New Jersey Commercial Lease Agreement

Introduction

A New Jersey commercial lease agreement is a legally binding contract that allows a landlord to lease property to an individual or business entity for commercial purposes. This agreement governs the rental of retail spaces, office buildings, industrial facilities, and other non-residential properties. It establishes the terms of occupancy including rent amount, lease duration, security deposit, renewal options, and the respective obligations of both landlord and tenant.

Unlike residential leases, which are heavily regulated under New Jersey's residential landlord-tenant laws, commercial leases afford the parties greater flexibility to negotiate terms. However, certain statutory requirements still apply, particularly regarding required disclosures.

Required Disclosures

New Jersey law mandates certain disclosures for commercial lease transactions. Landlords must comply with these requirements to ensure valid and enforceable lease agreements.

Flood Risk Notice

Under NJ Rev Stat § 46:8-50, every landlord must notify tenants prior to lease signing or renewal whether a property is located in a FEMA Special Flood Hazard Area ("100-year floodplain") or Moderate Risk Flood Hazard Area ("500-year floodplain"). ^[1] The landlord must also disclose actual knowledge of any flooding that has affected the rental premises or parking areas.

Key Requirements:

• Written notice required prior to lease signing
• For written leases, notice may be included as a separate rider (12-point font minimum for residential)
• Must disclose both 100-year and 500-year floodplain status
• Must disclose any known flooding history
• Seasonal rentals of less than 120 days are exempt

Penalty for Non-Disclosure: If a landlord fails to disclose flood zone status and the tenant later discovers the property is in a flood hazard area, the tenant may terminate the lease with written notice. If flooding occurs causing property damage or affecting habitability, the tenant may pursue legal remedies for damages.

Consumer Information Statement (when Licensee Involved)

When a licensed real estate professional is involved in a commercial lease transaction, they must provide a Consumer Information Statement disclosing their business relationship with the parties. ^[2] This requirement under NJ Admin Code 11:5-6.9 ensures transparency about whether the licensee represents the landlord, tenant, both parties (disclosed dual agency), or acts as a transaction broker.

The four business relationships that must be disclosed are:

• Seller's/Landlord's Agent: Represents only the landlord's interests
• Buyer's/Tenant's Agent: Represents only the tenant's interests
• Disclosed Dual Agent: Represents both parties with informed written consent
• Transaction Broker: Facilitates the transaction without representing either party

Types of Commercial Lease Structures

Commercial leases differ significantly from residential leases in how operating expenses are allocated. Understanding these structures is essential for both landlords and tenants to accurately budget and negotiate terms.

Triple Net Lease (Nnn)

In a triple net lease, the tenant pays the base rent plus all operating expenses, including:

• Property taxes
• Property insurance
• Common area maintenance (CAM)
• HVAC maintenance and repairs
• Landscaping and exterior maintenance

Best for: Single-tenant buildings or tenants who want maximum control over property maintenance and expenses.

Gross Lease (full Service)

In a gross lease, the landlord pays all operating expenses, and the tenant pays a single, all-inclusive rent amount. This provides predictable monthly costs for the tenant but typically results in higher base rent to account for the landlord's expense risk.

Best for: Multi-tenant office buildings or tenants seeking budget predictability.

Modified Gross Lease

A modified gross lease falls between triple net and gross structures. The landlord and tenant negotiate which expenses each party will cover. Common arrangements include the landlord paying property taxes and insurance while the tenant pays utilities and CAM charges.

Best for: Parties seeking a balanced approach with clearly defined expense responsibilities.

Essential Commercial Lease Terms

A comprehensive commercial lease agreement should address the following key provisions:

Premises Description

The lease must precisely describe the leased premises, including the property address, suite or unit number, square footage, and any common areas the tenant may access. For retail spaces, this should include storefront specifications and signage rights.

Lease Term and Renewal

Commercial leases typically range from 3 to 10 years, with options to renew. The lease should specify:

• Commencement and expiration dates
• Renewal option terms and notice requirements
• Rent escalation provisions upon renewal
• Early termination rights and penalties

Rent and Payment Terms

The lease should clearly state:

• Base rent amount and payment schedule (typically monthly in advance)
• Additional rent (CAM, taxes, insurance if applicable)
• Percentage rent (for retail, based on sales volume)
• Rent escalation clauses (fixed increases or CPI adjustments)
• Acceptable payment methods and where to remit payment

Late Fees and Grace Periods

New Jersey does not impose statutory limits on commercial lease late fees. ^[3] However, courts require late fees to be reasonable and not punitive. The lease should specify:

• Grace period before late fees accrue (commonly 5-10 days)
• Late fee amount (percentage of rent or flat fee)
• Interest on overdue amounts

Security Deposit

Unlike residential leases, New Jersey's Security Deposit Act (NJ Rev Stat § 46:8-19) does not apply to commercial properties. ^[4] Commercial lease security deposits are fully negotiable between the parties. Common terms include:

• Amount: Often 1-3 months' rent, or more for higher-risk tenants
• Letter of credit as an alternative to cash deposit
• Conditions for deposit application and replenishment
• Interest accrual terms (if any)
• Return timeline and itemization of deductions

Assignment and Subletting

Under New Jersey common law, tenants have the default right to assign or sublet their leasehold interest unless the lease expressly prohibits such transfers. ^[5] Most commercial leases include provisions that:

• Require landlord's prior written consent for any transfer
• Specify that consent shall not be unreasonably withheld
• Define what constitutes a transfer (assignment, sublease, license, change of control)
• Grant landlord recapture rights to take back the space
• Require profit sharing if sublease rent exceeds lease rent

Permitted Use and Compliance

Use Clause

The use clause defines exactly what business activities the tenant may conduct on the premises. This is critical for both parties:

• Tenants should ensure the use clause is broad enough to accommodate business expansion
• Landlords should protect against uses that could damage the property or violate other tenant exclusives
• The use must comply with local zoning ordinances

Ada Compliance

Commercial properties in New Jersey must comply with the federal Americans with Disabilities Act (ADA). ^[6] Key considerations include:

• New construction must meet 2010 ADA Standards for Accessible Design
• Existing buildings have an ongoing obligation to remove architectural barriers
• The lease should clearly allocate ADA compliance costs between landlord and tenant
• Tenants should verify ADA compliance status before signing

Default and Eviction

Commercial evictions in New Jersey are governed by N.J.S.A. 2A:18-53, which differs from residential eviction laws. ^[7] Key points include:

Non-Payment of Rent

For non-payment of rent, New Jersey law does not require landlords to serve a notice to quit before filing for eviction, unless the lease specifically requires it. Landlords may file directly in Landlord-Tenant Court.

Other Defaults

For lease violations other than non-payment, landlords must provide written notice specifying the violation and allowing a cure period (typically 3 days to 3 months depending on the violation). The notice must be properly served on the tenant.

Court Process

Eviction proceedings are filed in the Special Civil Part of the Superior Court in the county where the property is located. ^[8] Important considerations:

• Business entity landlords (corporations, LLCs, partnerships) MUST be represented by a New Jersey licensed attorney
• Self-help evictions (changing locks, removing property) are illegal
• Only a Special Civil Part Officer can execute a Warrant of Removal
• Money damages for unpaid rent must be pursued in a separate action

Additional Considerations

Insurance Requirements

Commercial leases typically require tenants to maintain:

• General liability insurance ($1-2 million per occurrence)
• Business personal property insurance
• Workers' compensation insurance
• Landlord named as additional insured on liability policies

Environmental Considerations

Commercial property transactions in New Jersey may trigger compliance with the Industrial Site Recovery Act (ISRA) if the property was previously used for industrial purposes. ^[9] Tenants should:

• Conduct environmental due diligence before signing
• Request disclosure of known environmental contamination
• Ensure the lease allocates environmental liability appropriately

Personal Guarantee

Landlords often require personal guarantees from business entity tenants, particularly new businesses or those without substantial credit history. A personal guarantee makes the guarantor personally liable for the tenant's obligations if the business defaults. Negotiation points include:

• Limiting the guarantee to a specific dollar amount
• "Burn-off" provisions reducing guarantee over time
• Release upon assignment with qualified successor

Resources and Citations

The following resources provide authoritative information on New Jersey commercial lease requirements. Click any citation number in the text above to jump to the corresponding source below.

**[1] **NJ Rev Stat § 46:8-50 - Flood Zone Notification Requirements (2024)

**[2] **NJ Admin Code 11:5-6.9 - Consumer Information Statement Requirements

**[3] **NJ Rev Stat § 2A:42-6.1 - Grace Period for Payment of Rent

**[4] **NJ Rev Stat § 46:8-19 - Security Deposits (Residential Only)

**[5] **Assignment and Subletting in New Jersey Commercial Leases - Greenbaum Law

**[6] **42 U.S.C. § 12101 - Americans with Disabilities Act (ADA)

**[7] **N.J.S.A. 2A:18-53 - Commercial Eviction Law

**[8] **NJ Courts - Landlord/Tenant Self-Help Resources

**[9] **N.J.S.A. 13:1K-6 - Industrial Site Recovery Act (ISRA)