Before you sign a commercial lease, read it the way the landlord’s lawyer wrote it: clause by clause, with the assumption that anything not spelled out in your favor is not in your favor. Knowing how to read a commercial lease before signing comes down to a handful of questions. Who is actually bound? What are you really paying, including everything stacked on top of base rent? Who fixes what when it breaks? What personal exposure are you taking on? How do you get out, and what happens if the landlord’s situation changes? Commercial leases run five, ten, or fifteen years, and almost nothing in them is protected by the tenant-friendly default rules that apply to apartments. Everything is negotiable, and everything you miss is yours to live with.
Confirm Who Is Signing and What You Are Renting
Start with the names. The lease should identify every legal entity entering the agreement. If your business is an LLC or corporation, confirm that the tenant is the entity, not you personally. That line decides whether the landlord can reach your personal assets if the business fails. If the landlord is a holding company or trust, note the exact entity name so you know who is actually promising what.
Next, the premises. The lease should give the exact address, suite, floor, and square footage, and it should say how that square footage is measured. This is where tenants quietly overpay. Commercial buildings distinguish “usable” square footage, the space inside your walls, from “rentable” square footage, which adds your share of lobbies, hallways, elevators, and shared restrooms. The gap is the load factor, typically 12% to 25%. At a 20% load factor, a 5,000-usable-square-foot office is billed as 6,000 rentable square feet. Ask which standard the lease uses and verify the numbers yourself.
The permitted use clause defines what your business is allowed to do in the space. Language ranges from broad (“general office use,” “any lawful retail purpose”) to painfully narrow (“a bakery specializing in bread products”). Operating outside the stated use is a lease violation that can trigger default. If your business might evolve, push for broader wording up front. A restaurant that may later add catering needs a use clause that covers food preparation and off-site service, not only dine-in.
In shopping centers and multi-tenant buildings, look for an exclusive use clause. It prevents the landlord from leasing nearby space to a direct competitor. A well-drafted version prohibits the landlord from signing competing leases and requires notice to future tenants of your exclusive. Typical remedies for a violation include reduced rent while the violation continues and, if the landlord does not fix it, the right to terminate.
Understand the Full Cost, Not Just the Rent
Base Rent and Escalation
Base rent is the fixed amount you pay before any additional charges. The starting number matters less than how it changes. Escalation clauses usually take one of three forms: a fixed annual increase, often 2% to 4%; adjustments tied to the Consumer Price Index; or periodic resets to fair market value. Fixed increases are predictable. CPI tracks inflation, which can mean sharp jumps in high-inflation years. Fair market value resets carry the most risk, both because the increases can be dramatic and because the parties often disagree about what “fair market value” is.
Triple Net Leases, CAM, and Audit Rights
Many retail and industrial leases are triple net, or NNN. You pay base rent plus your proportional share of property taxes, building insurance, and common area maintenance. Your share is usually your percentage of the building’s total rentable area. Lease 2,000 square feet in a 20,000-square-foot building and you pay 10% of those costs.
Common area maintenance deserves particular scrutiny. CAM covers landscaping, parking lot repairs, elevator maintenance, janitorial work in shared spaces, and more. The lease should define exactly which expenses qualify, because landlords sometimes slip in capital improvements or administrative fees that inflate the bill. Look for a CAM cap limiting how much these charges can rise each year. Without one, there is no ceiling.
Negotiate audit rights. An audit clause lets you review the landlord’s books to confirm the CAM charges match real expenses. You will typically have to send written notice, and the lease may impose a deadline. Miss that window and you can forfeit your ability to challenge the year’s charges. Landlords are generally expected to keep records for two to three years, so review reconciliation statements promptly.
Percentage Rent
Some retail leases add percentage rent. Once your gross sales pass a threshold called the breakpoint, you owe the landlord a percentage of every dollar above it. The natural breakpoint is your annual base rent divided by the agreed percentage. If base rent is $120,000 and the percentage is 6%, the breakpoint is $2,000,000. The standard rate hovers around 6% in retail, though it varies.
If percentage rent applies, read the definition of “gross sales” closely. Treatment of returns, employee discounts, and online sales fulfilled from a different location can shift the number meaningfully. Reporting obligations usually require regular sales figures and sometimes audited statements.
Tenant Improvement Allowance
Most spaces need work before you move in. A tenant improvement allowance is the landlord’s contribution. A turn-key build-out has the landlord cover the construction cost but control the finishes. A dollar-amount allowance gives you a defined budget and more control. A building-standard allowance offers a preset package, and you pay for anything beyond it. The amount depends on local market conditions, how badly the landlord wants to fill the space, and your lease length. Longer commitments justify larger allowances. Costs above the allowance come out of your pocket, and if you default, some landlords require you to repay the unamortized portion as damages.
