Alabama Commercial Lease Agreement

Introduction

An Alabama commercial lease agreement is a legally binding contract between a landlord (property owner) and a business tenant for the rental of commercial real estate. Commercial leases are used for non-residential purposes including retail stores, offices, restaurants, industrial facilities, warehouses, and other business operations.

Unlike residential leases, Alabama commercial leases are governed primarily by contract law and the Alabama Commercial Code (Title 7, Article 2A) rather than the Alabama Uniform Residential Landlord and Tenant Act. This provides landlords and tenants with substantial freedom to negotiate custom terms. Alabama is considered a landlord-friendly state with minimal statutory restrictions on commercial lease terms, allowing parties to structure agreements that meet their specific business needs. ^[1]

Commercial leases in Alabama typically range from three to ten years in length, with five years being the most common term. ^[2] The lease may include options for renewal if the tenant's business is successful in that location.

Types of Commercial Lease Structures

Alabama commercial leases use three primary expense structures that determine which party (landlord or tenant) pays for operating costs:

Gross Lease (full-Service Lease)

In a gross lease, the tenant pays a single, fixed rent amount and the landlord is responsible for all operating expenses including property taxes, insurance, utilities, maintenance, and repairs. This structure provides tenants with predictable costs and is commonly used for office buildings and multi-tenant properties where it would be difficult to separate operating expenses between tenants. ^[3]

Triple Net Lease (nnn Lease)

In a triple net lease, the tenant pays base rent plus three additional expenses (the "three nets"): (1) property taxes, (2) building insurance, and (3) common area maintenance (CAM). This structure shifts operating expense risks and increases to the tenant, providing the landlord with more predictable income. Triple net leases are frequently used in retail properties and single-tenant commercial buildings. ^[4]

Modified Gross Lease

A modified gross lease splits operating expenses between landlord and tenant based on negotiated terms. Typically, the base year's operating expenses are included in rent, and the tenant pays their pro-rata share of any increases above the base year. This structure provides flexibility and is common in office buildings. The specific allocation of expenses varies by agreement and should be clearly defined in the lease. ^[5]

Essential Lease Provisions

Commercial lease agreements should address the following key terms and conditions:

• Identification of parties (landlord and tenant with legal names and addresses)
• Detailed description of leased premises (address, square footage, type of space)
• Permitted use of premises (specific business purposes or all lawful uses)
• Lease term (commencement date, expiration date, renewal options)
• Base rent amount and due date
• Percentage rent provisions (if applicable for retail leases)
• Security deposit amount and handling
• Late fees and default remedies
• Expense allocation (gross, triple net, or modified)
• Insurance requirements for both parties
• Maintenance and repair responsibilities
• Tenant improvement provisions
• Assignment and subletting restrictions
• Landlord entry rights and notice requirements
• Default events and eviction procedures

Required Disclosures and Compliance

Real Estate Brokerage Disclosure (Conditional)

Alabama Code § 34-27-82 requires real estate licensees to provide written disclosure of brokerage services when representing consumers. However, § 34-27-82(d) exempts transactions involving business entities including corporations, LLCs, partnerships, trusts, and governmental entities from disclosure requirements. ^[6] Since most commercial leases involve business entities rather than individuals, the brokerage disclosure requirement typically does not apply. If both parties are individuals (sole proprietors), the licensee must provide the Alabama Real Estate Commission's disclosure form describing alternative types of brokerage services before any confidential information is disclosed. ^[7]

Americans With Disabilities Act (Ada) Compliance

All commercial properties serving the public must comply with the federal Americans with Disabilities Act (ADA) and the 2010 ADA Standards for Accessible Design. ^[8] This includes retail stores, restaurants, hotels, offices, medical facilities, and similar businesses. New construction (first occupied after January 26, 1993) must fully comply with ADA accessibility standards. Existing buildings (pre-1990) must make "readily achievable" modifications—those easily accomplished without much difficulty or expense. ^[9]

Under federal law, both landlords and tenants can be held liable for ADA violations. Parties may contractually allocate responsibility and costs for ADA compliance, but this allocation is only effective between them and does not limit third-party ADA claims. Department of Justice fines can reach $75,000 for first violations and $150,000 for subsequent violations, and private lawsuits are also permitted. Commercial leases should clearly specify which party bears ADA compliance costs. ^[10]

Default, Remedies, and Eviction

Alabama Commercial Eviction Process

Alabama eviction procedures for commercial tenants generally follow the unlawful detainer process. ^[11] The landlord must provide statutory notice before filing an eviction action: 7-day notice to comply for non-payment of rent or lease violations, or 14-day notice to cure for other lease violations. If the tenant fails to cure, the landlord may file an unlawful detainer action in the district or circuit court in the county where the property is located. ^[12]

The tenant has 7 days to respond in writing. After judgment favoring the landlord, there is an automatic 7-day stay before a writ of possession issues. Only the county sheriff can execute the eviction—landlords cannot use "self-help" remedies such as changing locks or forcibly removing the tenant. Commercial leases may specify different notice periods than statutory minimums, provided they comply with Alabama contract law principles.

Security Deposits

Alabama law does not regulate security deposits for commercial leases. The amount, handling, and return conditions are entirely negotiable between parties. ^[13] Unlike residential leases, there is no statutory requirement to hold deposits in a separate or interest-bearing account, no limit on the deposit amount, and no mandatory timeline for returning deposits. Parties should clearly define: the deposit amount and due date; how the deposit will be held; what the deposit secures; the return timeline (30-60 days is common); and whether the deposit can be applied to final month's rent.

Lease Recording

While recording a commercial lease is optional, it provides significant legal benefits. Alabama Code § 35-4-51 provides that documents purporting to convey any right or interest in real estate may be recorded in the Office of the Judge of Probate in the county where the property is located. ^[14] Recording creates constructive notice to third parties and protects the tenant's leasehold interest against subsequent purchasers of the property. Long-term commercial leases (typically 7+ years) are commonly recorded. Recording fees vary by county but typically range from $2.50 to $11.00 for the first page and $2.50 to $3.00 for each additional page. ^[15]