Oregon Commercial Lease Agreement

Introduction

An Oregon commercial lease agreement is a legally binding contract between a landlord and a tenant for the rental of commercial property. This document establishes the terms and conditions under which a tenant may occupy and use commercial real estate for business purposes, including retail, office, industrial, or other commercial activities. ^[1]

Legal Framework

Governing Law: Oregon commercial leases are governed by ORS Chapter 91 (Tenancy), ORS Chapter 105 (Property Rights, including eviction procedures), and general contract law principles under ORS Chapter 72A. The Residential Landlord and Tenant Act (ORS Chapter 90) does NOT apply to commercial tenancies. ^[2]

Written Requirement: Under Oregon's Statute of Frauds (ORS 41.580), any lease agreement with a term exceeding one year MUST be in writing to be enforceable. While oral agreements may be valid for shorter terms, best practice dictates using a written lease for all commercial tenancies regardless of duration. ^[3]

Types of Commercial Leases

1. Triple Net Lease (NNN)

In a Triple Net lease, the tenant pays the base rent PLUS all three major operating expense categories: property taxes (first "N"), property insurance (second "N"), and common area maintenance/CAM (third "N"). This structure is common for single-tenant buildings and shifts most financial risk to the tenant.

2. Gross Lease (Full-Service)

In a Gross lease, the tenant pays a single, all-inclusive rent amount. The landlord covers all operating expenses including property taxes, insurance, maintenance, and often utilities. This structure provides predictability for tenants but typically results in higher base rent.

3. Modified Gross Lease

A Modified Gross lease falls between Triple Net and Gross structures. Typically, the landlord pays operating expenses for the first year (the "Base Year"), and the tenant pays their proportionate share of any increases in subsequent years. This provides initial cost certainty while allowing expense adjustments over time.

Key Terms and Provisions

Lease Term: Commercial leases in Oregon typically run 3-10 years, significantly longer than residential leases. The agreement should specify the commencement date, expiration date, and any renewal options. Early termination clauses and conditions should be clearly defined.

Rent and Escalation: The lease should specify base rent, payment schedule, and any rent escalation provisions. Common escalation methods include: fixed annual increases, Consumer Price Index (CPI) adjustments, or percentage rent for retail properties based on gross sales. Under ORS 91.210, rent is payable in advance unless otherwise agreed. ^[2]

Permitted Use: The "Permitted Use" or "Accepted Uses" clause defines what business activities the tenant may conduct on the premises. This provision should align with local zoning regulations and may include restrictions on certain activities. Oregon has a centralized land use planning system requiring compliance with local comprehensive plans.

Security Deposits

Oregon law does NOT impose statutory limits on security deposits for commercial leases. Unlike residential tenancies governed by ORS 90.300, which limits deposits to one or two months' rent, commercial landlords may require security deposits of any amount they deem reasonable. ^[4]

Key Points:

• No statutory cap on deposit amount- No requirement to maintain deposits in separate account- No prohibition on comingling with landlord's funds- Return timeline governed by lease terms, not statute- Interest accrual determined by lease agreement

Notice Requirements

Month-to-Month Tenancy: Under ORS 91.070, a month-to-month commercial tenancy may only be terminated by either party giving the other not less than 30 days' written notice prior to the termination date. All notices under ORS Chapter 91 must be in writing (ORS 91.110). ^[5]

Fixed-Term Lease: For fixed-term commercial leases, the tenancy terminates on the date specified in the lease without need for additional notice (ORS 91.080), unless the lease provides otherwise.

Eviction Procedures

Commercial evictions in Oregon are conducted through Forcible Entry and Detainer (FED) actions under ORS 105.110-105.168. This process differs from residential eviction procedures under ORS Chapter 90. ^[6]

Key Procedural Points:

• Action filed in circuit court or before justice of the peace in the county where the property is located- Service requirements under ORS 105.135- Tenant must be given opportunity to cure breach (if applicable)- Judgment of restitution enforced under ORS 105.151- Different timelines and procedures than residential evictions

Required Disclosures

Initial Agency Disclosure Pamphlet: When a real estate licensee is involved in the transaction, ORS 696.820(2) requires the agent to provide a copy of the Initial Agency Disclosure Pamphlet at the first contact with each party to a real property transaction. This pamphlet is informational and explains the agency relationship. ^[7]

Environmental Disclosures: While not specifically mandated by Oregon statute for commercial properties, best practice requires disclosure of known environmental issues including hazardous materials, underground storage tanks, asbestos, and contamination from prior uses. Tenants should consider requesting a Phase I Environmental Site Assessment.

