New York Commercial Lease Agreement

Overview

A New York commercial lease agreement is a legally binding contract for renting retail, office, or industrial space by a landlord to a tenant. The agreement outlines all the terms and conditions of the lease, such as the rent amount, security deposit, lease term, option to renew, and more. Once signed by both parties, the document is legally binding.

Unlike residential leases, commercial leases in New York offer greater freedom to negotiate terms but provide fewer statutory protections for tenants. A tenant's rights are almost entirely governed by the lease itself. ^[1]

Key differences from residential leases:

Unless it is required by the lease, the landlord is not required to make repairs or provide heat

When the lease ends, the law does not limit how much the landlord can increase the rent

The landlord is not obligated by law to renew the lease

New York does not have commercial rent regulation

Standard commercial lease terms include:

Parties (landlord and tenant identification)

Description of the leased premises

Permitted use of the premises

Lease term with commencement and expiration dates

Base rent and additional rent provisions

Security deposit requirements

Expense allocation (NNN, Gross, or Modified)

Insurance requirements

Assignment and subletting restrictions

Maintenance and repair responsibilities

Default and remedies provisions

Required Disclosures

Agency Disclosure Form (Recommended)

*(Conditional) *An agent acting on behalf of a tenant or landlord in a real estate transaction must disclose their agency relationship to the other parties to the agreement and obtain their signed acknowledgement of the disclosure.

The New York State Department of State provides the official Disclosure Form for Landlord and Tenant (DOS-1735-f). ^[3]

Food Use Rider (Conditional)

Though not required by law, this addendum is commonly included in commercial leases with food service tenants in order to outline the specific obligations associated with preparing, serving, or selling food on the leased premises.

Food service considerations include:

Grease trap installation and maintenance

Health department compliance requirements

Ventilation and exhaust systems

Waste disposal procedures

Pest control measures

Hours of operation restrictions

Expense Structure Types

Commercial leases in New York typically use one of three expense structures. The expense structure determines which party pays for operating costs:

Triple Net (Nnn) Lease

Tenant pays for all operating expenses, including property taxes, insurance, and common area maintenance (CAM). The landlord receives "net" rent without deducting these costs. This structure is common for freestanding retail and industrial properties.

Gross Lease

Landlord pays for all operating expenses. The tenant pays a flat rental amount, and the landlord is responsible for property taxes, insurance, and maintenance costs. This is common in multi-tenant office buildings.

Under a gross lease, the landlord shall be obligated to maintain the general exterior structure of the premises, in addition to maintaining all major systems such as heating, plumbing, and electrical. The parking area shall be maintained by the landlord, including the removal of any snow or environmental hazards.

Modified Gross Lease

Landlord and tenant share expenses according to negotiated terms. The specific allocation of expenses should be clearly defined in the lease agreement.

*Operating expenses typically include: *property taxes, insurance, common area maintenance, landscape maintenance, HVAC maintenance, utilities, janitorial services, and similar costs.

Key Agreement Sections

A comprehensive New York commercial lease agreement should include the following sections:

I. The Parties: Landlord and tenant identification with complete mailing addresses. Collectively known as the "Parties."

II. Description of Leased Premises: Street address, square footage (SF), type of space (retail, office, industrial, etc.), and other description. Known as the "Premises."

III. Use of Leased Premises: Either all purposes legal under law OR only specific purposes. Any change requires landlord's prior written consent.

IV. Term of Lease: Period of tenancy with specific commencement date and expiration date (at midnight). Known as "Initial Term."

V. Security Deposit: Amount (if any), payment timing, holding in escrow in separate bank account, conditions for use and return.

VI. Rent: Base rent amount, due date (specific day of each month), pro-rata provisions for partial months.

VI.a. Percentage Rent: Optional: Percentage of gross/net sales, calculation method, payment frequency (monthly/quarterly/annually).

VII. Late Fee: Grace period (if any), fee structure (flat fee per occurrence/day OR interest-based rate per annum).

VIII. Expenses: Expense allocation based on lease type (Triple Net, Gross, or Modified Gross).

IX. Insurance: Required coverage types and minimum amounts. Tenant typically provides commercial general liability insurance.

