We know that a Commercial Lease is a kind of contract, which is used when we need to rent a business property to or from another individual or company. The lease gives the tenants the right to use the property for business purposes during the term of the lease in exchange for payment to the owner of the property.
A commercial lease,generally, covers the property owner and tenant’s information, which includes the information about a guarantor, the amount of rent payable, the duration of the lease term and any pertinent information, which constitutes together as a term of lease.
The longer version of this contract is always inclusive and allows precise specifications to be provided for the terms of the lease. The short version has a more general kind of lease agreement and it does not include any clauses or terms that are unnecessary. Unlike a residential lease, a commercial lease tends to cost the tenant many times more than a residential lease and is made for a duration that is longer, which often-lasts around 5 years but it can be of a lesser durationor a greater durationas againstan average of 11months duration in case of residential lease in normal circumstances.
In India, the prevalent commercial leases are usually term based and they would be having a specific time limit after which the lease would be unenforceable i.e. it will expire. In the olden times, some leases used to be perpetual by nature but it has become a rare practice now as the property value and rents are steadily increasing.Nevertheless, there are other categoriesof lease apart from the general straight forward leases i.e. master lease/sub lease, here the lease gets a further right to lease the property to more persons.
- Master Lease: In this kind of lease, the original leaseholder or the tenant is the master tenant in case a sublease is created.
- Sublease:In this case, the original tenant can assign some or all of his interests in the premises to the third party. Here the original tenant becomes the master tenant and the new tenant becomes the subtenant. The point to be noted here is that the original is not replaced but is responsible for rent and damages for the term of the lease. The only way out for that person is through novation of the original lease agreement with the landlord’s consent.
Globally, different types of leases are prevalent, with various nomenclature. Slowly these types of leases are making their mark in India as well with regard to specialized kind of transactions. These types of leases can be listed as under:
- Net Lease–
In this type of lease, the tenant is responsible for paying the rent along with property taxes accruing for the premises.
- Double Net Lease(NN)-
Here, the tenant has to pay the rent along with the property taxes and the insurance costs applicable on the premises.
- Triple Net Lease(NNN) –
In this type of lease, the burden on the tenant is increased considerably as they have to now pay the rent amount along with their share of property taxes, insurance premium and the operating cost of the premise.
- Gross Lease–
In case of this type of lease, the tenant has to pay to the landlord one set of rent and in turn, the landlord will pay for the insurance, real estate taxes and bear the maintenance costs. This type of lease is common in case of places having multiple tenants.
- Modified Gross Lease–
This type of lease is more or less similar to the gross lease conditions but here the tenant has the responsibility to pay for the janitorial services provided in and around the premises.
- Industrial Gross Lease–
As per this category, the tenant is also responsible for paying for their share of utilities and janitorial services along with the basic rent of the premises.
- Full Service Lease-
In this kind of lease, all the services, including utilities and janitorial services, are included in the rent.
- Index Lease –
Here, the amount of rate of rent is dependent on the price index like the e consumer price index (CPI). This is a type of neutral percentage rate and neither party has any control over it.
- Percentage Lease–
This type of lease is dependent on the percentage of the gross sales received by the business. It varies from year to year based on the success of the business.
- Graduate Lease –
Here, the amount of the rent varies for future years depending on certain factors like gross income, or an annual percentage increase.
- Step Up Lease –
In this type of lease, the amount of rent is increased by a pre-set rate or a set amount that is to be paid on a set schedule.
- Straight Or Flat Lease –
This is the basic type of lease that is commonly used among the listed leases above. Here the amount of the rent is fixed for whole term of the lease.