Operating Expenses and Cam Charges

Common Area Maintenance (CAM) charges and operating expense pass-throughs are central to most commercial lease agreements. The lease should clearly define what constitutes operating expenses.

Typical Operating Expenses Include:

• Property taxes and assessments- Property insurance premiums- Common area maintenance and repairs- Landscaping and grounds maintenance- HVAC maintenance and repairs- Utilities for common areas- Property management fees- Security services- Snow and ice removal

CAM Reconciliation: Landlords typically collect estimated CAM charges monthly and perform an annual reconciliation comparing estimates to actual expenses. Tenants should negotiate audit rights allowing review of landlord's books and records, with a typical threshold of 3-5% error triggering landlord payment of audit costs.

Subletting and Assignment

Under Oregon law, tenants generally require written landlord consent before subletting or assigning their lease. The lease agreement typically addresses this with one of three types of provisions:

1. Absolute Prohibition: Landlord may approve or disapprove in sole discretion
2. Conditional Consent: Landlord may only withhold consent with reasonable basis
3. Unqualified Prohibition: Lease states tenant may not sublet without specifying consent standard

Ada Compliance

Commercial properties in Oregon must comply with the Americans with Disabilities Act (ADA) Title III, which prohibits disability discrimination in places of public accommodation. ^[8]

Key Points:

• Both landlord and tenant can be held liable for non-compliance- Oregon requires up to 25% of remodel project costs be allocated to ADA improvements- Lease should allocate ADA compliance responsibilities between parties- Civil penalties: Up to $75,000 for first violation, $150,000 for subsequent violations- Includes requirements for doorways, ramps, parking, restrooms, and signage

Personal Guarantees

Landlords frequently require personal guarantees from small business owners, making individuals personally liable for the business's lease obligations.

What Personal Guarantees May Include:

• Personal liability for unpaid rent, damages, and fees- Spouse signature requirements- Waiver of certain legal defenses- Restrictive covenants (non-compete clauses)- Liability for attorney fees and collection costs

Alternatives: Tenants may negotiate alternatives such as increased security deposits, letters of credit, or limited-duration guarantees that phase out over time.

Insurance Requirements

Commercial leases should clearly specify insurance obligations for both parties.

Typical Tenant Insurance Requirements:

• Commercial General Liability (typically $1-2 million)- Property insurance for tenant improvements and personal property- Business interruption insurance- Workers' compensation insurance- Professional liability (if applicable)- Certificate of insurance naming landlord as additional insured- Waiver of subrogation in favor of landlord

How to Create an Oregon Commercial Lease

Step 1: Identify the Parties

Include full legal names and addresses of both landlord and tenant. If either party is a business entity, specify the entity type and state of formation.

Step 2: Describe the Property

Provide a detailed description of the leased premises including street address, suite number, square footage, and any common areas included.

Step 3: Specify Lease Terms

Define the lease term, commencement date, rent amount, payment schedule, security deposit, and any renewal options.

Step 4: Define Expense Structure

Clearly specify whether the lease is Triple Net, Gross, or Modified Gross, and detail which operating expenses each party is responsible for.

Step 5: Include Required Provisions

Address permitted use, maintenance obligations, insurance requirements, default and remedies, subletting/assignment, and any required disclosures.

Step 6: Execute the Agreement

Both parties should sign and date the agreement. While notarization is not required for Oregon commercial leases, it may be advisable for long-term leases.

Special Considerations

Zoning Compliance: Before signing a commercial lease, verify that the intended business use is permitted under local zoning regulations. Oregon's land use planning system requires compliance with local comprehensive plans.

Due Diligence: Tenants should conduct thorough due diligence including reviewing certificates of occupancy, building code compliance, ADA compliance status, and environmental assessments.

Legal Review: Given the complexity and long-term nature of commercial leases, both parties should have the agreement reviewed by an attorney experienced in Oregon commercial real estate law.