Security Deposit and Utilities
The lease sets the deposit amount and the conditions for deductions. Commercial deposits are not heavily regulated in most states, so landlord discretion is wide. Check the return conditions and the timeline after lease end. Confirm who pays for electricity, water, gas, trash, and internet. In some buildings utilities are separately metered. In others they are bundled into operating expenses and split, which can mean subsidizing a neighbor who uses far more than you do.
Know Who Is Responsible for Repairs and Compliance
Maintenance
Repair responsibilities are split between landlord and tenant, and the split is where a lot of money hides. The landlord typically handles structural elements, like the roof, foundation, and exterior walls, and major systems, like HVAC, electrical, and plumbing. The tenant handles the nonstructural interior: carpet, lighting, wall coverings, bathroom fixtures, and general upkeep. Your lease will likely require you to keep the space in good condition and repair any nonstructural damage you cause.
The danger is in the details. Some leases shift HVAC maintenance to the tenant, which can run thousands of dollars a year. Others make the tenant responsible for roof damage caused by their use of the space, like installing heavy rooftop equipment. Read every maintenance sentence carefully and clarify ambiguities in writing before you sign.
ADA and Regulatory Compliance
Under federal law, landlords and tenants share responsibility for making commercial spaces accessible. The Americans with Disabilities Act applies to anyone who owns, leases, or operates a place open to the public. A lease can allocate ADA duties between the parties, but it cannot eliminate the legal obligation. If your business serves customers, you can face liability for accessibility barriers even if the landlord promised to handle compliance.1ADA.gov. Department of Justice ADA Title III Regulation 28 CFR Part 36 When you alter any part of the premises, federal law requires you to make the altered areas accessible to the maximum extent feasible, including the path of travel to those areas.2GovInfo. 42 USC 12183 – New Construction and Alterations in Public Accommodations and Commercial Facilities
The lease will also address local zoning, building codes, and fire safety. The landlord usually ensures the property meets these requirements at the start of the tenancy. Your ongoing duty is to follow the rules tied to your operations, including signage codes, occupancy limits, and industry permits.
Environmental Liability
This is the clause tenants skim and later regret. Under the federal Comprehensive Environmental Response, Compensation, and Liability Act, both property owners and operators can be held responsible for cleaning up hazardous contamination. As a commercial tenant, you are an operator. CERCLA imposes strict liability, so you can be on the hook for cleanup even if you did not cause the contamination, and the liability is joint and several, so you could owe the full cost if other responsible parties are insolvent or missing.3Office of the Law Revision Counsel. 42 USC 9607 – Liability
A well-negotiated lease addresses this. The landlord should indemnify you for contamination that existed before you took possession. You should indemnify the landlord for contamination your operations cause. Consider ordering a Phase I environmental site assessment before signing, especially if the property previously housed manufacturing, dry cleaning, a gas station, or similar uses. The assessment is cheap compared with a cleanup.
Check the Insurance and Personal Guarantee You Are Agreeing To
The lease will require both parties to carry insurance. Landlords typically require commercial general liability coverage against claims from customers or visitors injured on the premises, plus property insurance covering your equipment, inventory, and fixtures. Many leases require you to insure leasehold improvements as well. Expect the landlord to be named as an additional insured on your liability policy. Read required coverage limits, since they drive your premiums. Look for a mutual waiver of subrogation, which prevents each side’s insurer from suing the other after paying a claim. Business interruption insurance is worth considering even when not required: if a fire or disaster forces a temporary closure, it replaces lost income, and many leases still demand rent during a closure.
If your business is young or lacks credit history, the landlord will likely require a personal guarantee. A guarantee is a separate promise that you, personally, will cover the lease if the business cannot. It effectively pierces the liability shield of your LLC or corporation. If the business defaults, the landlord can pursue your savings, home equity, and other assets.
The form of the guarantee matters enormously. A full guarantee makes you personally liable for every dollar owed under the remaining term. A partial or limited guarantee caps your exposure at a dollar amount or to specific obligations such as rent. A burn-off provision reduces liability over time, eventually eliminating the guarantee after a set period of on-time payments. A “good guy” guarantee, common in some markets, limits your personal liability to rent owed through the date you voluntarily surrender the space, provided you give proper notice, pay through move-out, and leave the premises clean and empty. That is a significantly better deal than a full guarantee and worth negotiating for.
Term, Renewal, Relocation, and Landlord Entry
The lease identifies your start date, end date, and any options to extend. A renewal option gives you the right, not the obligation, to continue in the space. The critical detail is the notice deadline. Most leases require written notice months before the current term expires, and missing it by a day can forfeit the option. Calendar these deadlines the moment you sign. Losing a renewal in a space you have occupied for years, with your build-out and customer goodwill attached, is an expensive mistake. Check how rent is set during renewal: some leases lock in a rate, others reset to fair market value, and silence should be read as the landlord pushing for market.
