Rhode Island Commercial Lease Agreement

Introduction

A Rhode Island commercial lease agreement is a legally binding contract that establishes the terms and conditions under which a landlord agrees to rent commercial property to a business tenant. This document governs the relationship between the parties throughout the lease term and provides the framework for resolving disputes, allocating responsibilities, and protecting the interests of both landlord and tenant.

Commercial leases in Rhode Island are primarily governed by R.I. General Laws Chapter 34-18.1 (Commercial Leasing and Other Estates), ^[1] which provides specific rules for commercial tenancies distinct from the residential protections found in Chapter 34-18.

Unlike residential leases, commercial lease agreements offer greater flexibility in negotiating terms, as many statutory protections applicable to residential tenants do not extend to commercial tenancies. This makes it essential for both parties to carefully negotiate and document all material terms within the lease agreement itself.

Legal Framework

Rhode Island commercial leases operate within a specific legal framework that includes state statutes, common law principles, and federal requirements.

Governing Statutes

R.I. Gen. Laws Chapter 34-18.1 - Commercial Leasing and Other Estates ^[1] is the primary statute governing commercial landlord-tenant relationships in Rhode Island. Key provisions include:

Section 34-18.1-2: Termination notice for tenants at will or by sufferance

Section 34-18.1-6: Notice of termination by tenant

Section 34-18.1-8: Fire or storm damage provisions

Section 34-18.1-9: Rent delinquency and ejectment procedures

Section 34-18.1-13: Rent apportionment on lease termination

Section 34-18.1-15: Prohibition of self-help eviction

Statute of Frauds

Under R.I. Gen. Laws Section 9-1-4 (Statute of Frauds), ^[2] any lease for real property exceeding ONE YEAR in duration must be:

In writing

Signed by the party to be charged

Contain essential terms (parties, property description, duration, rent amount)

Oral leases for one year or less may be enforceable but are difficult to prove in court. Best Practice: Always reduce commercial lease agreements to writing regardless of term length.

Types of Commercial Leases

Commercial lease structures vary based on how operating expenses are allocated between landlord and tenant. Understanding these structures is critical when negotiating lease terms and projecting total occupancy costs.

Gross Lease (full Service)

In a Gross Lease, the tenant pays a single, all-inclusive rent amount. The landlord is responsible for all operating expenses, including:

Property taxes

Building insurance

Common area maintenance (CAM)

Utilities for common areas

Exterior maintenance and repairs

Advantage for Tenants: Predictable monthly costs with no exposure to expense increases.

Advantage for Landlords: Simpler administration without expense reconciliation.

Triple Net Lease (Nnn)

In a Triple Net (NNN) Lease, the tenant pays base rent PLUS three categories of expenses:

Net Property Taxes - Tenant's proportionate share of real estate taxes

Net Insurance - Tenant's share of building insurance premiums

Net Common Area Maintenance (CAM) - Tenant's share of maintenance costs

NNN leases typically result in lower base rent but higher total costs and greater cost variability for tenants. Landlords benefit from passing through operating expense increases to tenants.

Modified Gross Lease

A Modified Gross Lease is a hybrid structure where landlord and tenant negotiate the allocation of specific expenses. Common arrangements include:

Landlord pays property taxes and insurance; tenant pays CAM and utilities

Landlord covers base year expenses; tenant pays increases over base year

Tenant pays all expenses above a specified "expense stop"

Modified gross leases require careful documentation of which party is responsible for each expense category.

Essential Lease Terms

Parties and Premises

The lease must clearly identify:

Full legal name and address of the landlord (or property management company)

Full legal name and address of the tenant (business entity or individual)

Precise description of the leased premises including street address

Square footage of the leased space

Type of space (retail, office, industrial, warehouse, etc.)

Common areas accessible to the tenant

Lease Term

Commercial leases should specify:

Commencement date

Expiration date (typically stated as "expiring at midnight on [date]")

Renewal options, if any (including notice requirements and rent adjustments)

Early termination provisions, if any

Holdover provisions (rent rate if tenant remains after expiration)

Rent and Payment

Rent provisions should include:

Base rent amount (monthly and annual)

Due date for monthly payments

Acceptable payment methods

Rent escalation provisions (fixed increases, CPI adjustments, etc.)

