a comprehensive description of the property being leased. This should include the address, square footage, any included amenities or furnishings, parking, storage, shared spaces, and any other details that either party can think of. There should also be a detailed description of the property's condition. Both parties may want to take photos of the property when the lease is signed so that there is a clear agreement on the property's condition. 

Terms and Conditions

Part of every lease, whether residential or commercial, should be the terms and conditions of the lease. This includes details such as: 

• Agreement Duration: This should include details such as the length of the lease, renewal options and requirements, and lease termination details. Louisiana CC Art. 2678 indicates that the term can be a fixed term, such as one year or ten years, or it can be indeterminate. This law also states that if the parties do not indicate a designated date or specific event upon which the lease terminates, it is indeterminate.

• Rent Details: Include the rent amount if it is a set amount or the method by which rent is calculated if it is based on a percentage or other method, the due date, accepted payment methods, and consequences of late payments. 

• Property Use: This should define the activities permitted on the premises, any activities that are restricted, and whether the tenant can make improvements or alterations to the property. 

• Maintenance Responsibilities: This clause should go over upkeep responsibilities, such as who is responsible for minor repairs such as a leay faucet or clarifying tenant responsibility for maintaining all furnishings that they bring into the property. 

• Rent and Security Deposit: This clause should include details about the security deposit, including the amount and conditions for returning it upon the lease's termination. If there are additional details, such as the security deposit being broken into payments and paid with the rent, it should specify the amount of the rent and the amount of each security deposit payment, and how many payments there will be for the security deposit. 

• Insurance and Liability: This should address insurance requirements, liability limits, and indemnification clauses. For example, the lease may stipulate that the landlord requires the tenant carry liability insurance of a minimum amount and that they indemnify the landlord against liability claims (ensure the landlord is not legally liable). 

Maintenance and Repairs

While minor maintenance and repair issues may have been addressed in the terms and conditions, there should be another clause that covers major maintenance and repairs. In commercial leasing, this section should outline when and how inspections will be done. The clause should also specify who will handle maintenance and repairs such as the roof, electrical or plumbing problems, parking lot or sidewalk issues, and other significant concerns. 

Utilities and Services

Commercial leases must stipulate who pays which utilities for the property. This clause should cover basic utilities such as electric, water, trash, telephone, and internet. Additional services that are provided, such as lawn maintenance, should also be listed with any associated costs and terms and who is responsible for those. 

Documentation and Permits Required

The lease should also indicate any documentation, permits, or licenses that the tenant's business must have before operating in the space. This protects both the tenant and the landlord against businesses operating illegally. While not legally required, either party can opt to add copies of these permits or licenses to ensure compliance. If either the landlord or tenant is uncertain what permits or licenses may be required, they can use the Louisiana Secretary of State's geauxBIZ to create a checklist of the required documents. 

Additional Clauses

There are other clauses that may be essential to a specific property type or business type that are not necessary for others. To ensure that commercial leases contain all the appropriate information to protect both the landlord and tenant, consider whether any of the following clauses may be required: 

• Rent increases

• Subletting

• Right of entry

• Waivers

• Holdovers

• Indemnification and bankruptcy statements

• Smoking rules

• Sign placements

• Advertising terms

• Force majeure

If you are uncertain whether you need to include these or other clauses in your commercial leases, our knowledgeable commercial real estate attorneys with Business Law Group may be able to assist you.

Does the Lease Need To Be Notarized?

Commercial leases are legally binding documents. However, Louisiana law does not require them to be notarized. If the landlord or tenant prefers to have the lease notarized, they can opt to do so but it will not change anything for the lease. 

Can You Update the Lease After Signing?

Commercial leasing allows for a lot of flexibility for both landlords and tenants. From term lengths to property uses, many aspects of a commercial lease are negotiable. While it is recommended that both parties negotiate terms before signing the lease as this is the time when both will have the most leverage to get the terms they want, any lease term can be re-negotiated and updated at any time during the lease's life. 

If changes are made, both parties should make sure that those changes are made in writing and are clear and detailed, allowing no room for confusion or dispute. Additionally, it is important to make sure that any changes are noted on all copies of the lease. If the parties opted to notarize the lease when it was initially signed, they must make sure to have any changes notarized as well. 

How Can a Commercial Real Estate Attorney Assist You?

When it comes to commercial leasing, there is a lot of room for negotiations. A commercial real estate attorney may be able to assist you with drafting and reviewing the contract, ensuring fair and reasonable clauses including termination and subletting, and ensuring the lease is clear and detailed. If you have additional questions regarding commercial leases, Business Law Group may be able to assist you. Call (504) 446-6506 to schedule a consultation and learn more about leasing commercial properties.