Types of Commercial Leases in Pennsylvania
Commercial leases are more complicated than residential leases because the terms can vary from lease to lease and are generally negotiable. Knowing the different types of leases is important because some are going to require you, as the lessee, to pay for more than just renting the space. Here are some common lease types:
The Gross Lease: A gross lease, which is often used for office or retail space, means the landlord, or owner, pays for everything associated with the space you’re leasing, including taxes and maintenance. The lessor passes on your portion of these expenses in your rental amount.
Net Lease: Sometimes also called a Single Net Lease, this requires you, as the tenant, to pay not only rental for the space but also for the “usual costs” of operating and maintaining the property. “Usual costs” include taxes, utilities, property insurance, and the like.
Triple Net Lease: A Triple Net Lease (NNN), often used for single standing structures, requires you, the lessee, to pay all real estate taxes, building insurance, and property maintenance, in addition to a rental fee.
Percentage Lease: Often used in retail spaces and malls, the lessee is required to pay not only a monthly rental fee but also a percentage of revenue earned.
Important Matters to Consider in a Commercial Lease
If you’re the lessee, you should first realize that a lease is potentially going to give the landlord, or lessee, tremendous power over you. If you sign a five-year lease and go out of business after two years, you will be liable for the remaining three years of payments under the personal guaranty clause of your lease.
In Pennsylvania, landlords have broad powers to evict you. They can give you a Notice to Quit if you’re late on the rent. The notice requires you to pay up in ten days or move out.
Landlords can also, under Pennsylvania law, evict you if you miss a payment, you’re continually late on payments, or you have violated your lease in any way. If the lease is for less than a year, you have to move out within 15 days. Under a longer lease, you have 30 days.
Before you even sign the lease, you should seek the help of a knowledgeable attorney and negotiate the terms to modify or remove the personal guaranty clause. Related to this issue is an often-used lease clause concerning subletting or assigning the lease to someone else. Landlords will either try to prohibit or severely limit your right to sublease. This too should be addressed in negotiations to give you more flexibility.
Lease Clauses Demanding Your Attention
Two other important clauses to consider are the use clause and the exclusivity clause. A use clause in your lease specifies for what purpose the property may be used, for instance, only for warehousing, for retail, or as a restaurant. This relieves the landlord of having to remodel the space every time a new tenant comes in.
The exclusivity clause favors the tenant and should be asked for if there are adjacent spaces under the control of the same landlord. Say you are going to use the space as a retail jewelry business. You can request an exclusivity clause requiring the landlord not to rent any other space for jewelry sales.
Other matters to consider in a lease include:
Signage: Are there any restrictions on the signs you can use on the property to advertise your business? Make sure signs and their use are covered in the lease, preferably to your standards if possible.
Permits: If you add a permit contingency clause to your lease, you can back out of the agreement if you cannot obtain the needed permits to operate your business or comply with local zoning laws.
Relocation: A lessor can, unless you include a relocation clause in your lease, require you to move to a different location. The landlord may decide a new tenant occupying your space will be more profitable, so he may ask you to relocate to another space he operates. A relocation clause can limit the lessor’s ability to force you to relocate or at least get him to cover expenses.