Commercial tenancy agreement - What you need to be aware of

If you have to sign a commercial lease for your business, you are taking on a huge responsibility. After all, every rental agreement represents a long-term, expensive commitment. That's why it's especially important to look carefully to avoid unpleasant surprises for yourself and your company. With the following tips, you are on the safe side.

What is different in a commercial lease than in a lease for private residential premises

Most of us have already had experience with a private rental agreement, but not all of us have had experience with commercial rental agreements. That's why it's important to be aware of the special features of commercial leases :

Freedom of contract

Commercial tenancy agreements are not subject to the special restrictions that apply to private tenancy agreements. The legislator assumes that the contracting parties are "equally strong" and therefore do not need to be specially protected from each other, as is the case with a contract between a business and a private residential tenant.

Contracting parties

Contracting parties in commercial tenancy agreements are often partnerships or also legal entities.

Rent

The rent does not have to be a fixed monthly amount, but can also be linked to turnover. The landlord can set the rent independently of the local rent index.

Use of the rented property

In contrast to a residential lease, the purpose for which a commercial space is to be used is initially open: Practice, workshop, sales room, warehouse, office,... The "purpose of the contract" is freely agreed between the renting parties.

Extension of the rented property

Often commercial premises must be individually developed by the tenant - and dismantled again after the end of the lease. This should also be regulated in detail in the tenancy agreement.

Outdoor advertising

Businesses are interested in presenting themselves to the outside world: From company signs to illuminated advertising on the façade, everything is conceivable.

Time rental

While fixed-term contracts are rare in private tenancies for obvious reasons, they are common in commercial leases, where an option to extend is often included in the contract. -

As you can see: There are many more things to consider, discuss, document and stipulate in the contract for a commercial lease than in the case of a normal private residential lease. The checklist below will help you with this.

Who needs a commercial rental agreement?

A commercial lease is aimed at people or companies who wish to use real estate or premises for commercial activities rather than for residential purposes. This includes, for example, retailers, restaurants, offices, surgeries or production facilities.

A commercial rental agreement is particularly important as it can be flexibly adapted to the specific requirements of the business. Among other things, it regulates terms, rights of use and obligations that go beyond the provisions of a residential lease. For entrepreneurs and landlords, such a contract is essential to ensure legal and economic security.

Obligations and rights of landlord and tenant

In commercial tenancy law, both landlords and tenants have clear rights and obligations arising from the contract and statutory regulations.

Rights and obligations of the landlord:

  • Provision of the property: The landlord is obliged to hand over the rented property in the agreed condition and to maintain it during the rental period.
  • Access rights: The landlord may not enter the property without prior agreement, unless it is for urgent maintenance work.
  • Contractual commitment: During the term of the rental agreement, the landlord is bound by the agreed conditions.

Rights and obligations of the tenant:

  • Payment of the rent: The tenant is obliged to pay the rent punctually and in full.
  • Duty of care: The property must be used properly and protected from damage.
  • Permits: The tenant must obtain the landlord's consent for alterations or special uses.

Both parties benefit from clearly formulated provisions in the contract to avoid disputes.

Common mistakes when drafting contracts

When drafting a commercial lease agreement, mistakes can have far-reaching consequences. The most common problems include

  1. Unclear usage clauses: If types of use are not precisely defined, conflicts may arise later, especially if the business model changes.
  2. Unrealistic terms: Terms that are too short or too long can be financially disadvantageous for both parties.
  3. Lack of service charge regulations: Without clear information on the distribution of service charges, there is a risk of unclear billing.
  4. Ineffective clauses: Blanket exclusions of liability or excessive contractual conditions may be legally ineffective.

Careful examination and adaptation of the contract with the involvement of legal advice is essential.

What landlords should consider

Landlords should ensure that the tenancy agreement covers all relevant points in order to avoid conflicts later on. These include:

  • Usage specifications: Clearly define the purposes for which the property may be used.
  • Maintenance: Agree which maintenance measures the tenant may take over.
  • Protection against competition: Consider whether you want to guarantee your tenants protection against direct competition in the same building.

Good contract drafting helps landlords to minimize legal risks and secure returns.

