Georgia Commercial Lease Agreement

A Georgia commercial lease agreement is a legally binding contract between a landlord (lessor) and a tenant (lessee) for the business-related use of commercial property in the State of Georgia. The lease outlines all terms and conditions including the lease duration, rent payment, security deposit, late fees, expense structure, and permitted use of the premises. Unlike residential leases, commercial leases in Georgia are subject to greater freedom of contract with fewer statutory protections for tenants. ^[1]

Commercial leases typically have longer rental terms (3-10 years) and are more open to negotiation than residential agreements. Details such as base rent, property maintenance responsibilities, renewal options, tenant improvements, and building modifications should be thoroughly discussed and documented in the contract.

Required Disclosures

Georgia law requires specific disclosures for all lease agreements:

1. Ownership and Agent Disclosure - At or before the commencement of a tenancy, the landlord must disclose in writing the names and addresses of: (a) the owner of record or a person authorized to act on behalf of the owner for serving of process and receiving notices; and (b) the person authorized to manage the premises. If this information changes, the landlord must notify tenants within 30 days either in writing or by posting notice in a conspicuous place. ^[2]

2. Real Estate Brokerage Services Disclosure (Conditional) - In transactions involving a real estate broker, prospective clients must be informed of the types of brokerage relationships available to them, as well as any existing relationships held by the broker. ^[3]

Types of Commercial Lease Expense Structures

Commercial leases are categorized by how operating expenses are allocated between landlord and tenant:

1. Gross Lease - The tenant pays only the monthly rent. The landlord is responsible for all property expenses including real estate taxes, property insurance, and common area maintenance (CAM). The landlord maintains the exterior structure, major systems (HVAC, plumbing, electrical), parking areas, and grounds. This provides predictable costs for tenants but typically results in higher base rent. ^[4]

2. Modified Gross Lease - Operating expenses are divided between landlord and tenant as negotiated. Common arrangements include the tenant paying utilities and janitorial services while the landlord covers taxes, insurance, and structural maintenance. This hybrid structure allows flexibility in allocating costs.

3. Triple Net (NNN) Lease - The tenant pays monthly base rent PLUS their pro-rata share of all three major property expenses: property taxes, building insurance, and common area maintenance (CAM). In multi-tenant buildings, expenses are typically allocated based on the tenant's leased square footage relative to the total building area. This structure results in lower base rent but variable monthly costs. ^[5]

Operating expenses typically include: property taxes, insurance, common area maintenance, landscape maintenance, HVAC maintenance, parking lot upkeep, security, and property management fees.

Key Lease Terms

Parties and Premises: Identifies the landlord and tenant with mailing addresses, and provides a detailed description of the leased premises including street address, square footage, type of space (retail, office, industrial), and any included parking or common areas.

Term of Lease: Specifies the initial lease term with commencement and expiration dates. Commercial leases typically range from 3-10 years. May include renewal options with predetermined terms.

Permitted Use: Limits the use of the premises to specific business activities. Tenants should verify their intended use is permitted by both the lease AND local zoning ordinances. Any change in use typically requires prior written consent from the landlord.

Percentage Rent: Common in retail leases, this requires the tenant to pay additional rent based on a percentage of gross or net sales above a certain threshold, in addition to base rent. Payment frequency (monthly, quarterly, annually) should be specified.

Security Deposit: Unlike residential leases in Georgia (which are now capped at 2x monthly rent under HB 404), commercial security deposits have no statutory limit and are fully negotiable. The deposit should be held in a separate escrow account. Provisions should address return timeline and permissible deductions. ^[6]

Late Fees: Specifies penalties for late rent payment. May be structured as a flat fee per occurrence/day or as interest-based penalties. Georgia has no statutory cap on commercial lease late fees.