Percentage rent, if applicable (based on tenant's sales)

Late Fees

Commercial leases commonly include late fee provisions:

Grace period before late fees apply (typically 5-15 days)

Flat fee per occurrence

Interest-based fee (daily or monthly percentage)

Application of payments (late fees paid before principal)

Security Deposits

For commercial leases, the following terms are fully negotiable:

Deposit amount (no statutory limit)

Whether interest is paid on deposits (not required)

Whether deposits must be held in a separate account (not required)

Timeline for return of deposit after lease termination (no statutory deadline)

Permitted deductions from deposit

Best Practice: Commercial tenants should negotiate specific terms regarding deposit handling, interest, and return conditions. Include provisions for:

Itemized statement of any deductions

Reasonable timeframe for deposit return (typically 30-60 days)

Walk-through inspection procedures

Right to cure deficiencies before deductions

Use of Premises

Commercial leases should clearly define the permitted use of the premises. Common approaches include:

Broad permission: "All purposes legal under law"

Specific use clause: "Only for [specific business type]"

Exclusive use provisions (preventing landlord from leasing to competitors)

Any change in the permitted use typically requires the landlord's prior written consent. Tenants should ensure the permitted use aligns with their business needs and any future expansion plans.

Zoning Compliance: Tenants should verify that their intended use complies with local zoning ordinances before signing the lease. Consider including a lease contingency on zoning approval if necessary.

Self-Help Eviction Prohibition

Rhode Island law prohibits self-help eviction for commercial tenants.

Change locks to exclude the tenant

Remove tenant's property from the premises

Shut off utilities to force tenant to vacate

Physically remove or threaten the tenant

This protection is notable because many states permit self-help eviction for commercial tenancies. In Rhode Island, landlords must pursue formal court eviction proceedings (ejectment) even for commercial lease violations.

Landlord's Remedy: When a commercial tenant defaults on rent, the landlord must file an ejectment action under Section 34-18.1-9. ^[1]

Default and Remedies

Tenant Default

Common events constituting tenant default include:

Failure to pay rent when due

Failure to comply with lease covenants or conditions

Unauthorized assignment or subletting

Bankruptcy or insolvency

Abandonment of premises

Illegal use of premises

Notice and Cure Periods

Commercial leases typically include cure periods before the landlord may exercise remedies. Common provisions include:

Monetary default (rent): 5-15 day cure period after written notice

Non-monetary default: 20-30 day cure period after written notice

Extended cure period if default cannot reasonably be cured within initial period, provided tenant diligently pursues cure

Landlord Remedies

Upon tenant default (after notice and expiration of cure period), landlord remedies may include:

Termination of the lease

Recovery of possession through court ejectment action

Recovery of unpaid rent and damages

Acceleration of rent (all future rent immediately due)

Recovery of attorneys' fees and costs

Application of security deposit to damages

Commercial Eviction Process

Rhode Island requires landlords to follow formal court procedures to evict commercial tenants. The process under Chapter 34-18.1 includes: ^[1]

Written notice of default to tenant

Expiration of any applicable cure period

Filing of ejectment action in court (Section 34-18.1-9)

Court hearing and judgment

Issuance of execution for possession

During Appeals: Per Sections 34-18.1-18 and 34-18.1-19, tenants must continue paying rent during the pendency of any appeal. Failure to pay rent during an appeal results in judgment against the tenant.

Fire and Casualty Damage

Rhode Island law provides specific protections for commercial tenants when premises are damaged by fire or storm.

Under R.I. Gen. Laws Section 34-18.1-8, ^[1] tenants have the right to:

Surrender premises that are substantially damaged

Receive proportional rent adjustment when premises are partially damaged

Terminate the lease if premises become unusable

Commercial leases should include detailed casualty provisions addressing:

Definition of substantial damage (percentage threshold)

Landlord's obligation to repair and rebuild

Timeframe for restoration

Rent abatement during restoration period

Termination rights if restoration is not completed timely

Insurance Requirements

Commercial leases typically require both landlord and tenant to maintain specific insurance coverages.

