Washington Commercial Lease Agreement

Introduction

A Washington commercial lease agreement is a legal document that outlines the terms and conditions of a commercial property rental. Once signed by the landlord and tenant, it becomes a legally binding contract governed by Washington's Uniform Commercial Code (UCC) Article 2A. ^[1] The agreement contains essential information about the lease term, rent amount, security deposit, permitted use, operating expenses, and options to renew.

Commercial leases in Washington differ significantly from residential leases and provide parties with greater flexibility to negotiate terms. However, certain statutory requirements and disclosures still apply.

Legal Framework

Commercial lease agreements in Washington are primarily governed by the Washington Uniform Commercial Code (UCC) Chapter 62A.2A. ^[1] Unlike residential leases governed by the Residential Landlord-Tenant Act (RCW 59.18), commercial leases allow greater contractual freedom between parties.

Key aspects of Washington's UCC Article 2A include:

• Formation and enforceability of lease contracts
• Default provisions and available remedies
• Liquidated damages limitations
• Assignment and sublease provisions

Types of Commercial Leases

Commercial leases are categorized by how operating expenses are allocated between landlord and tenant. The three primary types are Triple Net (NNN), Gross, and Modified Gross leases. ^[7]

Triple Net Lease (Nnn)

In a Triple Net lease, the tenant pays all operating expenses in addition to base rent. The three "nets" refer to: ^[7]

1. Property Taxes - The tenant pays their proportionate share of property taxes

2. Insurance - Building insurance premiums (not tenant's own liability insurance)

3. Common Area Maintenance (CAM) - Parking lots, landscaping, shared facilities, HVAC

Gross Lease (full-Service)

In a Gross lease, the landlord pays all operating expenses. The tenant pays a single, flat rental amount that covers everything - property taxes, insurance, maintenance, utilities, repairs, and janitorial services. This type is most common in office buildings and provides tenants with predictable monthly costs.

Modified Gross Lease

Common Operating Expenses:

Required Disclosures

Washington law requires specific disclosures in commercial lease transactions:

Energy Benchmarking Report (seattle Only)

Building owners in Seattle subject to energy benchmarking requirements must, upon request, provide a current or potential tenant with a copy of the most current benchmarking report. This applies to non-residential and multifamily buildings greater than 20,000 square feet. ^[2]

Key requirements:

• Applies to buildings over 20,000 square feet
• Annual reporting to City of Seattle by June 1st
• Data publicly available on Seattle Energy Benchmarking Map
• Non-compliance results in Notice of Violation and penalties

Real Estate Brokerage Pamphlet (Conditional)

A broker must provide all parties in a transaction with a pamphlet detailing general information about real estate brokerage in Washington. The broker must also obtain an acknowledgment of receipt. ^[3]

Timing requirements:

• For represented parties: Before signing a services agreement
• For unrepresented parties: Before signing an offer or as soon as reasonably practical

Environmental Disclosures

While Washington's mandatory commercial disclosure form (RCW 64.06.013) primarily applies to property sales rather than leases, landlords should disclose known environmental hazards. ^[8] Environmental disclosures cannot be waived and include:

• Presence of asbestos or lead-based paint (pre-1978 buildings)
• Chemical storage tanks
• Soil or groundwater contamination
• Prior use as illegal drug manufacturing site

Default and Remedies

Washington's unlawful detainer statute (RCW 59.12) governs the eviction process for commercial tenants. ^[4] The process is highly technical and strict compliance is required.

Notice Requirements

Eviction Process

1. Landlord serves written notice to tenant

2. If tenant fails to cure or vacate, landlord files unlawful detainer action

3. Court hearing and judgment

4. If landlord prevails, Writ of Restitution issued

5. Sheriff enforces writ and removes tenant

Holdover Tenancy

Washington does not have a statutory double rent provision for holdover tenants. However, commercial leases typically include holdover clauses imposing rent increases of 120%-200% of the base rent during any holdover period. ^[10]

Under RCW 59.18.290, it is unlawful for a tenant to hold over after lease termination. Landlords deprived of possession may recover:

• Possession of the property
• Damages sustained
• Costs of suit and reasonable attorney's fees (prevailing party)

Seattle-Specific Provisions

Effective January 29, 2024, Seattle Ordinance CB 120643 imposes new restrictions on commercial leases for retail and commercial (non-office) spaces. ^[9]

Personal Guarantee Limits

Maximum personal guaranty is limited to:

• First two years of base rent payments, PLUS
• Total cost of tenant improvements (including landlord's TI allowance)
• Excludes improvements paid directly by tenant

Security Deposit Limits

Total security deposits and letters of credit may not exceed first month plus last month of base rent.

Applicability:

• Applies to: Commercial/retail spaces (including restaurants)
• Excludes: Office space, medical/clinic, R&D laboratory, residential
• Applies only to NEW leases after January 29, 2024 (not renewals)

Assignment and Subletting

Washington law does not specifically regulate commercial subletting. The lease agreement governs these rights:

• If lease prohibits subletting: Tenant may not sublet without landlord approval
• If lease is silent: Subletting is generally permitted
• Washington courts apply reasonableness standard: Landlords cannot deny unreasonably
• Original tenant remains liable unless expressly released by landlord

Ada Compliance

Under the Americans with Disabilities Act Title III, both landlord and tenant are legally responsible for ensuring ADA compliance in commercial properties that serve the public. ^[5]

Key points:

• Both parties remain legally liable regardless of lease allocation
• Lease can allocate financial responsibility but not legal liability
• 2010 ADA Standards apply to new construction and alterations
• Private lawsuits may be filed without DOJ complaint
• Common areas typically landlord responsibility; leased space typically tenant

Insurance Requirements

While Washington law does not mandate commercial tenant insurance, most landlords require coverage as a lease condition:

Typical Tenant Insurance Requirements:

• Commercial General Liability (CGL) insurance
• Commercial property insurance for tenant's property
• Naming landlord as "additional insured"
• Certificate of insurance prior to occupancy

Typical Landlord Insurance:

• Building property insurance
• General liability for common areas
• Loss of rental income coverage
• Equipment breakdown insurance

Consumer Protection

Washington's Consumer Protection Act (RCW 19.86) declares unfair or deceptive business practices unlawful, including in commercial lease transactions. ^[6]

Protections include:

• Private cause of action for injured parties
• Treble damages (up to 3x actual damages)
• Attorney's fees recoverable by prevailing party
• Injunctive relief available

Essential Lease Provisions

A comprehensive Washington commercial lease should include:

Basic Terms

• Parties: Legal names and addresses of landlord and tenant
• Premises: Exact description of leased space, including square footage
• Term: Start date, end date, and any renewal options
• Rent: Base rent amount, due date, payment method, late fees
• Security Deposit: Amount, conditions, return procedures

Operating Provisions

• Permitted Use: Specific business activities allowed
• Operating Expenses: Allocation (NNN, Gross, Modified), CAM caps
• Maintenance: Responsibilities for repairs and upkeep
• Alterations: Approval process, ownership of improvements
• Signage: Rights and restrictions

Legal Provisions

• Default and Remedies: Notice requirements, cure periods
• Holdover: Rent rate during holdover (typically 150-200%)
• Assignment/Subletting: Consent requirements
• Insurance: Required coverages, additional insured provisions
• Indemnification: Mutual or one-way indemnity provisions
• Personal Guarantee: If required (subject to Seattle limits)