Landlord Obligations

Georgia landlords of commercial property have the following general obligations:

• Deliver possession of the property to the tenant at the commencement of the lease term
• Provide premises in a fit and suitable condition (though commercial standards are generally lower than residential habitability requirements)
• Disclose owner/manager information as required by O.C.G.A. Section 44-7-3
• Maintain common areas (if applicable under the lease terms)
• Follow proper legal procedures for eviction (self-help evictions are prohibited) ^[7]

Tenant Obligations

Commercial tenants in Georgia are generally obligated to:

• Pay rent on time as specified in the lease agreement
• Use the premises only for permitted purposes
• Maintain the premises in good condition
• Pay additional expenses as specified (taxes, insurance, CAM for NNN leases)
• Carry liability insurance (typically $1,000,000 minimum, naming landlord as additional insured)
• Comply with all applicable laws, including zoning and ADA requirements
• Surrender the premises in good condition at lease termination (normal wear excepted)

Landlord Remedies for Tenant Default

Georgia provides landlords with several powerful remedies when a commercial tenant defaults:

1. Dispossessory Proceedings - The landlord may file a dispossessory action in magistrate or state court to regain possession of the property. Before filing, the landlord must first make a demand for possession. The tenant has 7 days after being served to file an answer. Self-help evictions are illegal in Georgia. ^[8]

2. Distraint (Distress Warrant) - Georgia landlords may file a distress warrant to obtain a lien on the tenant's personal property located on the premises. This remedy is available when rent is past due OR when the tenant is removing property from the premises. On the filing date, the landlord's lien is perfected and takes priority over subsequently established liens. The landlord can also obtain a monetary judgment at the hearing. ^[9]

3. Suit for Rent - The landlord may sue for all unpaid rent. If the lease contains a rent acceleration clause, the landlord may accelerate all remaining rent due for the balance of the lease term before filing. Georgia courts treat acceleration clauses as enforceable liquidated damages provisions.

Ada Compliance

Both landlords and tenants share legal responsibility for Americans with Disabilities Act (ADA) compliance: ^[10]

• Landlord is responsible for accessibility of common areas (parking, hallways, lobbies, elevators, restrooms)
• Tenant is responsible for accessibility within the leased premises and services provided to the public
• Lease provisions cannot shield either party from third-party lawsuits - both can be sued for ADA violations
• Penalties for non-compliance: up to $75,000 for first offense, $150,000 for subsequent violations
• The lease should clearly allocate ADA compliance costs and indemnification obligations

Holdover Tenants

When a commercial tenant remains in possession after the lease expires without agreeing to new terms:

• The tenant becomes a "holdover tenant" or "tenant at will"
• No new lease is created automatically - execution of a new lease is necessary for renewal
• The landlord may pursue dispossessory proceedings under O.C.G.A. Section 44-7-50
• Many leases include holdover rent provisions (often 150-200% of base rent) to discourage this situation

Personal Guarantees

Landlords often require personal guarantees, especially from tenants operating through LLCs or corporations:

• A personal guarantee makes the individual guarantor personally liable for all lease obligations
• The guarantor's personal assets are at risk if the business defaults
• Combined with rent acceleration, this can result in substantial personal liability
• Negotiation strategies include time-limited guarantees, capped dollar amounts, or "good guy" guarantees
• Ambiguous guarantee terms are typically construed against the drafter (landlord) under Georgia law

Statute of Limitations

Actions arising from commercial lease disputes in Georgia are subject to the following limitation periods: ^[11]

• Lease contracts under Commercial Code: 4 years (O.C.G.A. Section 11-2A-506)
• Simple written contracts: 6 years (O.C.G.A. Section 9-3-24)
• Contracts signed "under seal": 20 years (O.C.G.A. Section 9-3-23)

Important Considerations

No Rent Control: Georgia prohibits municipalities from enacting rent control ordinances (O.C.G.A. Section 44-7-19). There is no statutory limit on rent increases for commercial properties.

Freedom of Contract: Commercial leases have fewer statutory restrictions than residential leases. Courts generally enforce the terms as written, making careful negotiation and legal review essential.

Zoning Compliance: The tenant is typically responsible for ensuring their intended use complies with local zoning ordinances. Non-compliance can void the lease or result in government enforcement actions.

Environmental Responsibility: The lease should address environmental liability. Tenant's responsibility should typically be limited to environmental problems caused by the tenant.

Assignment and Subletting: Most commercial leases require landlord consent for assignment or subletting. Review these provisions carefully as they affect flexibility and exit options.