Contributed By McGuireWoods LLP
As described above, the terms of a lease may vary depending on the identity of the parties, the nature of the use, the property being leased, and the various needs of the parties. Because commercial leases are not heavily regulated, the parties are free to negotiate virtually unlimited variations, depending on their particular circumstances. However, the following are examples of typical lease terms.
Length of Term: terms are sometimes as short as one year when needs are temporary, or even “month to month”. For most small retail and office leases, a typical term may be three to five years in length, often with one or more renewal options for similar periods. In contrast, leases in which significant renovations or investments are made, or in which significant incentives are offered (eg, anchor retail leases, headquarters office leases, etc), may have terms closer to ten years or more, also with renewal options. Ground leases are typically much longer, for at least 20-30 years (with options to extend), and sometimes as long as 99 years.
Maintenance and Repair: in a multi-tenant facility, a tenant is typically responsible for all interior, non-structural repairs and maintenance of its particular premises, while the landlord is responsible for maintaining the roof, foundation, exterior walls and other structural elements, and also the common areas (eg, parking, landscaping, common stairwells and elevators, etc). In multi-tenant facilities, landlords will often also be responsible for the maintenance of HVAC, electrical, plumbing, and other similar “systems” that serve the entire property, while tenants are typically responsible for any systems that exclusively serve their premises. In contrast, in a single-tenant facility the tenant may be responsible for all repair and maintenance for the entire property, including common areas, although landlords often remain responsible for certain key structural elements (eg, the roof). In some cases, landlords may also remain responsible for major capital replacements, including for HVAC or other systems. Finally, in a ground lease the tenant is typically responsible for any and all required maintenance or repairs.
Frequency of Rent Payments: m,ost commercial leases specify an annual base rent that is payable in equal monthly installments. However, parties are generally free to negotiate this, and rent may be paid quarterly, annually, or in any other manner. Similarly, in triple net leases or other leases with “additional rent” components, the tenant’s share of taxes, insurance and operating expenses are often paid monthly, based on the landlord’s estimated costs (and later adjusted when actual costs are determined). However, in some cases landlords reserve the right to charge these amounts in lump sums or as costs are incurred (eg, when taxes or insurance premiums are actually paid). In contrast, percentage rents are normally paid less frequently (eg, quarterly or bi-annually), depending on the negotiated reporting periods and given the administrative burden of calculating and reporting sales on a monthly basis.