When it comes to leasing commercial property, drawing up a lease agreement is arguably the most important part of the process. Having a lease agreement is an essential step in securing the future of your business.
However, new rental business owners may be intimidated by the process of drawing up a rental agreement. Fortunately, we have devised a detailed guide to help you draw up a contract that is clear, concise, and detailed.
In this guide, you'll learn everything you need to know to help you build a commercial rental contract.
If you're looking for a quick and easy way to draw up a rental contract, you can use DoorLoop's intuitive lease agreement builder that lets you create flawless, professional agreements every time.
A lease agreement is a legally binding contract between a landlord (lessor) and the tenant (lessee). In the case of a commercial lease, the landlord is the owner of the building, and the tenant is a business that rents the commercial, industrial, or office space.
These contracts are designed to ensure that a company can conduct its business in a commercial space. Unlike residential leases that generally cover a two-year period, commercial rental agreements can have a term of up to 10 years.
Moreover, commercial lease agreements typically contain more information, such as responsibilities and terms and conditions, than a residential agreement.
In Illinois, there are three different types of commercial rental contracts that you can use. They are:
1. A Triple Net Lease
A triple net lease provides a better position for the landlord. In addition to the property's rental cost, the lessee is also responsible for other costs such as insurance, property taxes, and maintenance costs.
2. Gross Lease Agreements
Because they are only liable for the rental value of the property, occupants typically favor this arrangement. With this type of contract, the landlord is responsible for paying the utilities as well as the insurance, property taxes, and expenses related to maintenance.
3. The Modified Gross Lease Agreement
Most landlords and tenants prefer to use a modified gross lease. This hybrid alternative might be quite alluring for both parties.
Under this agreement, both the tenant and landlord agree on the building expenses each will be liable to cover.
With this type of lease, the landlord would pay the property tax and any extra costs, while the tenant would be responsible for the rental amount, insurance, and maintenance charges, for example.
What to Include
Now that you understand what a commercial rental contract is, it is important that you know what should be included in it. After all, the document is intended to safeguard your business.
Given the broad differences in conditions between landlords and tenants, it is essential to ensure that the terms of a rental agreement meet the needs of both the lessor and the lessee.
In the section below, we'll provide details on what to include in your lease.
At the beginning of your agreement, it is important to include important information, such as the:
- Date the contract was signed
- Parties involved and how they will be referenced in the agreement (for example, the landlord could be referred to as the lessor and the tenant the lessee)
- Lease term
2. Property and Tenant\Landlord Details
All parties involved (including the tenant, landlord, property manager, and others authorized to act on the landlord's behalf) must have their full names listed at the top of the contract.
In contrast to a typical lease, the names of all involved parties and the registered name of the business renting the space must be stated. Moreover, the property address and the zoning information should also be noted towards the top of your agreement.
2. Terms and Conditions
The terms of the agreement are another element of the lease that must be clearly defined. Here, the start and end dates of the rental contract must be included as well as when the tenant will be expected to pay rent.
Strategies for struggling businesses should be in place because companies occasionally experience financial difficulty, and it is important to mention this procedure in the event that a tenant finds themselves in such a situation.
A landlord can allow the owner of a bankrupt business to withhold rent from the property, but this is usually on a case-by-case basis, so the provisions in place for your particular situation should be made explicit in this section.
3. Security Deposit
The lessor uses the security deposit to pay for any necessary repairs and maintenance of their commercial establishments. In this section of the lease, the landlord must specify the security deposit amount and where it will be stored.
During a business lease, utilities such as heating, internet and telephone services, and power can be in multiple hands during the lease term, so it's essential for the contract to expressly mention which party is liable for the relevant utilities.
Additionally, insurance coverage for the space may be included in this section with details about the relevant insurance company.
5. Parking Arrangements
Parking is an essential element for commercial businesses, so this detail must be mentioned in the lease. The agreement should expressly note if an additional fee is necessary for the repair and maintenance of allotted parking spaces.
6. Repairs and Maintenance
It's important to consider who will do the property's repairs, renovations, and maintenance. While the landlord normally handles this, certain contracts give the tenant some responsibility for repairs and maintenance. In this section of the lease, it is essential to clearly define the conditions under which the property is classified.
Lastly, there needs to be a section set aside for the names and signatures of each party. Most leases have a minimum of four places, excluding any sublease, for each party to write and sign their names. A space should then be added after this for these signatures to be date-stamped. Although it is possible to use a notary, doing so is not legally required in Illinois.
