Real Estate
Commercial Lease Agreement: Key Terms for Business Tenants
A commercial lease is often a business's biggest fixed cost. Unlike residential leases, commercial agreements are heavily negotiable—if you know what to ask for. Here are the critical terms to review before signing.
Essential Terms to Review
🏢 Base Rent & Escalations
What's the starting rent? How does it increase annually? Fixed percentage, CPI-linked, or market rate adjustments?
💰 CAM Charges (Common Area Maintenance)
These can add 20-40% to your base rent. Understand what's included, and cap annual increases.
📅 Lease Term & Renewal Options
How long is the lease? Do you have options to renew? At what rate? Renewal rights are valuable—negotiate them.
⚠️ Personal Guarantee
⚠️ Big one. Landlords often ask business owners to personally guarantee the lease. This puts your personal assets at risk if the business fails.
🔨 Tenant Improvements (TI Allowance)
Will the landlord contribute to build-out costs? How much? Who owns improvements at lease end?
🚪 Exit Clauses
Can you terminate early? Sublease? Assign to a buyer if you sell the business?
Who's responsible for what? HVAC, plumbing, structural repairs? "Triple net" leases put almost everything on the tenant.
Lease Types Explained
- Gross Lease: All-inclusive rent. Landlord pays operating expenses.
- Net Lease: Base rent + some expenses (taxes, insurance, maintenance).
- Triple Net (NNN): Base rent + all operating expenses. Tenant pays everything.
- Percentage Lease: Base rent + percentage of gross sales. Common in retail.
Negotiation Tips
- ✅ Ask for rent-free periods during build-out
- ✅ Cap CAM increases at 3-5% annually
- ✅ Negotiate personal guarantee limits (time or amount)
- ✅ Include a co-tenancy clause if in a retail center
- ✅ Get audit rights for CAM reconciliations
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