New Mexico Commercial Lease Agreement

Introduction

A New Mexico commercial lease agreement is a legally binding contract between a landlord and tenant for the rental of commercially zoned business property. Unlike residential leases, which are governed by the New Mexico Uniform Owner-Resident Relations Act (NMSA Section 47-8), commercial leases operate primarily under contract law and common law principles, giving both parties greater flexibility to negotiate terms.^[1]

This document establishes each party's rights and obligations, including the tenant's duty to maintain the premises, pay rent on time, and comply with the lease terms. Key provisions such as rent amount, lease duration, renewal options, security deposits, operating expense structures, and rights to renovate or make alterations are typically negotiated and written into the contract.

Legal Definition

A commercial lease is a contract for the rental of property used for business purposes rather than residential occupancy. In New Mexico, commercial leases are distinguished from residential leases in that they are not subject to the protective provisions of NMSA Section 47-8, which applies exclusively to "owner-resident relations" for dwelling units.^[1]

Commercial properties include office buildings, retail spaces, industrial facilities, warehouses, restaurants, and any other property used primarily for business operations rather than habitation.

Written Requirements (statute of Frauds)

Under common law principles applicable in New Mexico, leases for terms exceeding one year must be in writing to be enforceable. Additionally, New Mexico's adoption of UCC Article 2A (NMSA Section 55-2A-201) requires that lease contracts with total payments exceeding $1,000 be evidenced by a written record signed by the party against whom enforcement is sought.^[2]

The written agreement should contain:

• Identity of all parties (landlord and tenant)
• Complete description of the leased premises
• Lease term (start date, end date, renewal options)
• Rent amount and payment schedule
• Security deposit terms
• Signatures of both parties

How Commercial Leases Work

Commercial leases differ significantly from residential leases in their structure and negotiability. While residential tenants enjoy numerous statutory protections, commercial tenants and landlords have broad freedom to contract for terms that suit their business needs.

Key elements typically include:

Base Rent: The fixed monthly or annual amount paid for occupancy of the space.

Operating Expenses: Costs of property operation that may be allocated between landlord and tenant, including property taxes, insurance, and common area maintenance (CAM).

Lease Term: Commercial leases typically run 3-10 years, longer than residential leases.

Use Clause: Specifies permitted uses of the premises, which may be exclusive in multi-tenant properties.

Expense Structures

One of the most important aspects of a commercial lease is determining who pays operating expenses. There are several common structures:

*Operating expenses (often called CAM - Common Area Maintenance) typically include: *property taxes, building insurance, common area maintenance, landscape maintenance, HVAC maintenance, janitorial services, security, and utilities for common areas.

Required Disclosures

New Mexico requires certain disclosures in commercial real estate transactions:

1. Broker Duties Disclosure and Acknowledgement Form (Conditional)

When a real estate broker is involved in the transaction, they must disclose the duties they owe to their client. Property managers must provide written disclosure that "the broker is the agent of the owner of the property and not of the tenant."^[3]

2. Drug Lab Disclosure

Landlords cannot rent a property where controlled substances were manufactured or stored unless the landlord provides written notice to the tenant. The tenant must acknowledge receipt in writing, and a copy must be provided to the New Mexico Environment Department.^[4]

3. Lead-Based Paint Disclosure (Federal Requirement)

For properties built before 1978, landlords must disclose known lead-based paint hazards and provide the EPA pamphlet "Protect Your Family From Lead in Your Home."^[5]

Recording Requirements

New Mexico law (NMSA Section 14-9-1) establishes specific recording requirements for commercial leases:^[6]

Mandatory Recording: Leases with an initial term plus option terms exceeding 5 years MUST be recorded with the county clerk where the property is located.

Permissive Recording: Leases of any shorter term MAY be recorded but are not required to be.

Memorandum Option: Instead of recording the entire lease, parties may record a "memorandum of the material terms" containing: names and addresses of all parties, property description, and lease terms including all renewal options.

Notice Jurisdiction: New Mexico is a "notice" recording jurisdiction, meaning unrecorded instruments are not effective against good faith purchasers without knowledge of the unrecorded interest.

Security Deposits

This means:

• Deposit amount is fully negotiable between parties
• No statutory timeline for return of deposits
• No requirement to pay interest on deposits
• All deposit terms should be clearly specified in the lease

*Best Practice: *Commercial tenants should negotiate specific terms regarding deposit amount, conditions for deductions, timeline for return, and whether interest will accrue.