What tenants should bear in mind

It is important for tenants to check the commercial tenancy agreement carefully to prevent problems later on. Pay attention to:

  • Flexibility: Are contract terms and notice periods suitable for your business development?
  • Service charges: Clarify what costs you will incur to avoid unpleasant surprises.
  • Permits: Make sure that the planned use is legally permissible.

Careful preparation protects tenants from financial and legal pitfalls.

How can you recognize problematic clauses?

Problematic clauses can often be recognized by vague formulations or inappropriate restrictions. Pay particular attention to:

  1. Unclear liability regulations: Blanket exclusions of liability or excessive obligations on the part of the tenant are often ineffective.
  2. Maintenance obligations: If the landlord tries to pass on disproportionate repair costs to the tenant, this could be legally problematic.
  3. Service charge settlements: Imprecise regulations on service charges can lead to unexpected additional payments.

A legal review by experts helps to identify and renegotiate such clauses.

Checklist for the commercial lease

1. designate contracting parties correctly

It sounds trivial, but it is very important: Both contracting parties (landlord and tenant) must be correctly designated.

  • Make sure that the company name is correct and complete, as entered in the commercial register.
  • In the case of owners' associations and partnerships, all parties involved must be named and sign the contract. Make a list of all parties involved with name, current address, date of birth and nationality.
  • Obtain a declaration of consent to the lease from these shareholders
  • Obtain copies of identity cards of those involved for documentation purposes

2. subject matter of the contract and rental purpose

To avoid objections from the landlord or neighbours later on, you should precisely record the subject matter of the contract and the rental purpose:

  • What all belongs to the rental property?
  • What is the rental property used for? How is it used? (Is there public traffic? Are noisy machines used? etc.)
  • Clarify which local regulations and restrictions are defined for commercial premises. (For example, there are cities where commercial use of residential premises is only permitted to a limited extent or not at all!)

3. lettering and outdoor advertising

In commercial real estate, company names appear in various places: Illuminated advertising in front of the building, orientation boards in the corridors, lettering on doorbells and letterboxes, elevator lettering, etc. Clarify how these signs will be organised and what costs will be incurred.

In many cases it is also possible to have your own outdoor advertising, for example a neon sign in front of the window. You should also clarify this before signing the contract and have the landlord's permission recorded in the contract.

  • What all belongs to the rental property?
  • What is the rental property used for? How is it used? (Is there public traffic? Are noisy machines used? etc.)
  • Clarify which local regulations and restrictions are defined for commercial premises. (For example, there are cities where commercial use of residential premises is only permitted to a limited extent or not at all!)

4. rent

As mentioned, a turnover-based rent is sometimes possible instead of a fixed rent. This is especially interesting for businesses with public traffic (gastronomy, retail trade, etc.) if it is not yet clear how well the business will do at the new location. However, it must be remembered that in the case of a turnover-based rent, the landlord has the right to demand information about the turnover.

5. contract term and period of notice

The contract term can be freely determined. As a rule, commercial leases are concluded for a fixed term. This is because few companies can predict exactly what their rental requirements will be in five years' time - some are happy if they can see a quarter ahead!

Important: Try to include an option clause in the contract that entitles you to extend the rent after the expiry of the rental period.

6. documents

The following data and documents are often required for the conclusion of a commercial lease:

  • Extract from the commercial register and business registration
  • Tax number or VAT identification number
  • Proof of liability for turnover tax
  • Copies of the shareholders' or managing directors' identity cards
  • Contact details of tenant representatives (address, emergency number, etc.)
  • Annual financial statements of the company
  • Insurance certificate of the business liability insurance (with cover for tenant's damage) and the insurance of the business content
  • Evidence of current loans and other financial obligations
  • Depending on the landlord: Self-disclosure according to form; previous tenant confirmation, etc.

7. after conclusion of the contract: smart contract management

Once you have successfully concluded a contract, you should not simply file the contract documents in a folder and delete them from your memory. Why not? If you later want to terminate or extend the tenancy, you have to meet the relevant deadlines. And if you miss these deadlines, your plans will burst like bubbles.

That's why it's a good idea to have the rental agreement and all associated documents managed by a modern rental agreement management software management software. ContractHero, for example. This software shows you all your contractual obligations and notice periods at a glance. And because it's fun to look at the dashboard, you'll never miss an important deadline.

That is good for you and good for your company.

Sebastian Wengryn
CEO

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