8. Other Sections to Include
You can also add the following to your commercial property lease:
- The procedure for terminating the lease. Can the tenant terminate the contract by giving written notice?
- Mutual promises. Have you agreed to let a pet store have animals on the premises? This must be included in the lease.
- Lease renewals. Can the tenant expect rental increases when the lease is renewed?
- How the premises will be used. Here, you can narrowly define the terms of the transaction by stating the permitted use of the commercial property.
- Improvements. Another essential thing to include in rental contracts is what renovations and improvements tenants are allowed to make.
- Insurance information. This includes details about the coverage and the insurance company.
- Entry. According to state law, landlords have the right to enter the rental property, provided they do not interfere with the tenant's business operations. It might be a good idea to mention this in your agreement.
- Sublease terms. If you have agreed to sublease the property, you can include some of these details in the lease contract.
Every landlord in Illinois must ensure that any potential business tenants are informed of flaws in the commercial space or provided information that is required to be disclosed by state or federal law.
Here's a list of disclosures you will need to add to your Illinois commercial lease agreement:
Lead-based Paint Disclosure
All landlords whose properties were constructed before 1978 must include a mandatory lead-based paint disclosure.
Radon Gas Disclosure
Radon is a natural radioactive gas. Once sufficient concentrations of radon have built up in a home, can pose a threat to the health of anyone who has been exposed to it for an extended period.
All rental agreements must contain a general warning about the dangers of being exposed to excessive levels of radon gas. If the property tested positive for radon gas, this must be disclosed in the rental contract.
Here are some resources to include in the agreement to ensure that your tenants are aware of the dangers of radon gas:
- Illinois Disclosure of Information on Radon Hazards
- Radon Testing Guidelines for Real Estate Transactions
The truth is that creating a commercial lease can be challenging. There are so many elements to include and knowing how to word a formal document isn't always easy. Fortunately, you can use our Illinois commercial lease agreement template.
Our templates are editable and printable, so you can use them to quickly create the perfect rental contract. Click here to see and download them.
Let's say you require additional control over your contract. In that case, you can make use of DoorLoop's smart tool for creating rental agreements, which was designed to make the task considerably simpler.
DoorLoop is an innovative property management software that was created especially for landlords and proprietors of rental properties. With the help of professional lease templates that you can modify to fit your requirements, you can use the tool to personalize your rental contract.
Additionally, our software features an autofill feature, making drawing up leases a breeze!
Commercial lease contracts are legally binding documents detailing the terms and conditions of a business's lease of an office, warehouse, retail, or industrial space. This is why it is important to include certain details and disclosures in your agreement to safeguard yourself and your tenant.
Both parties can turn to their lease to offer a solution when a dispute arises. This means that landlords must take great care when drawing up their agreements. Unlike residential agreements, commercial lease contracts are typically valid for up to 10 years.
If this seems too overwhelming, don't despair! You can turn to DoorLoop for help with your commercial lease. Whether you choose to use one of our templates or customize your own rental contract, you can count on DoorLoop to streamline the process!
Do you need more information? Get in touch with us today or complete our online form to hear back from us. If you need information on drawing up an Illinois residential agreement instead, you can learn more here.
Who pays personal property taxes for commercial property?
This is a state-enforced tax that is required for all commercial buildings in Illinois. Personal property tax is payable by landlords or property owners.
Is comprehensive general liability insurance mandatory for all business owners in Illinois?
Insurance coverage is not mandatory in Illinois when leasing a commercial property. However, it might be a good idea to invest in insurance for your business since it protects you against claims made for damages or injuries on the property.
Are there any state-regulated mandatory disclosures?
There are currently no state regulations concerning disclosures in Illinois. However, you will still need to include several mandatory federal disclosures, including a lead-based paint disclosure and a radon gas disclosure.
Does my Illinois commercial lease contract have to be notarized?
No, a commercial lease contract does not have to be notarized to be legally binding. However, if a tenant or lord prefers, they can choose to have the business lease notarized. Any modifications or revisions to the agreement may also need to be notarized.
Do I have to have a written rental contract?
Unlike other states, Illinois does not require landlords to draw up written contracts in order to lease a property. However, it is in the best interest of both the landlord and tenant to have a formal written agreement in place.
This is because the lease details the terms and conditions of the lease, including important details such as the lease term, responsibilities of both parties, and information about the security deposit.