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Signing a California Commercial Lease Agreement: What You Need to Know

There are several things that a small business owner or operator should consider before signing a California commercial lease agreement.

Unlike a click-through agreement for an online app, which many people click their acceptance for without reviewing the agreement in detail, a prospective tenant needs to understand each paragraph of a commercial lease. In addition, understanding the contract language in a commercial lease agreement can be essential for avoiding future expenses.

While these agreements are governed by basic contract law, landlords have a high degree of latitude as to what a contract can specify.

It would be prudent for any prospective commercial tenant to seek the advice of a real estate attorney before signing a commercial lease agreement. This is especially true for someone whose business is leasing commercial space for the first time.

Forms of commercial properties

Multiple forms of commercial properties are available to be leased by a business. Each may have a different set of lease clauses. These forms include:

  • Garage
  • Hospitality
  • Industrial
  • Office
  • Retail
  • Warehouse
  • Storage

Three California commercial lease agreement types

There are three main types of commercial leases. Each type allocates property expenses differently between the parties — the tenant and the landlord.

Property expenses generally include real estate taxes, property insurance, and common area maintenance (CAM) charges. What’s a part of CAM and what is excluded from CAM should also be considered.

1. Gross Lease

With a gross lease, the landlord pays for all property expenses, including utilities, maintenance, and repairs. Then, the tenant only needs to write a check for each month’s rent.

They don’t need to worry about unexpected expenses and can focus on running their business.

2. Triple Net Lease

A triple net lease is also known as an NNN lease. With this type of lease, the tenant makes the payment for property expenses.

Triple net leases are the most common for multi-tenant industrial and retail properties. Operating expenses can be higher than for office space.

Triple net leases are better for the landlord, as the tenant is responsible for any unexpected expenses.

3. Modified Gross Lease

A modified gross lease is a form of compromise between a gross lease and a triple net lease. Under this type of lease, the landlord and tenant share property expenses.

Utilities and interior cleaning services are common tenant-paid costs under a gross modified lease.

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Off-Lease Items

Commercial tenants are usually responsible for paying for internet and telephone service.

On that note, a prospective commercial tenant should ask the landlord what carrier or carriers (Comcast, AT&T, Frontier, etc.) supply the building.

Beyond the carrier name(s), it’s worth finding out what the physical connections to the building are. For example, is the building being served by fiber optic cable? Is fiber service planned? Fiber is the fastest form of internet service.

It’s also worth asking whether more than one carrier services the building. This is important if doubling up on internet connections (redundant service) is being considered.

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Lease Details

Many other details can be a part of a commercial lease. These include the lease term; the number of allocated parking spaces; what happens in the event of the sale of the property; the option to renew; what would cause part or all of the security deposit to be withheld; access hours; signage; pets; etc.

A real estate attorney can help with many of these types of details.

Example California Commercial Lease Agreement Sites

There are a number of websites such as eForms and Public Legal that allow for constructing a California commercial lease agreement. Documents can be downloaded in standard formats, such as Adobe PDF, MS Word (.docx), and OpenDocument.

California Commercial Lease Agreement Template Thumbnail

These documents should be viewed as a starting point rather than a definitive document for a would-be tenant’s specific situation.

A prospective tenant should discuss the terms of a “standard” commercial lease with the property landlord or management representative. A lease’s language can be revised if needed.

Alternatives to Signing a Commercial Office Space Lease

For startups that require little more than a desk and an internet connection for each employee, coworking spaces have become an increasingly viable and available option.

With a coworking space, a startup can get a central location, amenities, and flexibility without having to risk a lot of capital.

A coworking space can be a stepping stone to a traditional commercial office space lease.

Coworking companies in our Northern California market area include Capsity & The Workshop in Sacramento and Business Workspaces in El Dorado Hills.

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