Pennsylvania Commercial Lease Agreement

Overview

A Pennsylvania commercial lease agreement is a legally binding contract between a property owner (landlord/lessor) and an individual or business entity (tenant/lessee) for the rental of commercial space. The agreement outlines all terms and conditions of the lease, including duration, rent amount, security deposit, expense allocation, insurance requirements, and permitted uses of the premises.

Pennsylvania commercial leases are governed primarily by the Landlord and Tenant Act of 1951 (68 P.S. Sections 250.101-510-B) and general contract law principles. Unlike residential leases, commercial leases offer greater freedom to negotiate terms but provide fewer statutory protections for tenants. ^[1]

Standard lease terms include:

Duration of the lease term

Rent amount and payment schedule

Description of the commercial property

Insurance requirements

Renewal and extension options

Expense allocation method (NNN, Gross, Modified)

Security deposit provisions

Permitted uses of the premises

Assignment and subletting restrictions

Default provisions and remedies

Confession of judgment clauses (Pennsylvania-specific)

Statute of Frauds: In Pennsylvania, a written and signed lease agreement is required for any lease longer than three (3) years. If the lease is not in writing, a "tenancy at will" is created, which can be terminated at any time by either party. ^[2]

Required Disclosures

Pennsylvania law requires the following disclosures in commercial lease transactions:

Commercial Leasing Notice (philadelphia Only)

*(Required for Philadelphia properties) *Beginning March 19, 2022, a landlord of a commercial property in Philadelphia must provide potential new tenants with the official Commercial Leasing Notice before entering into a leasing agreement. ^[3]

This requirement applies unless:

The tenant is represented by an attorney at the time lease terms are presented

The tenant is represented by a licensed Pennsylvania real estate agent

The representative is NOT also representing the landlord or subject to the landlord's control

Required documents:

Commercial Leasing Notice (explaining zoning and approved uses)

Acknowledgment form signed by both landlord and tenant

Confirmation that tenant was informed of their right to a minimum 7-day review period

Penalties for Non-Compliance: Tenants have a private right of action against landlords who fail to comply. Damages may include actual damages, punitive damages up to $2,000 per violation, reasonable attorneys' fees, and court costs. ^[4]

Consumer Notice (real Estate Agent Transactions)

*(Conditional) *When a real estate licensee is involved in a commercial lease transaction, they must provide consumers with a Consumer Notice at the initial interview. This disclosure explains the agency relationships that may exist. ^[5]

Agency relationship types explained in the disclosure:

Seller/Landlord Agent: Works exclusively for the property owner

Buyer/Tenant Agent: Works exclusively for the tenant

Dual Agent: Represents both parties (requires written consent)

Designated Agent: Different agents within same brokerage represent each party

Transaction Licensee: Provides services without agency relationship

The licensee must retain a copy of the signed acknowledgment for 6 months. ^[6]

Expense Structure Types

Commercial leases in Pennsylvania 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 is the most common structure for freestanding retail and industrial properties.

Gross Lease (full Service)

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.

Modified Gross Lease

*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 Pennsylvania commercial lease agreement should include the following provisions:

Parties and Property

Full legal names of landlord and tenant

Complete property address and legal description

Square footage of leased premises

Common areas included in the lease

Term and Rent

Lease commencement and expiration dates

Base rent amount and payment schedule

Rent escalation provisions (annual increases, CPI adjustments)

Late fee provisions

Grace period for rent payment

Permitted Use

Maintenance and Repairs

Tenant responsibilities (interior maintenance, fixtures)

Landlord responsibilities (structural, roof, exterior)

HVAC maintenance allocation

Procedures for requesting repairs

Alterations and Improvements

Address whether tenant may make alterations, what approvals are required, who pays for improvements, and who owns improvements at lease end.

Assignment and Subletting

Specify whether assignment or subletting is permitted, what landlord consent is required, and any conditions that apply.

Security Deposits

Key Point: Pennsylvania law does NOT impose statutory limits on commercial security deposits. Unlike residential leases, where deposits are capped at two months' rent for the first year and one month thereafter, commercial lease deposits are entirely negotiable. ^[8]

Commercial security deposit considerations:

Amount is fully negotiable between parties

No statutory requirement for interest or escrow

Return timeline governed by lease terms (not statute)

Landlords commonly request 2-6 months' rent

Letter of credit may be used in lieu of cash deposit

Eviction and Default

Pennsylvania's eviction procedures for commercial tenants are governed by the Landlord and Tenant Act of 1951. ^[9]

Notice Requirements

Lease 1 year or less: 15 days written notice to quit

Lease more than 1 year: 30 days written notice to quit

Nonpayment of rent: 10 days written notice to quit

Self-Help Eviction Prohibited

Landlords cannot use self-help measures to evict commercial tenants. Prohibited actions include:

Changing locks without court order

Shutting off utilities

Removing tenant's property

Physical removal of tenant

All evictions must proceed through judicial process.