Tenant Insurance

Commercial General Liability (CGL): Minimum $1,000,000 per occurrence is common

Property Insurance: Coverage for tenant's personal property and improvements

Workers' Compensation: As required by Rhode Island law

Business Interruption Insurance: Optional but recommended

Tenants are typically required to name the landlord as an "additional insured" on liability policies and provide certificates of insurance before occupancy.

Landlord Insurance

Property/Casualty Insurance: Coverage for the building structure

Liability Insurance: For common areas and building operations

Loss of Rents Coverage: To replace rental income during restoration

Ada Compliance and Accessibility

The Americans with Disabilities Act (ADA) imposes accessibility requirements on places of public accommodation and commercial facilities. ^[5]

Commercial leases should address:

Responsibility for existing barrier removal

Responsibility for modifications required by tenant's use

Compliance with Rhode Island State Building Code Chapter 11 accessibility requirements

Indemnification provisions for ADA claims

Tax Incentives for Accessibility

Small businesses may benefit from tax incentives for accessibility improvements:

Disabled Access Credit (IRS Section 44): Up to $5,000 annual credit for eligible small businesses

Barrier Removal Deduction (IRS Section 190): Up to $15,000 annual deduction for businesses of all sizes

Electronic Signatures

Rhode Island has adopted the Uniform Electronic Transactions Act (UETA), codified at R.I. Gen. Laws Chapter 42-127.1. ^[6]

Under UETA, electronic signatures on commercial leases are legally enforceable, provided:

All parties consent to conduct the transaction electronically

The signature demonstrates intent to sign

The electronic record is properly attributed to the signing party

The electronic record is retained in a form capable of accurate reproduction

Commercial leases may be validly executed using electronic signature platforms such as DocuSign, Adobe Sign, or similar services.

Fee Disclosure Requirements (effective January 1, 2025)

Rhode Island enacted new fee disclosure requirements effective January 1, 2025 that apply to BOTH residential and commercial tenancies. ^[7]

Key requirements include:

Landlords cannot charge "convenience fees" for specific rent payment methods (credit card, app, check) unless at least one fee-free payment method is offered

All fees beyond base rent must be clearly disclosed in the lease agreement

Changes to fees require 30 days written notice

Failure to properly disclose fees entitles tenant to a refund of all undisclosed fees

Best Practice: Include a complete fee schedule as an exhibit to the lease, listing all potential fees and charges.

Real Estate Agent Disclosure Requirements

When a licensed real estate agent is involved in a commercial lease transaction, Rhode Island law requires specific disclosures.

Under R.I. Gen. Laws Section 5-20.6-8, ^[8] a licensee must:

Provide a copy of the Mandatory Relationship Disclosure to prospective landlords and tenants

Obtain a signed acknowledgment of receipt from the client

Provide the disclosure BEFORE any confidential information is disclosed

Establish the client relationship no later than preparation of the lease

If a party refuses to sign the acknowledgment, the licensee must document the refusal in writing.

Termination and Renewal

Notice Requirements

Termination notice requirements depend on the type of tenancy: ^[1]

Tenancy at will or by sufferance: Written notice required per Section 34-18.1-2

Year-to-year tenancy by parol: Notice per Section 34-18.1-4

Tenancy for less than one year by parol: Per agreement or Section 34-18.1-5

Written lease: Per the terms of the lease agreement

Section 34-18.1-6 addresses notice of termination by tenant, and Section 34-18.1-7 specifies the time of termination of letting.

Renewal Options

Commercial lease renewal provisions should specify:

Number of renewal terms available

Length of each renewal term

Notice deadline to exercise renewal (typically 90-180 days before expiration)

Rent during renewal term (fixed increase, fair market value, or negotiated)

Whether renewal is automatic or requires affirmative exercise

Holdover Tenancy

If a tenant remains in possession after lease expiration without landlord consent, the tenant becomes a holdover tenant (tenant at sufferance). Common provisions include:

Increased rent during holdover (150-200% of final month's rent is common)

Landlord's right to evict without further notice

Tenant liability for damages caused by delayed possession