Aspects of a Florida Commercial Lease
The fundamental components of a commercial lease agreement under Florida law are comparable to those in other lease agreements. However, because leases involve a contractual agreement between a landlord and a tenant for the rental of commercial premises, certain specific legal requirements are applicable. A commercial lease must contain the names of the parties. A commercial lease typically can be signed by either an individual or a corporate entity. In many situations, the landlord is a corporation, limited liability company or other business entity, like an LLC, LP, GP, etc. A description of the premises must be contained in any commercial lease agreement. The property identified in the lease agreement must be a commercial property and not a residential property . The commercial lease must contain a description of the space being rented, the lease term (or duration), the rent amount, basic payment terms, security deposit requirements, information about the use of the property, and other items related to repair and maintenance of the property. (State) law does not require a commercial lease to be in writing in order to be enforceable. In contrast, residential leases must be in writing in order to be enforceable in most states, but not observed in Florida. That is, under Florida law a residential lease agreement is enforceable as a written lease if the lease extends for more than one year from the date it was originally created.
Florida Commercial Lease Agreements Available
In Florida, commercial leases are typically classified into three broad categories: gross leases, net leases and percentage leases. Landlords and tenants need to understand the ramifications of each lease type on their respective rights and responsibilities. The type of lease agreement guiding the commercial lease can be a critical distinction with many legal consequences.
Gross leases are the most basic type of commercial lease. Under a gross lease, the landlord pays all or most of the expenses of owning the property, including property taxes, and repairs and maintenance. The tenant then pays a flat rental amount in addition to utilities. Even though the landlord should maintain the property under a gross lease, the lease may require the tenant to repair any damage to the property.
The net lease is the most common commercial lease. With a net lease, the tenant pays the base rental amount as well as all operating expenses, property taxes, and insurance for the property. A net lease may be either "single-net" or "double-net." Under a single-net lease, the tenant pays the property taxes in addition to all other expenses. Under a double-net lease, the tenant pays property taxes and insurance in addition to all other expenses. The triple-net lease (also referred to as an "absolute net lease") is similar to a double-net lease with the key distinction that the tenant also pays to insure the property in addition to all other expenses. A triple-net lease is the most favorable to a landlord, but it also places the majority of the financial burden on the tenant.
A percentage lease is often used for tenants whose business depends on retail sales. Under a percentage lease, the tenant pays a base rent plus a percentage of its revenue. Percentage leases are most commonly used by shopping center owners and tenants. Landlords prefer percentage leases because their income increases with the success of the tenant. Tenants prefer percentage leases because they reduce their overhead.
Considerations and Requirements Under Florida Law
The most critical legal requirements for a Florida commercial lease agreement are that it must be in writing, signed by both parties, and contain a description of the property and the agreed terms of the tenancy. In most cases, Florida law does not specify how much notice a landlord must give before raising rent, forcing a tenant to terminate or renewing the lease at the end of the term. A requirement for providing notice is helpful for both parties and should be included in the agreement.
While Florida’s statute of frauds does not require a witness, notaries are typically requested when signing. Notaries provide an easier way to prove that the signatures were valid, which can help prevent disputes later on.
Any Florida commercial lease agreement that exceeds one year should be executed and signed pursuant to Fla. Stat. 689.01, with all parties present. If the lease is for one year or less, the lease does not need to be recorded. For longer terms, a lease must be in writing and recorded.
Florida real estate law requires possession to remain with the lessor until the first payment is made or a deposit is delivered (in that order). A rule of thumb for landlords is to make the first payment’s due date the same as the possession date.
How to Negotiate a Commercial Lease Agreement
While the negotiation of a commercial lease agreement in Florida is not a simple process, knowing best practices can help each side secure favorable terms. Landlords must understand what they are legally allowed to do, while tenants should do their best to protect their rights. The following tips will help landlords and tenants obtain the terms that suit them best.
Landlords have to protect their rights too. While you want to be accommodating to your new tenants, it’s important to understand the extent to which you are in control. When a tenant expresses potential interest in your property, you should be honest with them about your expectations for rental price and lease duration.
Expect tenants to inspect the premises—this is expected during negotiations and is in both parties’ interests. Tenants will want to make sure they like the commercial space before signing a lease, and landlords will want to confirm tenants are a good fit for the space as well. You can go through the Florida commercial lease agreement with them and encourage them to ask questions about each term. How will the rent change if a clause is activated? What costs may be passed on to the tenant?
Landlords should also be open to negotiations. For example, if the tenant inquires about shortening the lease’s duration, they may be willing to pay higher rent or agree to other stipulations in lieu of a longer lease. The tenant may be willing to pay more in exchange for waiving an option to extend.
