Commercial Lease Review: What Every Business Must Check

A commercial lease is often the largest financial commitment a business makes after payroll. Unlike residential leases, commercial leases have minimal consumer protections — nearly everything is negotiable, which means nearly everything can be stacked against you if you don't read carefully.

Rent Structure and Hidden Costs

Base rent is just the beginning. In a Triple Net (NNN) lease, you also pay property taxes, insurance, and maintenance — these can add 30-50% to your base rent. Understand: whether the lease is Gross, Modified Gross, or NNN, how Common Area Maintenance (CAM) charges are calculated, whether there's a CAM cap, what annual escalation percentage applies to base rent, and if there are percentage rent provisions (common in retail — you pay extra when revenue exceeds a threshold).

Personal Guarantee

Many commercial landlords require a personal guarantee, making you personally liable if your business can't pay rent. This is the single highest-risk clause in any commercial lease. Negotiate: a limited or 'good guy' guarantee (personal liability only until you vacate and return the space in good condition), a burn-off provision (guarantee reduces over time or after certain revenue milestones), or an LLC guarantee instead of personal — though sophisticated landlords will see through this if the LLC has minimal assets.

Permitted Use and Exclusivity

The 'permitted use' clause defines what you can do in the space. Too narrow and you can't adapt your business; too broad and you might lose exclusivity protections. Always negotiate an exclusivity clause preventing the landlord from leasing to a competing business in the same property or complex. Without it, your landlord can put a direct competitor next door.

Renewal and Assignment

Plan for the future: does the lease include renewal options with predetermined pricing? Can you assign or sublease the space if you need to move? Is there a right of first refusal on adjacent space? Most landlords include heavy restrictions on assignment and subletting — negotiate these upfront. Your ability to exit or transfer the lease is worth as much as the lease terms themselves.

Red Flags to Watch For

  • ⚠Personal guarantee with no burn-off or limitation
  • ⚠NNN lease with no CAM cap or audit rights
  • ⚠Annual rent escalation above 3% with no CPI tie
  • ⚠No exclusivity clause in multi-tenant property
  • ⚠Landlord can relocate you within the building at their discretion
  • ⚠Restoration clause requiring you to return space to 'original condition'
  • ⚠Radius restriction preventing you from opening nearby locations
  • ⚠No right to sublease or assign without landlord's 'sole discretion' consent

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