What Are Key Terms in Commercial Property Contracts?
Commercial property contracts in Washington govern the sale, lease, or management of properties used for business purposes. These contracts are intricate, involving numerous legal terms and provisions that define the rights and obligations of the parties involved.
Understanding key terms is essential for property owners, tenants, buyers, sellers, and managers to confirm compliance with Washington law and to protect their interests. For a more detailed exploration of terms commonly found in commercial property contracts from a real estate attorney, contact the Curiale Hostnik PLLC firm in Puyallup, Washington.
Parties to the Contract
The parties to a commercial property contract are typically the landlord (lessor) and tenant (lessee) in a lease agreement or the buyer and seller in a purchase agreement. In Washington, contracts must clearly identify the legal names and roles of all parties, including any entities such as corporations or LLCs.
For example, a lease might specify “ABC Properties LLC” as the landlord and “XYZ Retail Inc.” as the tenant. Misidentification can lead to disputes or unenforceability.
Premises
The premises refer to the specific property or portion of a property being leased or sold. In commercial contracts, the premises are described in detail, often including square footage, address, and any specific areas (e.g., parking spaces, common areas).
Washington law requires precise descriptions to avoid ambiguity. For instance, a lease might state: “2,500 square feet of retail space located at 123 Main Street, Seattle, WA, including access to 10 parking spaces.”
Term
The term is the duration of the lease or the timeline for a purchase agreement’s execution. In commercial leases, the term is typically expressed in months or years (e.g., “five-year lease commencing January 1, 2026”).
Washington leases may include renewal options, allowing tenants to extend the term under specified conditions. Purchase agreements often include a closing date, the deadline for transferring ownership, which must comply with Washington’s real estate statutes. A real estate attorney can help make sure the term is adhered to by both parties.
Rent
In commercial leases, rent is the payment made by the tenant to the landlord for use of the premises. Washington commercial leases often use one of the following rent structures:
Base rent: A fixed monthly amount (e.g., $5,000 per month).
Triple Net (NNN) lease: The tenant pays base rent plus a share of property taxes, insurance, and maintenance costs.
Percentage rent: Common in retail, where tenants pay base rent plus a percentage of gross sales (e.g., 5% of sales over $100,000 annually). Contracts must clearly outline rent amounts, payment schedules, and any escalation clauses (e.g., annual increases based on the Consumer Price Index).
Washington commercial leases employ various rent structures such as base rent, triple net (NNN), and percentage rent, each requiring clear contractual terms to define payment amounts, schedules, and escalation clauses.
Security Deposit
A security deposit is a sum paid by the tenant to the landlord to cover potential damages or unpaid rent. In Washington, commercial leases are not subject to the same strict regulations as residential leases under the Residential Landlord-Tenant Act (RCW 59.18).
However, the contract should specify the deposit amount, conditions for its return, and whether it accrues interest. For example, a contract might state: “Tenant shall pay a $10,000 security deposit, refundable within 30 days of lease termination, less any deductions for damages.” For assistance with verbiage in these contracts, contact a real estate attorney.
Use Clause
The use clause defines how the tenant may use the premises. Washington commercial leases often restrict use to specific purposes, such as “retail sales of clothing” or “office space for professional services.”
This clause protects the landlord’s property value and verifies compliance with zoning laws, such as those enforced by Washington’s Growth Management Act (RCW 36.70A). Violating the use clause can lead to eviction or penalties.
Maintenance and Repairs
Commercial contracts allocate responsibility for maintenance and repairs between the landlord and tenant. In a triple net lease, tenants typically handle all maintenance, including structural repairs, HVAC systems, and common areas. In contrast, a gross lease may place more responsibility on the landlord.
Washington contracts should specify who pays for repairs and whether tenants can make alterations (e.g., “Tenant may not alter premises without Landlord’s written consent”).
Common Area Maintenance (CAM)
In multi-tenant properties, common area maintenance (CAM) fees cover shared spaces like parking lots, hallways, and landscaping. Washington commercial leases often require tenants to pay a pro-rata share of CAM costs, calculated based on their leased square footage.
Contracts should detail what expenses are included in CAM (e.g., snow removal, security) and how they are billed (e.g., monthly or annually).
Assignment and Subletting
Assignment and subletting clauses govern whether a tenant can transfer their lease to another party or sublease the premises. In Washington, landlords typically retain the right to approve such actions, as outlined in the contract (e.g., “Tenant may not assign or sublet without Landlord’s prior written consent, not to be unreasonably withheld”).
These clauses protect landlords from undesirable tenants while allowing flexibility for tenants. For assistance with verbiage in these contracts, contact a real estate attorney, like the Curiale Hostnik PLLC firm in Puyallup, Washington.
