Commercial Lease Agreement

What is a Commercial Lease Agreement?

A Commercial Lease Agreement is a document that can be used when a property that will be used for commercial activity will be rented. It outlines the obligations of the lessor (the owner of the property) and the lessee (the person/organization renting the property). It should also contain other important information such as information about the property that will be rented, the period of the lease, and the rent that will be paid.

This Commercial Lease Agreement can be used if the lessee will lease the entire property from the lessor or only a portion of the property.

What are the different types of Lease Agreements?

The following are the different types of lease agreements:

• Commercial Lease Agreement. This is the document that can be used when a property will be rented and used for commercial activity.
• Residential Lease Agreement. This is a document that can be used when a property will be rented and used for residential purposes. A Commercial Lease Agreement is different from a Residential Lease Agreement because of the type of real property leased. In a Residential Lease Agreement, it is for residential purposes such as the lease of a house, condominium, or apartment. In a Commercial Agreement, what is leased are commercial properties such as office spaces, and buildings. It is important to distinguish between Commercial and Residential Lease Agreements because a Residential Lease Agreement may be subject to rent control laws while Commercial Lease Agreements are not.
• Rental of Goods Agreement. This is a document that can be used when a property that will be rented and used is personal property like merchandise or electronics.
• Motor Vehicle Lease Agreement. This is a document that can be used when a property that will be rented and used is a motor vehicle.
• Parking Space Rental Agreement. This is a document that can be used when a property that will be rented and used is a parking space.

Is it mandatory to have a Commercial Lease Agreement?

Yes, because this will lay down the terms and conditions of the lease and will prevent the parties from reneging on the lease agreement. This will also serve as documentation for what was agreed upon by the lessor and the lessee.

What is Advanced Rent in a Commercial Lease Agreement?

The advanced rent is usually paid at the signing of the Commercial Lease Agreement. It may be applied as rent for any of the months during the lease period, as agreed upon by the parties. The lessor may ask for advanced rent, and the lessor and the lessee are generally free to agree on the advanced rent which may be equivalent to weeks, a month, or more than one month.

The purpose of this is to ensure that the lessee will timely pay the rent and this amount can be used for those months where the lessee fails to pay rent.

What is a Security Deposit in a Commercial Lease Agreement?

The security deposit can be used to settle rent, unpaid electric, telephone, water, or such other utility bills or repair any damage to the property caused by the acts or negligence of the Lessee. If at the end of the Commercial Lease Agreement, the rent and utility bills are paid and there is no damage to the property, the security deposit should be returned to the lessee.

The purpose of this is to ensure that the lessee will timely pay the rent and this amount can be used for those months where the lessee fails to pay rent.

What must a Commercial Lease Agreement contain?

A Commercial Lease Agreement contains the following information:

• The details of the property that will be rented,
• The period or duration of the lease,
• The rental fee and other fees for the lease,
• The purpose or use of the property,
• The party who will pay for the utilities expenses whether the lessor, the lessee, or both,
• Applicable policies (for example: whether the lessee can use parking areas, or there is a need to have property insurance).

Who can enter into a Commercial Lease Agreement?

The owner of the commercial property (the lessor) and the lessee are the parties to a Commercial Lease Agreement, meaning, they must sign the same.

Note that the parties must be of legal age or 18 years old and above. Further, if the parties are organizations, the signatories may be the organization's representatives.

What can be the duration of a Commercial Lease Agreement?

The lessor and the lessee are free to choose how long the Commercial Lease Agreement will last, it can be for a fixed period or an indefinite term, and can also be renewed after the end of the Commercial Lease Agreement's fixed period if the lessor and lessee agree thereto.

What has to be done once a Commercial Lease Agreement is ready?

Once the document is completed, at least two original copies of the Commercial Lease Agreement should be printed, and all of the attachments (referred to in the next question) described in the document should be attached. The Lessor and the Lessee, or their authorized representatives, should read, and then sign all the copies of the document and each should keep an original copy.

After this, the document may be notarized. If the parties would want to notarize the Lease Agreement, the document also includes an Acknowledgment portion, in which case, at least three original copies should be printed. Notarization of the document converts the document from a private document to a public document so that it becomes admissible in court without the need for further proof of its authenticity. To notarize the document, the parties must go to a notary public to acknowledge that they have signed the Lease Agreement freely and voluntarily. They should also present a valid I.D. issued by an official agency bearing their photograph and signature such as a driver's license or a passport, among others.

Once notarized, the Lessor and the Lessee should each keep at least one copy of the notarized document, and the last one will be given to the notary public.

Which documents should be attached to a Commercial Lease Agreement?

• The document showing the planned renovations should be attached to this agreement if applicable.
• A copy of the authorization that shows that a representative can act on behalf of the lessor,
  • The representative of the lessor must have a Partner's certificate if the lessor is a partnership, or a Secretary's certificate if the lessor is a corporation.
• A copy of the authorization that shows that a representative can act on behalf of the lessee.
  • The representative of the lessee must have a Special Power of Attorney if he will appoint someone else to sign the Commercial Lease Agreement for him.

Is it necessary to notarize a Commercial Lease Agreement for it to be valid?

No, however, notarization of the Commercial Lease Agreement converts the same from a private document to a public document so that it becomes admissible in court without the need for further proof of its authenticity, meaning, the document will be presumed to be validly written and signed once it is shown to court in case a dispute is brought before it.

Is it necessary to register the Commercial Lease Agreement?

No, however, registration of the Commercial Lease Agreement before the Register of Deeds in the place where the property is located serves as a protection for the lessee in case there is a change in ownership over the property. If there is a change in ownership, the new lessor who is the new owner cannot terminate the lease.

What are the costs involved in the finalization of a Commercial Lease Agreement?

If the Commercial Lease Agreement is notarized, a certain percentage of the rent may be asked as a fee by the notary public. This is usually at 1%.

Which laws are applicable to Commercial Lease Agreements?

The laws on lease are found in the Civil Code of the Philippines. The 2004 Rules on Notarial Practice is also applicable if the document will be acknowledged before a notary public.

How to modify the template?

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