Maryland Commercial Lease Agreement

Introduction

A Maryland commercial lease agreement is a legally binding contract between a landlord of commercial property and a business tenant. ^[1] These agreements are commonly used for leasing retail space, restaurant locations, industrial facilities, or office space. The agreement details the essential terms and conditions of the lease, including the lease term, rent amount, security deposit, subleasing rights, and exclusivity provisions.

Under Maryland law, a "commercial lease" is defined as a lease of building floor space intended to be used by the tenant for a nonresidential use, whether or not the lease expressly sets forth such use. ^[1]

Legal Framework in Maryland

Unlike residential leases, which are heavily regulated by Maryland statute, commercial leases in Maryland operate primarily under common law principles and the specific terms negotiated between the parties. This provides greater flexibility in structuring the lease but also requires careful attention to contractual provisions.

Key Maryland statutes that may apply to commercial leases include:

• Maryland Real Property Article ^[2] - Governs landlord-tenant relationships and eviction procedures
• Maryland Business Occupations Code ^[3] - Regulates real estate broker activities
• Maryland Environment Article ^[4] - Building Energy Performance Standards for covered buildings

Required Disclosures

1. Consent for Dual Agency Form (Conditional)

When a licensed real estate broker is involved in a commercial lease transaction, the broker must obtain the written informed consent of all parties before acting as a dual agent (representing both the landlord/lessor and tenant/lessee). ^[3] The dual agent must assign separate intra-company agents to represent each party's interests.

2. Energy Performance Standards Disclosure (Conditional)

If the property is a "covered building" subject to Maryland's Building Energy Performance Standards (BEPS), the building owner must disclose this to prospective tenants or buyers before the agreement is signed. ^[4] Required disclosures include:

• A copy of the complete benchmarking record from the benchmarking tool
• Documentation of data verification
• Baseline performance information
• Interim and final performance standards

Types of Commercial Lease Structures

Commercial leases in Maryland typically follow one of three expense structures:

Operating expenses typically include: property taxes, property insurance, common area maintenance (CAM), landscape maintenance, HVAC maintenance, and janitorial services.

Essential Lease Terms

1. The Parties

The lease must clearly identify the landlord (lessor) and tenant (lessee) with complete legal names and mailing addresses. For business entities, include the full legal entity name and principal place of business.

2. Description of Premises

Provide a detailed description including: street address, square footage, type of space (retail, office, industrial, etc.), and any specific improvements or fixtures included. Common areas and parking rights should also be specified.

3. Permitted Use

Define the permitted use of the premises. This may be broad ("all purposes legal under law") or specific to a particular business type. Any change in use typically requires the landlord's prior written consent.

4. Lease Term

Specify the initial term with commencement and expiration dates. Include provisions for renewal options, early termination rights, and any conditions precedent to commencement (such as completion of tenant improvements).

5. Rent

Base Rent: Specify the monthly amount, due date, and payment method. Include provisions for rent escalations (fixed increases, CPI adjustments, or market rate resets).

Percentage Rent: For retail leases, consider whether the tenant will pay a percentage of gross or net sales in addition to base rent. Specify calculation methods, payment frequency, and audit rights.

6. Security Deposit

Unlike residential leases, Maryland law does not cap commercial security deposits. ^[5] The amount is negotiated between parties. Common provisions include:

• Amount: Typically one to three months' rent, or more for higher-risk tenants
• Holding: Recommend escrow in a separate bank account
• Application: Specify conditions for deductions (unpaid rent, damages, default)
• Return: Timeline for return after lease termination (typically 30-45 days)

7. Late Fees

Specify any late payment penalties. Options include:

• Flat fee per occurrence or per day until paid
• Interest-based penalty (annual percentage rate)
• Grace period before late fees apply (commonly 5-10 days)

Subletting and Assignment

Maryland follows the important rule established in Julian v. Christopher: When a commercial lease requires the landlord's consent for assignment or sublease, that consent may NOT be unreasonably withheld unless the lease explicitly grants the landlord the right to withhold consent arbitrarily. ^[6]

Key distinctions:

• Sublease: Original tenant remains liable to landlord; creates a new landlord-tenant relationship between original tenant and subtenant
• Assignment: Complete transfer of lease rights to a new tenant; may release original tenant from future obligations if landlord agrees

Default and Eviction Procedures

Self-Help Eviction (Commercial Only)

Maryland retains the common law rule allowing commercial landlords to use "self-help" to regain possession without court proceedings, provided: ^[7]

1. The lease provides for the landlord's right of entry
2. The landlord is legally entitled to possession
3. Repossession is peaceful (no more force than necessary)

CAUTION: Courts increasingly disfavor self-help due to available statutory remedies. Formal eviction through the District Court is the safer option.

Judicial Eviction Process

1. Landlord files a Complaint for Repossession with the District Court
2. Tenant receives formal notice of the complaint
3. Court hearing where both parties present arguments
4. If landlord prevails, court issues judgment for possession
5. Landlord applies for Warrant of Restitution
6. Sheriff executes physical eviction if necessary

Right of Redemption

After a judgment for repossession due to failure to pay rent, the commercial tenant maintains a "right of redemption" - they may stay in possession if they pay the full amount owed at any time before the actual eviction. ^[2]

Termination Notice Requirements

Maryland Real Property Article § 8-402 establishes minimum notice requirements: ^[2]

Ada Compliance Requirements

Under Title III of the Americans with Disabilities Act, **both landlords and tenants **can be held responsible for ADA compliance in commercial properties. ^[8]

Maryland has adopted the 2010 ADA Standards for Accessible Design as part of the Maryland Accessibility Code (COMAR 09.12.53). ^[9]

Key Requirements:

• Accessible entrances and routes to all areas
• Doorway openings: 32-48 inches clear width
• Ramp slopes: No steeper than 1:12
• Accessible restrooms with proper clearances

Penalties: Up to $75,000 for first violations and $150,000 for subsequent violations. Both landlords and tenants face potential joint and several liability.

RECOMMENDATION: The lease should clearly allocate ADA compliance responsibilities between landlord and tenant. Consider requiring the landlord to warrant current ADA compliance.

Attorney's Fees in Commercial Disputes

In 2007, Maryland amended Real Property Article § 8-401 to explicitly authorize courts to award attorney's fees in commercial lease cases when the lease states that such fees are due as "additional rent." ^[2]

Insurance Requirements

Commercial leases should specify insurance requirements for both parties:

Landlord's Insurance:

• Property insurance covering the building structure
• Liability insurance for common areas
• Casualty insurance against fire and other hazards

Tenant's Insurance:

• Commercial general liability (commonly $1,000,000 minimum)
• Property insurance for tenant's personal property
• Business interruption insurance (recommended)
• Workers' compensation (if employees on premises)

RECOMMENDATION: Require tenants to name the landlord as an "additional insured" on liability policies and provide certificates of insurance before lease commencement.