Some leases, particularly in shopping centers, give the landlord the right to relocate you within the building or property. If you cannot strike the clause, negotiate protections: 90 to 180 days of notice at minimum, a new space equal or better in size and quality, landlord-paid moving costs and build-out, a cap on how often relocation can happen, and no relocation during the final two years of the term, when disruption costs are highest relative to remaining occupancy.
The lease will also grant the landlord entry rights for inspections, repairs, and showing the space near the end of the term. Look for a notice requirement, usually 24 to 48 hours in writing, and restrictions on entry during business hours. Unrestricted entry can be disruptive and, in some industries, raises confidentiality concerns.
Protect Yourself From the Landlord’s Lender
First-time commercial tenants rarely think about what happens if the landlord defaults on the mortgage and the bank forecloses. Without protection, a lender that takes over through foreclosure could terminate your lease, even if you have paid rent on time for years.
A Subordination, Non-Disturbance, and Attornment agreement addresses this. Subordination acknowledges that the lender’s mortgage has priority over your lease. Non-disturbance, the piece you care about, is the lender’s promise to honor your lease if it forecloses. Attornment is your agreement to recognize the new owner as your landlord. Insist on an SNDA before signing, especially for a long term or a heavy build-out investment. Without one, you can lose both the space and the improvements.
Your lease will likely also require you to sign estoppel certificates when the landlord requests them, usually in connection with refinancing or a sale. An estoppel certificate confirms key facts about your lease: start and end dates, current rent, whether either party is in default, and the status of any amendments. Once you sign, you are bound by those statements. If the certificate contains errors and you miss them, a future buyer or lender can rely on them against you. Some leases let the landlord sign on your behalf if you fail to respond within a set deadline, which means wrong terms could be locked in without your input. Review every estoppel certificate carefully against the actual lease.
Read the Exit Clauses Carefully
Default and Remedies
Default clauses define what counts as a breach and what happens next. Monetary defaults, like missing rent, typically carry a notice-to-cure period of several days to two weeks. Non-monetary defaults, like violating the permitted use clause or letting insurance lapse, usually come with a longer cure period. Read the remedies closely. Landlord remedies can include terminating the lease, accelerating all remaining rent so the entire balance becomes due immediately, and recovering the cost of finding a replacement tenant. Some leases also permit the landlord to enter the space and remove your property. Understanding the consequences before signing is how you measure the real financial risk.
Holdover
If you stay past expiration without a renewal in place, you become a holdover tenant. Most commercial leases impose steep penalties, typically 120% to 200% of your previous rent on a month-to-month basis, and some also make you liable for damages the landlord suffers from being unable to deliver the space to a new tenant on time. This is one of the most expensive tenant mistakes, and it is entirely avoidable with planning.
Early Termination, Assignment, and Subletting
Early termination clauses, when present, specify conditions and penalties, often several months of rent plus reimbursement of unamortized tenant improvement costs and leasing commissions. Many commercial leases include no early termination right at all, which leaves assignment or subletting as your only exit.
Assignment transfers your entire lease to a new tenant. A sublet rents part or all of the space to someone else while you remain responsible under the lease. Both usually require the landlord’s written consent. Look for language saying consent “shall not be unreasonably withheld,” because without it the landlord can simply say no. Watch for recapture provisions, which let the landlord take the space back instead of approving your proposed assignee or subtenant.
Surrender and Restoration
At the end of the lease, you do not just hand back the keys. The surrender clause specifies the condition in which you must return the space. Many leases require you to remove alterations, signage, and improvements, and restore the premises to their original condition. That work can cost tens of thousands of dollars depending on how extensively you modified the space. Negotiate at the start whether specific improvements can stay. Written confirmation that your build-out does not have to be removed can save a painful surprise years later.
Force Majeure
A force majeure clause addresses what happens when extraordinary events outside either party’s control, such as natural disasters, government shutdowns, or pandemics, prevent performance. These clauses took on new weight during COVID-19, when many businesses discovered their leases either had no force majeure provision or carved rent payments out of it. Courts have generally held that force majeure does not excuse rent unless the lease explicitly says so. If the clause is there, check whether rent is covered or excluded. A clause that excuses construction deadlines but not rent payments offers far less protection than most tenants assume.
Dispute Resolution
Commercial leases often route disputes to mediation or arbitration instead of court. Arbitration is binding, usually unappealable, and can be nearly as expensive and slow as litigation. Mediation is non-binding and generally faster and cheaper. Some leases use a stepped approach: mediation first, arbitration if that fails. Note which arbitration organization administers the process, where disputes will be heard, and which state’s law governs. A lease governed by the law of a distant state where the landlord is headquartered could force you to fight far from home.