X. Maintenance and Repairs: Allocation of maintenance responsibilities between landlord and tenant.

XI. Assignment and Subletting: Restrictions, approval requirements, and conditions.

XII. Default and Remedies: Conditions constituting default and available remedies for both parties.

XIII. Signatures: Execution by both parties (or authorized representatives) with dates and initials on each page.

Security Deposits

No Statutory Limit for Commercial Leases

Unlike residential leases, there is no statutory limit on the amount of security deposit that landlords can require for commercial properties in New York. Commercial landlords have significant flexibility regarding security deposit amounts. A landlord could demand a security deposit ranging from 2 to 12 months' rent, depending on their perceived risk. ^[4]

Trust and Segregation Requirements

Under New York General Obligations Law Section 7-103, the security deposit remains the property of the tenant, even when handed over to the landlord. Landlords are obligated to hold these deposits in trust for their tenants. ^[5]

Key requirements:

The security deposit cannot be commingled with the landlord's funds

It must be placed in a segregated account

It can only be used if the tenant defaults on the lease or as specified in the lease terms

The security deposit may not be used to pay the last month's rent unless written permission is granted by the landlord

Interest Requirements

When the security deposit pertains to rental properties with six or more family-dwelling units, it must be deposited in an interest-bearing account within a New York State banking institution. This may be relevant to commercial spaces located in mixed-use buildings.

Return of Security Deposit

At the conclusion of the lease term, landlords are obligated to return the security deposit, minus any lawful deductions for unpaid rent, damages, or other breaches of the lease. The landlord will usually refund the security deposit 30 to 45 days after the tenant vacates the space. ^[1]

Assignment and Subletting

In New York, the default rule is that if the lease does not prohibit or condition assignment and/or subleasing rights, then the tenant is permitted to assign or sublease. ^[1]

Assignment of Lease

An assignment is an arrangement in which the rights and obligations of the original tenant are transferred to a new tenant. The new tenant pays rent directly to the landlord. However, the original tenant typically remains liable if the new tenant fails to pay rent.

Sublease

A sublease is an arrangement in which the tenant rents its space to a subtenant. The subtenant pays rent to the original tenant (now acting as "sublandlord"), who continues to pay rent to the landlord.

Eviction and Default

Commercial Eviction Process

In New York, evicting a commercial tenant can take anywhere from a few weeks to several months, depending on the situation. Commercial evictions are typically faster than residential evictions because commercial tenants receive fewer statutory protections. ^[6]

Legal Grounds for Eviction

New York law allows commercial landlords to evict a tenant for specific reasons, including:

Non-payment of rent

Substantial violation of lease terms

Holding over after lease expiration

Creating a public nuisance

Required Legal Procedure

You can evict a tenant in New York State, but you must follow the proper legal procedures. This includes:

Providing the tenant with a notice of eviction (varies depending on reason)

Filing a petition with the court

Obtaining a judgment of possession before eviction can proceed

Only a Marshal or Sheriff can carry out the actual eviction

Self-Help Eviction Is Prohibited

It is illegal for a landlord to use self-help, violence, or force to remove a commercial tenant. Examples of prohibited conduct include:

Cutting off the tenant's electric, water, and/or heat supply

Changing the locks to prevent the tenant from entering the property

Removing tenant's property without court order

Making threats to remove the tenant

Yellowstone Injunction

Commercial tenants in New York may seek a "Yellowstone" injunction, which protects tenants from losing their lease due to an alleged default. This injunction tolls (pauses) the cure period while the court determines whether a default actually occurred and whether the tenant can cure it.

Default Provisions

A default occurs when a landlord or tenant violates the lease. Most commercial leases contain an "event of default" provision, which permits the landlord to terminate the lease upon the occurrence of certain delineated events and after proper notice and cure period is provided.

Negotiate a provision in the lease that requires the landlord to provide written notice of any default, with the opportunity to cure (fix) the default. Landlords are more likely to agree to provide notice of failure to make a required repair, typically giving 15 to 30 days to complete the repair. ^[1]

Certificate of Occupancy

A Certificate of Occupancy (CO) states the legal use and/or type of permitted occupancy for a building. No one may legally occupy a building until the NYC Department of Buildings has issued a Certificate of Occupancy or Temporary Certificate of Occupancy. ^[7]

Commercial Use Requirements

If the certificate of occupancy has not been updated to allow for commercial tenants, the landlord is violating it, and tenants may have the right to withhold rent.

