Understanding commercial leases

If you are starting a new business in Massachusetts, one of the first things you must do is find a location from which to operate it. Welcome to the world of commercial leases. If you have never before negotiated one, you will find the process considerably different than merely signing a normal preprinted residential lease like the one you signed for your apartment or rental house.

While many commercial leases contain various preprinted boilerplate paragraphs, you will find that you have far more flexibility to negotiate many of the lease’s terms. You likely also will discover that a commercial lease contains fewer protections for both you and the lessor. This is because the law presumes that you and your potential landlord have more knowledge and sophistication in business negotiations.

Typical negotiable terms

While each commercial lease is unique to the parties involved, negotiable terms usually include the following:

  • Rent amount
  • Security deposit amount
  • Length of lease term
  • Rent increases during the lease term
  • Which party pays for which property improvements
  • Signage

Types of leases

Commercial leases have several different types, and you need to make sure you thoroughly understand which type you are signing and the consequences of each of the following:

  • Single net lease, a/k/a net lease
  • Modified gross lease, a/k/a modified net lease
  • Net-net lease, a/k/a double net lease
  • Triple net lease
  • Full service gross lease

If your business will be one of several operating in a commercial building, your lease likely will be either a full service gross lease or a modified gross lease. In these types of leases you and your landlord probably will split the costs of building repair and maintenance. You may also split operating expenses such as insurance and taxes. Be aware that if the taxes and/or insurance rates increase during your lease period, your rent may not necessarily increase. Conversely, however, your rent may not necessarily decrease if these operating expenses decrease during this period.

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