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When a business entity or tenant and a landlord enter into a legally binding contract, it is known as an Arizona commercial lease. It is typically more sophisticated than a typical residential lease and spells out the requirements of renting an office, retail, industrial or other commercial space. A commercial lease agreement is a binding legal agreement between the owner of a commercial property, the landlord, and the tenant, who wants to rent the building for the purpose of operating a business. 

When it comes to any business owner in Arizona, a commercial lease is a crucial document. Moving an operating firm to a new site can impact the business's success, so the terms and conditions should be carefully evaluated. Landlords must also thoroughly investigate prospective tenants' backgrounds.

Relocating to a more advantageous location can occasionally enhance business operations if it attracts more clients. In this situation, the company owner will need to carefully prepare for the transition. To prevent having to pay a sizable sum to terminate a commercial lease early, the move should be planned to take place on or around the lease termination date. The opposite can also occur. When the lease ends, a flourishing company that is located in a great area can be compelled to relocate. Otherwise, the company might see a huge rent increase that significantly lowers the earnings.

Arizona Commercial Lease Agreement

The most essential elements that need to be included in an Arizona commercial lease agreement include:

Personal Information of the Parties Involved and the Use of the Leased Premises

Include a list of all the parties to the rental agreement together with their names and phone numbers. You need to identify the lessor, the lessee, and any property managers. This sets forth the specific conditions under which the tenant may use the premises. The landlord needs to include any usage limitations and restrictions.

The Lease Term and a Description of the Leased Premises

Mention the beginning and ending dates of the lease. Include the initial lease term's duration in years and months. Any renewal terms also need to be included. Indicate whether and for how long renewals are authorized. It is also crucial to state any limits on rent increases. The landlord also needs to include a thorough description of the space that is being leased as well as its physical address.

Lease Rate and Penalties

The agreement needs to contain the monthly rent payment amount and the due date for the payment. Include the location where the lease payment is due, as well as the accepted payment methods. It is also crucial to mention how many days a lease payment can be overdue due before incurring late fees as well as the amount of the fine for being late. 

Security Deposit

Include the security deposit amount and the steps taken to reimburse the security deposit following the end of the lease.

Taxes, Utilities, Insurance, and Other Expenses

There are three possible arrangements for commercial leases: gross lease, triple net, and modified-gross lease. In a gross lease, the landlord is responsible for all costs. Furthermore, in a triple-net lease, the tenant is responsible for all costs. The renter may be required to maintain a minimum level of insurance per the landlord's specifications.  In a modified-gross lease, the landlord and tenant each contribute a portion of the costs. Therefore, the tenant pays a portion and the landlord pays a portion depending on the agreed terms. You need to list all expenses in detail and indicate which ones (or percentages thereof) are covered by the landlord or the tenant. 

Leasehold Improvements

Commercial lease agreements need to include a thorough breakdown of any upgrades the landlord agrees to finance. It must also have a thorough explanation of any leasehold upgrades that the tenant will undertake and fund. Determine who will be in charge of any leasehold improvements once the lease expires. Lastly, you need to specify any obligations the tenant may have to restore the leased property to its former state once the lease has ended. If the tenant has received the landlord's consent, they will be able to redecorate or make changes to the commercial property.

Default and Possession and Miscellaneous Terms

A landlord needs to describe what happens when a renter violates the conditions of the lease or doesn't make their monthly lease payment in a timely manner. Additionally, you need to describe the procedure the landlord will follow in the event that the tenant defaults on payment.

Any unique clauses that are required by the specifics of a leasing agreement need to be included in commercial lease agreements; for example, the landlord should not be able to unreasonably interfere with the tenant's business. Therefore, all minor details need to be stipulated in the agreement.

Disclosures

Under Arizona law, there are some lead risks, essential data, and rules that must be disclosed. These include:

  • Zoning, Taxes, and Restrictions: Commercial lease agreements must contain a written disclosure of any applicable local zoning regulations, usage limits, tax concerns, or other regulatory requirements that might have an impact on the commercial rental property.
  • Material Facts: According to Arizona law, a landlord is required to disclose any pertinent information regarding the leased property that would obstruct its intended use as a business. If a fact is relevant, it should be shared even if a possible tenant doesn't ask about it. The landlord can add an amendment to the lease agreement to accomplish this disclosure and have the tenant sign it to acknowledge that they were provided notice of the fact(s).
  • Lead-based Paints: A landlord is only required to provide a prospective tenant with a lead-based paint hazard notice if the use of the building could put children at risk of exposure to lead if the commercial space was constructed before 1978.

Build Your Own

Do you need some help building commercial lease agreements? If you don't have the time to draft one yourself, DoorLoop offers sample commercial leases that you can download. You can download the template in Word and PDF formats. Additionally, the document can be changed to suit your unique needs. If you're looking specifically for a commercial rental agreement in Arizona, we've got you covered:

Tips for Landlords

Have the commercial lease contract reviewed by an experienced lawyer. Insist on the landlord's approval of any sublease application, which cannot be unreasonably withheld, if a sublease provision is present. It's not always a bad thing to have a lease renewal agreement that specifies rental hikes. A business entity might become a reliable, long-term tenant as a result of this. Additionally, it lessens the possibility of an extended vacancy and makes estimating future cash flows easier.

There are certain leases that only cover the leasing of the premises. Phone service, electricity, CAM fees (common area maintenance), internet, and other services are sometimes included in leases. When drafting the lease, be sure to be explicit about what will be covered.

Tips for Tenants

When creating a commercial leasing arrangement, work with an experienced lawyer. Favorable terms are typically easier to negotiate during the original contract. If you want to provide a realistic way out of the lease agreement, think about inserting a stated financial amount as a penalty for early termination. A sublet clause that permits a tenant to sublease the rental property to another party for the balance of the lease term may also be negotiated. Perhaps include a renewal clause that, when the lease is renewed, caps rent increases at a percentage of the monthly lease payment amount. A renewal cause may also help ensure that the landlord does not start letting the property to other tenants when the original lease expires. When studying the lease, make sure you are also aware of what is included so that there are no unexpected costs.

The Bottom Line

A lease for a commercial property differs significantly from a standard residential lease. Although writing a rental agreement may seem difficult, by carefully reading each clause, you can ensure that you will produce a document that both parties will approve and that will help you avoid any legal problems. When drafting a lease agreement for the first time, especially if you own a rental business, it is a good idea to use a platform such as DoorLoop to simplify the procedure. We can help you with the professional and straightforward drafting of an Arizona commercial lease agreement.

FAQs

What Happens if the Tenant Breaches the Contract?

If there is a breach of contract, the landlord is permitted to seize the tenant's personal property if there is any. However, this can get complicated, so it's vital to obtain legal advice from a law firm.

Does an Arizona Commercial Lease Agreement Need to be Notarized?

In Arizona, commercial leases do not need to be notarized. However, if either party desires, they can notarise the rental agreement. Any addendums might also have to be notarized if the lease is notarized.

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David Bitton

David is the co-founder & CMO of DoorLoop, a best-selling author, legal CLE speaker, and real estate investor. When he's not hanging with his three children, he's writing articles here!