Pre-1938 Buildings

Buildings built before 1938 are not required to have a Certificate of Occupancy - unless later alterations changed its use, egress or occupancy. If this is the case, it is important to consult with a lawyer about your options. ^[1]

How to Verify a Co

Use the Building Information Search in the NYC Buildings Information System (BIS) to search by property address. From the Property Profile Page, select "View Certificates of Occupancy." ^[7]

Zoning and Permitted Use

Zoning Designations

New York City limits the uses of areas through numerous "zoning districts" throughout the city. The most common zoning districts the City designates are residential, commercial, and manufacturing. Zoning designation can also limit building features in a district, such as its height and signage. ^[1]

Permitted Use Clause

The lease describes how your business can use the space through the "permitted use" clause. It is important that the lease has a clear statement of which type(s) of business(es) may operate in the space.

Options typically include:

All purposes legal under law

Only specific purposes (with changes requiring landlord's prior written consent)

Zoning Variance

If you find a space where your planned use is not allowed under current zoning, you can seek a zoning variance that will permit that use. However, the process to acquire one requires significant money and time. Contact the NYC Board of Standards and Appeals for more information.

Ada Compliance

All new and existing businesses in New York City are required to comply with federal (ADA), as well as state and city anti-discrimination and accessibility requirements under the NYSHRL, NYCHRL, and other local laws such as the Building Code. ^[8]

Responsibility Allocation

Under ADA Title III, both landlords and tenants may be responsible for removing barriers. While the DOJ can look to one or both parties to require compliance, as a matter of contract, either party can shift the financial responsibility for remedying violations to the other party.

New Vs. Existing Buildings

Buildings constructed after 1993 must meet stricter ADA standards, while older buildings are required to make "readily achievable" accessibility improvements - meaning those that can be carried out without excessive difficulty or expense.

Common Modifications

Wider doorways (at least 32 inches) to allow wheelchair entry

Office entryways should not require more than five pounds of force to open

Entrance adjustments (ramps, automatic doors)

Upgraded restroom facilities

Accessible parking spaces

Insurance Requirements

Insurance limits your risk by protecting your business against claims for personal injury or property loss. Your landlord will likely require you to maintain insurance. ^[1]

Required Coverage Types

At a minimum, you will usually need:

Commercial General Liability Insurance - protects your business from lawsuits for physical injuries

Property Insurance - covers damage to personal property and to the space when caused by fire, theft, vandalism, or some natural weather events

Business Interruption Insurance - covers lost income if your business is closed temporarily because of damage to your space

Minimum Coverage Amounts

Under a gross lease, tenants typically provide and maintain personal liability and property damage insurance as a lessee, at least to the limits of One Million Dollars ($1,000,000.00), that will designate the landlord as an "also named insured" and shall provide the landlord with a copy of such insurance certification or policy prior to the effective date of the Agreement.

Additional Insured Parties

Your landlord may require you to name additional insured parties on your policy including the landlord, property manager, and mortgage lender of the landlord. This protects additional insured parties if a claim against them is your fault as the tenant.

Lease Renewal

No Statutory Right to Renew

Commercial landlords are not required by law to renew your lease. Once your lease ends, the landlord is also permitted to ask for any amount of rent. New York does not have commercial rent regulation. ^[1]

Negotiating Renewal Options

Protect yourself against a high increase by negotiating for an option to renew in your lease. Options for determining increased rent include:

Fixed rent increase (typically 2-3% each year)

Fair market rent (determined by looking at similar prices in the same area)

Consider asking the landlord to set a limit to the increase (a fixed amount or percentage of fair market rent)

Being a Good Tenant

If your lease does not have an option to renew and you want to stay, contact your landlord well before your term ends to request renewal. If you are a good tenant, the landlord may be motivated to extend the term at a reasonable rent. Good tenant practices include:

Pay your rent on time each month

Do not violate the lease

Be respectful of neighbors, especially regarding noise

Quickly contact the landlord when building systems need repair