Who Are the Parties in a Commercial Lease?

What Is a Commercial Lease?

A commercial lease is a legally binding contract made between a landlord and a business tenant to rent an office space or other business property from a landlord. Sometimes commercial real estate brokers negotiate these agreements on behalf of their respective clients. Ultimately, it is the owner who signs as the “LESSEE” and the tenant who signs as the “LESSOR”. A commercial tenant can be anyone from a sole proprietor with a small, growing business to a major multinational corporation.

A commercial lease agreement grants the tenant-specific rights to the property owned by theLessee. The purpose of a commercial lease is to outline the obligations of both the Lessee and the Lessor. Additionally, the lease outlines the rights and responsibilities of both the landlord and tenant during the lease term.

How Is a Commercial Lease Different from a Residential Lease?

While the basic concepts and terms of a commercial lease are similar to a lease you might have signed for an apartment or rental home, there are still differences between commercial and residential leases that you need to be aware of. Residential leases are often highly regulated with some terms that cannot be changed by law, even if both parties agree to waive those terms. On the other hand, commercial leases have virtually no restrictions beyond basic contract law.

In addition, commercial leases are much more customizable. While most residential leases use virtually identical language, you must carefully negotiate and review a commercial lease to ensure that it contains the exact verbiage you think it does.

Some key differences:

Fewer Consumer ProtectionLaws

Commercial leases are not subject to most consumer protection laws that govern residential leases -- for example, there are no caps on security deposits or rules protecting a tenant's privacy.

No Standard Forms

Many commercial leases are not based on a standard form or agreement; each commercial lease is customized to the landlord's needs. As a result, you need to carefully examine every commercial lease agreement offered to you.

Long-Term and Binding

You cannot easily break or change a commercial lease. It is a legally binding contract, and a good deal of moneyis usually at stake.

Negotiability andFlexibility

Commercial leases are generally subject to much more negotiation between the business owners and the landlord, since businesses often need special features in their spaces, and landlords are often eager for tenants and willing to extend special offers.

Required Parties

Identifying the parties in a commercial lease may seem like an “easy” task. It can get more complicated, however, as additional lease documents such as assignments, subleases, mergers, consolidations and name changing amendments occur in the months and years after lease execution. Since any one of these (possibly one-page) documents completely shifts the burden to perform lease obligations, it is crucial to identify who plays what role throughout the life of a lease. 

Lessor

The lessor is the person whois granting the lease and who has the legal obligations related to the lease contract; the landlord. Sometimes this is an owner, but it may also be a property management company or commercial leasing company.

Lessee

The lessee is the person leasing the space; the tenant. Although you may need to personally guarantee a lease, your business entity should be the official lessee on all documents relating to the lease.

Optional Parties

Guarantor

A guarantor acts as a guarantee that the rent gets paid during a situation when the tenant can't meet their financial commitment. The guarantor is as responsible for the lease as the tenant. That’s why it's so important to make sure everyone understands and agrees to the terms.

Assignor / Assignee

The Assignor is the Tenant from the original lease, who is now transferring his/her entire interest in the lease to someone else. The Assignee is the person who receives the lease interest from the original Tenant (the Assignor), and who becomes the newTenant.

Sublessor / Sublessee

When a tenant makes the decision to vacate the premises but does not wish (or is not granted permission) to end the lease, they may make arrangements for another party to occupy the leased space. The document of record controlling the rights and obligations of each party in this scenario is called a sublease and the parties to that agreement are called sublessor (or sub-landlord) and sublessee (or subtenant). It is important to note that subleases under most circumstances do not release the sub-landlord (who is also the lessee/tenant under the original lease) from its duties and obligations set forth in that original lease.

Other Parties that can affect Commercial Real Estate Leases

Anchor Tenant

An anchor tenant is a well-known business that leases office space in a neighborhood, building complex or any other office space development that attracts not only a lot of customers but also other companies to the area.

A retail property such as a shopping center, a shopping mall, or a tourism hub often has a department store—usually a global retail chain—as its anchor tenant. Shopping centers and malls typically display the anchor tenant’s name front and center on the marquee, with all the other businesses and stores in the shopping center listed below it. Industry-standard dictates that anchor tenants will likely occupy any where from 45 to 70 percent of the shopping center’s total square footage.In addition, retail anchor tenants typically pay 5-10% lower rental prices than other tenants.

No matter the type of property you own, you can count on the experts at Evanco Realty Advisors for the very best in full-service commercial administration. We provide everything you need to minimize your ownership workload and maximize the return on investment for each of your commercial properties. We provide peace of mind to owners, implement excellent property management services that enhance value for landlords.

Call us today at (619) 814-1688 to see how our commercial property management strategies can help you!