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Glossary of Lease Provisions

A lease is a legally binding agreement between the tenant and the landlord. Like any other contract, lease terms are often negotiable. This glossary can give you a fundamental understanding of provisions commonly contained in commercial leases. Do not rely on these terms as legal advice. Seek the advice of an attorney.

  • Competition: Restricts the landlord’s right to lease nearby space to businesses similar to the tenant. Commonly found in retail space leases.
  • Compliance with the federal Americans with Disabilities Act (ADA): Guarantees that the building is in compliance with the ADA. This is important because both the tenant and the landlord are responsible for ensuring the property is accessible to persons with disabilities. The tenant should be certain that the landlord offers this warranty based on a survey or audit completed by an architect or engineer.
  • Condemnation or destruction: Determines whether the landlord must rebuild in the case of property destruction. This clause will determine any rent abatement or termination of the lease if the building is destroyed. The lease will determine the rights of the landlord and tenant if the government takes the property under eminent domain.
  • Enforcement: Specifies enforcement of the agreement and which party pays attorneys fees. Businesses often negotiate clauses into leases requiring the parties to resolve any disputes through alternative dispute resolution.
  • Escalation clause: Determines the rate of rent increases over time. Commercial leases usually contain escalation clauses that can be linked to increases in the landlord’s operating expenses or the tenant’s increasing income.
  • Expansion: Determines the tenant’s rights to develop the property or to acquire a bigger, vacant space within the building.
  • Grace period: Provides a period of time to comply with lease terms. This clause may specify the time when the tenant must resolve rent default.
  • Insurance and liability: Determines who is accountable for casualty and liability insurance and the necessary coverage.
  • Landlord and tenant (lessor and lessee): Identifies the parties by their full legal names, states of incorporation, and principal business addresses.
  • Landlord improvements: Determines improvements the landlord is required to make to the property before the tenant takes possession.
  • Landlord’s solvency: Describes the tenant’s rights when the landlord is in fiscal trouble and the leased property is foreclosed.
  • Maintenance and repair: Determines responsibility for the maintenance and repair of the various portions of the property.
  • Option to buy: The tenant has an option to purchase the property at the end of the lease term. This provision should specify the option price and when and how the option must be exercised.
  • Property: Describes the lease property in full. The description should include the suite number, street address, city, state, and zip code, the number of square feet in the space, and the means of measuring the square footage.
  • Rent: Explicitly records the rental price and when and how rent must be paid. The manner of computing the rent—flat rate, proportional to income, et cetera—should be stated in this clause.
  • Renewal option: The tenant has the option, under this clause, to renew the lease when it expires. The clause should also include the option period and the amount of rent be paid during the renewal term.
  • Right of entry: The landlord has the right to enter the property, with a greater or lesser degree of notice to the tenant.
  • Security deposit: Determines the amount of security deposit the tenant must provide when initially signing the lease. This term should also include what the security deposit will be used for, where it will be held, and whether it will earn interest.
  • Subletting or assignment: The lease can give the tenant the right to sublease or assign the property if the tenant chooses not to remain in the property for the entire term of the lease or wants to rent part of its space to someone else. This clause should specify the conditions when the tenant can avail itself of this right.
  • Taxes: States whether the landlord or tenant is liable for the property taxes.
  • Tenant going out of business: This clause describes the right of the tenant to close the store or reduce rent if another anchor goes dark. Oftentimes, when a major customer-attracting business goes dark, adjacent businesses can be severely affected.
  • Tenant improvements: Determines whether the tenant has the right to improve the property and the extent to which the landlord will allow such improvements.
  • Termination: Imposes an obligation on the tenant to return the property to a certain condition upon termination of the lease.
  • Termination date of lease: Determines the end date of the lease.
  • Term of the lease: Identifies, in months or years, the duration of the lease and states when the tenant is entitled to take possession.
  • Use of premises: Describes restrictions on the use of the premises.
  • Utilities and services: Defines the utilities and services each party is responsible for and the days and hours provided.
  • Warranty: Guarantee from the landlord, express or implied, that the property complies with applicable laws.
  • Zoning: Regulations and restrictions that dictate what property may be used for based on geographic location.

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