Having a final meeting with your tenant is a good way to ensure you’re both on the same page before they sign the Florida commercial lease agreement. Tenants might want to add some provisions to the lease, while landlords may want to remove some terms from the lease, so it’s important to meet and go over all changes you agree upon. You should also use this meeting to present the lease (and any other necessary documents) to the tenant and explain anything that might require special attention. Once you have both agreed and signed the document, the terms of the lease will go into effect.
Typical Provisions in Florida Commercial Leases
A Florida commercial lease agreement contains numerous clauses, but it typically will have the following clauses:
Rent Payment
Among the most noteworthy of all the clauses is the rent clause. It will outline the amount the tenant will agree to pay for the rental of the commercial space. It will also outline if property taxes, insurance and/or utilities will be included in the base rent or if they will be separate charges in addition to the base rent to be paid by the tenant. Even if a commercial lease indicates the tenant will be responsible for property taxes, insurance and utilities, those bills should be broken down in a separate clause so each is clearly quantified and can be accounted for accordingly.
The rent clause will indicate the length of time for which the lease is valid. It will typically state that rent is due on the first day of every month for a 12-month period. It could state the rent is due every three months or every year, depending on what was negotiated by the parties.
Many commercial leases include potential rent increases at the end of the first year, the second year or every couple of years. It may include a clause that states the rent will go up based on the consumer price index or at the discretion of the landlord.
Amendments
An amendment clause will address how changes to the lease must be handled. The lease should state the amendments will be in writing to be enforceable.
Expenses
An expense or operating expenses clause will outline the items the landlord will pay for compared to the items the tenant will be responsible for. It may be broken down into a short statement or it could be a detailed list. It may also be stated in a formula that requires the tenant to contribute some percentage of the total expenses each month or year . It should clearly specify what the landlord is responsible for in the event that any repairs are needed. If this is not clear, the language should be modified so that both parties understand who is responsible for what.
Repairs
The repairs clause, or maintenance clause, will state who is responsible for the upkeep of the building and surrounding property, including things like snow removal and lawn maintenance. It could require the tenant to use the landlord’s service for all repairs. Alternatively, it could allow the tenant to make repairs its discretion, eventually submitting invoices with copies of receipts to the landlord for reimbursement.
Alterations
The alterations clause will require the tenant to get written approval from the landlord prior to making any major changes to the premises. It should allow the tenant to request changes in writing, and it generally prevents the tenant from proceeding with the change without the landlord saying "yes" or "no."
Indemnification
In the indemnification clause, the landlord and tenant will both agree to indemnify, defend and hold each other harmless from claims, damages, losses, personal liabilities and attorney fees associated with personal injury, death and property damage. This clause is not to be taken lightly. It is vital to protect your business liability by specifying the parties’ respective risks and responsibilities.
Termination
The termination clause will indicate the events that would allow either party to terminate the lease. In some cases, the lease may be terminated if one party breaches the contract. In some cases, the lease may be terminated without cause by giving 90 days advance notice.
Dispute Resolution Under a Florida Commercial Lease
Disputes between landlords and tenants commonly arise under Florida commercial lease agreements. There are several methods of resolving these disputes. An experienced Florida Property Attorney will be able to review your lease and advise you of the best method of dispute resolution and whether you will have the ability to initiate an action in court.
Mediation is a non-binding method of resolving disputes by which a mediator assists the parties to reach a resolution. Arbitration is a similar method which is typically binding on the parties. A court action may also be an option. A breach of a Florida commercial lease agreement could result in the ability to pursue a case for damages against the lease counterparty. An experienced Florida Property Attorney will review the provisions of your lease to determine whether you have any other options such as the right to recoup attorney fees and costs due to a breach of the lease.
Use of Legal Counsel in Lease Agreements
For both landlords and tenants, the Florida commercial lease agreement is a formal instrument. It is not governed by any standard real estate practice or a set of rules. The terms of any particular lease agreement are largely determined through negotiation.
In any form, of legal document, contract or agreement, consultation with an attorney is strongly recommended. However, this is especially true with commercial lease agreements. Signing a lease means agreeing to a long-term commitment, and the consequences of non-compliance are potentially severe. Understanding the responsibilities that Florida commercial lease forms entail is critical.
If you are a commercial landlord or tenant candidate , consultation with an attorney is essential. Even when the terms of a lease appear relatively simple, matters concerning a breach of contract are another story. Breaches become legal and may even end up in court. Even though some legal issues related to tenancy can appear obvious, it is important to consult an expert in Florida commercial leasing.
Issues that must be discussed with an expert in commercial leases include but are not limited to: Whether entering into a lease for commercial space is a positive or negative move is not always easy to see in advance. The financial obligations of the tenant are sometimes hidden in a long and complex lease agreement. Complying with a commercial lease can demand specific resources that are time-consuming, and therefore, costly.