Commercial Lease Law and Legal Definition

A Commercial Lease is a type of lease designed for business purposes and covers items including security deposits, taxes, expenses, obligations for repairs and construction of the premises to be leased. There are four major categories of commercial leases namely, gross lease, modified gross lease, triple net lease and absolute net lease. Under a gross lease, the tenant pays base rent and the landlord absorbs all costs for common area maintenance ("CAM"), real property taxes, landlord's insurance, and other charges for the operation and maintenance of the property. Hence a tenant need not have to pay operational expenses in a gross lease. A modified gross lease requires the tenant to reimburse landlord for "pass through" costs over a stated expense stop or base year. A triple net lease requires the tenant to reimburse landlord for CAM, real estate taxes, and landlord's insurance. An absolute net lease is a form of lease where the tenant is the sole occupant of the leased property, for instance a restaurant. In such a case, the tenant has to pay all the costs of maintenance and operation of the property, including capital expenditures. Absolute net lease requires the tenant to absorb all costs and expenditures and major repairs. Commercial leases are granted for various purposes including office, retail, warehouse, pad, or "ground". Pad or ground leases are often used for restaurant premises or for premises where the tenant will be responsible for building and maintaining the structure. Usually, a commercial lease is given for a term of five to twenty years with fixed increase in base rent.