Landlord's Lien

New Mexico recognizes a statutory landlord's lien on the tenant's personal property located on the leased premises. This lien provides security for unpaid rent.^[7]

Key Points:

• Applies to commercial properties (confirmed in Heyde v. State Sec., Inc., 1958-NMSC-009)
• Covers tenant's property on the premises
• Does NOT apply to property held under conditional sale contracts
• Lien can be waived if landlord consents to removal of property

Enforcement Process: Per NMSA Section 48-3-13, after the debt becomes due, the landlord may serve written notice with an itemized statement of indebtedness. If unpaid after 10 days, the property may be advertised and sold.^[8]

Ada Compliance

Under the Americans with Disabilities Act (ADA), both landlord and tenant are legally responsible for ADA compliance in commercial leases. This liability cannot be fully contracted away.^[9]

Typical Allocation of Responsibilities:

Landlord typically responsible for: Structural elements, common areas, parking lots, building entrances, restrooms in common areas

Tenant typically responsible for: Interior of leased premises, tenant-controlled areas, operational accessibility

Penalties: Up to $75,000 for first offense; $150,000 for subsequent violations

Default and Eviction

Commercial evictions in New Mexico are NOT governed by the Uniform Owner-Resident Relations Act (NMSA Section 47-8), which applies only to residential tenancies. Commercial evictions follow general contract law principles.^[1]

This means:

• Notice periods and cure rights are governed by the lease, not statute
• Evictions proceed through unlawful detainer actions
• Court jurisdiction: Magistrate Court (Metro Court in Albuquerque) or District Court
• Writ of Restitution can be obtained for possession

*Best Practice: *Commercial leases should clearly specify: events of default, notice requirements, cure periods (if any), landlord's remedies, and tenant's obligations upon termination.

Assignment and Subletting

Commercial leases typically address whether and how the tenant may assign the lease or sublet the premises. Key provisions include:

Landlord Consent: Whether landlord's consent is required and whether it may be "unreasonably withheld"

Recapture Rights: Landlord's right to terminate the lease and reclaim the space if tenant seeks to assign

Profit Sharing: Whether landlord shares in any sublease rent exceeding the base lease rent

Original Tenant Liability: Whether original tenant remains liable after assignment

How to Create a Commercial Lease

Step 1: Identify the Parties

Include full legal names of landlord and tenant. For business entities, include entity type (LLC, Corporation, etc.) and state of formation.

Step 2: Describe the Premises

Provide a complete description including street address, suite/unit number, square footage, and any common areas included. Attach a floor plan if helpful.

Step 3: Establish the Term

Specify the start date, end date, and any renewal options. Remember that leases exceeding 5 years (including options) must be recorded.

Step 4: Define Rent and Expenses

Specify base rent, payment due date, expense structure (Gross, Modified Gross, or NNN), and any rent escalation provisions.

Step 5: Address Security Deposit

Specify amount, conditions for deduction, and timeline for return (no statutory requirements apply).

Step 6: Include Required Disclosures

Broker disclosure (if applicable), drug lab disclosure (if applicable), and lead-based paint disclosure (if pre-1978 building).

Step 7: Negotiate Additional Terms

Use clause, alterations, maintenance responsibilities, insurance requirements, ADA compliance, assignment/subletting, default provisions, and termination rights.

Step 8: Execute the Agreement

Both parties sign and date. Notarization is not required for enforceability but is recommended if recording. Each party retains a signed original.

Step 9: Record if Required

If term exceeds 5 years, record the lease or a memorandum with the county clerk.

Special Considerations

CAM Caps: Tenants should negotiate caps on annual CAM expense increases (typically 3-5%) to prevent unexpected cost escalations.

Audit Rights: Tenants should request the right to audit landlord's CAM reconciliations to verify expense allocations.

Exclusive Use Clauses: Retail tenants may negotiate exclusive rights to operate their type of business within a shopping center.

Co-Tenancy Clauses: Retail tenants may negotiate rent reductions if anchor tenants leave or occupancy falls below certain levels.

Personal Guarantees: Landlords may require principals of business entities to personally guarantee the lease. Tenants should negotiate limits on guarantee amount or duration.

Holdover Provisions: Specify consequences if tenant remains after lease expiration. Holdover rent is often set at 150-200% of the final rent.