Default and Remedies
The default clause outlines what constitutes a breach of the contract, such as non-payment of rent or violating the use clause. Washington law allows landlords to pursue remedies like eviction, monetary damages, or lease termination.
The contract should specify notice periods (e.g., “Landlord shall provide 10 days’ written notice of default”) and cure periods, during which tenants can correct the breach. For buyers or sellers, default provisions may include forfeiture of earnest money or specific performance.
Earnest Money
In commercial purchase agreements, earnest money is a deposit made by the buyer to demonstrate good faith. Washington contracts typically specify the amount (e.g., 1-5% of the purchase price), where it is held (e.g., in escrow), and conditions for its return or forfeiture.
For example: “Buyer shall deposit $50,000 in earnest money with XYZ Escrow Company, refundable if the sale fails due to Seller’s default.”
Contingencies
Contingencies are conditions that must be met for a purchase agreement to proceed. Common contingencies in Washington include:
Financing contingency: The buyer’s obligation depends on securing a loan.
Inspection contingency: The buyer can withdraw if property inspections reveal significant issues.
Title contingency: The seller must provide a clear title, free of liens, as verified by a title company. Washington’s real estate laws, including RCW 64.06, require sellers to disclose known defects, which may influence contingencies.
Title and Title Insurance
In purchase agreements, title refers to legal ownership of the property. Washington contracts require the seller to provide a marketable title, free of encumbrances, verified through a title report.
Buyers typically purchase title insurance to protect against unforeseen title issues. The contract should specify who pays for the policy (e.g., “Seller shall provide a standard owner’s title insurance policy at closing”).
Closing and Closing Costs
Closing is the process of transferring property ownership, typically facilitated by an escrow agent in Washington. The contract outlines the closing date and allocation of closing costs, such as escrow fees, title insurance, and transfer taxes. For example: “Closing shall occur on or before June 30, 2025, with Buyer and Seller each paying 50% of escrow fees.”
Force Majeure
A force majeure clause excuses delays or non-performance due to unforeseen events, such as natural disasters or government actions. In Washington, where earthquakes and wildfires are concerns, this clause is critical. For example: “Neither party shall be liable for delays caused by acts of God, strikes, or government regulations beyond their control.”
Indemnification
Indemnification clauses protect one party from losses caused by the other’s actions. In Washington commercial leases, tenants may indemnify landlords against liability from tenant operations (e.g., “Tenant shall indemnify Landlord for claims arising from Tenant’s use of the premises”).
Purchase agreements may include mutual indemnification for breaches of representations or warranties.
Representations and Warranties
Representations and warranties are assurances made by parties about the property or their authority to enter the contract. For example, a seller might warrant that the property complies with Washington’s environmental regulations (e.g., RCW 70A.305). These clauses provide legal recourse if assurances prove false.
Dispute Resolution
Washington commercial contracts often include dispute resolution provisions, such as mediation or arbitration, to avoid costly litigation. For example: “Any disputes shall be resolved through binding arbitration in Seattle, WA, per the rules of the American Arbitration Association.” These clauses align with Washington’s preference for alternative dispute resolution (RCW 7.04A).
Governing Law
The governing law clause specifies that Washington law applies to the contract. For example: “This Agreement shall be governed by the laws of the State of Washington.” This confirms compliance with state-specific statutes, such as the Washington Commercial Real Estate Broker Lien Act (RCW 60.42).
Notices
The notices clause outlines how parties communicate under the contract, typically requiring written notice via email, mail, or personal delivery. For example: “All notices shall be sent to the Landlord at 123 Main Street, Seattle, WA 98101, or via email to landlord@abcproperties.com.” Washington law emphasizes clear communication to avoid disputes.
Brokerage Fees
In Washington, brokerage fees are commissions paid to real estate brokers for facilitating a sale or lease. The contract should specify who pays these fees (e.g., “Seller shall pay a 6% commission to XYZ Realty at closing”). The Washington Commercial Real Estate Broker Lien Act governs brokers’ rights to claim unpaid fees.
Environmental Compliance
Washington’s strict environmental laws, such as the Model Toxics Control Act (RCW 70A.305), require commercial contracts to address environmental compliance.
Sellers or landlords must disclose known contamination, and contracts may include clauses requiring tenants to comply with environmental regulations (e.g., “Tenant shall not store hazardous materials on the premises”).
Contact a Real Estate Attorney
Commercial property contracts in Washington are intricate documents that require careful attention to key terms to verify clarity, compliance, and protection for all parties. Parties should consult legal professionals familiar with Washington’s real estate laws to traverse these contracts effectively. For assistance with verbiage in these contracts, contact a real estate attorney like the Curiale Hostnik PLLC firm in Puyallup, Washington. We also serve Gig Harbor, University Place, and Tacoma, Washington.