No Duty to Mitigate

Pennsylvania landlords have no duty to mitigate damages by re-letting the premises if a tenant abandons. The landlord may sue for the full remaining lease term. This differs from many other states. ^[10]

Confession of Judgment

IMPORTANT PENNSYLVANIA-SPECIFIC PROVISION: Pennsylvania is one of the few states that enforces confession of judgment clauses in commercial leases. ^[11]

What is Confession of Judgment?

A confession of judgment clause allows the landlord to obtain a court judgment against the tenant without a trial if the tenant defaults. The tenant effectively waives their right to contest the claim before judgment is entered.

Two types of confession of judgment:

Confession of Judgment for Money Damages: Landlord can obtain judgment for unpaid rent and damages

Confession of Judgment for Possession: Landlord can obtain possession of the premises

Warning for Tenants: These clauses significantly limit tenant rights. Tenants should:

Have the lease reviewed by an attorney before signing

Understand the accelerated remedies available to the landlord

Negotiate limits on confession of judgment if possible

Maintain careful records of rent payments and communications

Termination Notice Requirements

Notice requirements for terminating a Pennsylvania commercial lease:

Standard Termination

If either party wants to terminate the lease at the end of the term without cause, written notice should be provided according to lease terms. If the lease is silent, a 30-day notice is customary.

Rent Increases

For rent increases, landlords should provide 60 days written notice to the tenant. However, commercial leases typically include rent escalation provisions that govern increases.

Month-To-Month Tenancy

If the lease has expired and the tenant remains with landlord consent, a month-to-month tenancy may be created. Either party may terminate with proper notice (typically 30 days).

Ada Compliance

The Americans with Disabilities Act (ADA) applies to commercial properties open to the public. Both landlord and tenant can be liable for ADA violations under Title III. ^[12]

Key ADA considerations for commercial leases:

New construction (after January 26, 1993) must fully comply with 2010 ADA Standards

Existing buildings: Only "readily achievable" modifications required

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

The lease should clearly allocate ADA compliance responsibilities

Pennsylvania Human Relations Act provides additional state protections

Best Practice: Include explicit language in the lease identifying which party is responsible for ADA compliance and related costs.

Insurance Requirements

Commercial leases typically require tenants to maintain the following insurance coverage:

Typical Tenant Insurance Requirements

General Liability Insurance: $1,000,000 - $2,000,000 per occurrence

Property Insurance: Covering tenant improvements and contents

Business Interruption Insurance: Optional but recommended

Workers' Compensation: Required if tenant has employees

Additional Requirements

Certificate of Insurance naming landlord as additional insured

30-day notice requirement before policy cancellation

Waiver of subrogation in favor of landlord

Umbrella/excess liability coverage for high-risk businesses

Landlord typically maintains: building insurance, liability insurance for common areas, and may carry umbrella coverage.

Zoning and Permitted Use

Virtually every municipality in Pennsylvania has its own zoning ordinance governing permitted uses of property. ^[13]

Critical Due Diligence:

Verify the property is zoned for your intended business use

Landlord representations are NO substitute for independent verification

Check for any conditional use permits or variances required

Review additional restrictions: lot size, building height, parking requirements

Violations can result in fines and forced business closure

Options If Zoning Doesn't Permit Your Use

Variance: Request deviation from zoning regulations

Conditional Use Permit: Requires application and public hearing

Zoning Amendment: Longer process to change underlying zoning

Environmental Considerations

Environmental issues can create significant liability for both landlords and tenants under federal and state law. ^[14]

Cercla Liability

Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), landlords can be held liable for environmental contamination caused by tenants. Cleanup costs can be enormous.

Recommended Protections

Phase I Environmental Site Assessment before leasing

Hazardous materials provisions in the lease

Tenant indemnification for environmental violations

Right to inspect tenant's use of hazardous materials

Requirement for proper permits and compliance documentation

Lead-Based Paint (mixed-Use Properties)

For properties built before 1978 with residential units, federal law requires disclosure of known lead-based paint hazards and provision of an EPA-approved information pamphlet. ^[15]