Commercial Leases 101: What Every Tenant Should Know Before Signing a Lease

 

Whether you’re opening your first storefront, relocating your office, or expanding into a new market, signing a commercial lease is one of the most important steps a business takes. Unlike residential leases, commercial leases can be highly customized, and the terms you agree to can impact your business for years. Understanding the basics will help you negotiate effectively, avoid surprises, and ensure your lease supports your long-term goals.

In this guide, we’ll walk through the key elements every tenant should know before signing a commercial lease.

 

 The Different Types of Commercial Leases

Commercial leases vary in how rent and expenses are structured. The most common types include:

  • Gross Lease (Full Service Lease): You pay a fixed rent, and the landlord covers operating expenses like taxes, insurance, and maintenance.
  • Net Lease: You pay base rent plus a portion (or all) of property expenses. Variations include Single Net (N), Double Net (NN), and Triple Net (NNN) leases.
  • Modified Gross (MG) Lease: A hybrid where some expenses are covered in the Base Rent, but others, such as electric and janitorial, are paid directly by the tenant.

> Why it matters: Knowing your lease type will help you budget accurately and compare spaces on an apples-to-apples basis.

 

 Key Terms to Pay Attention To

Commercial leases often contain industry-specific language. A few critical terms include:

  • Base Rent: The minimum rent due each month or year.
  • CAM (Common Area Maintenance) Fees: Your share of expenses for maintaining lobbies, hallways, parking lots, landscaping, etc.
  • Escalations: Scheduled rent increases, which can be negotiated and set in the lease or can be tied to inflation or operating costs.
  • Tenant Improvement Allowance (TIA): Funds the landlord may provide to customize the space for your use.
  • Option to Renew: The right to extend your lease term, often at pre-negotiated rates.
  • Right of First Refusal (ROFR): Gives you the first chance to lease additional space before it’s offered to other tenants, or in some cases, to block direct competitors from leasing space in the same property.

> Tip: Always ask your broker for clarification on any unfamiliar terms – small details can have major financial impacts.

 

 Lease Length and Flexibility

Most commercial leases range from 3 – 10 years. While a longer lease can secure stable rent, it also locks you in. Tenants should consider:

  • Business Growth: Will you outgrow the space?
  • Market Conditions: Is it better to lock in today’s rent or keep flexibility for the future?
  • Exit Strategies: Look for subleasing rights or early termination clauses in case your needs change.

 

 Hidden Costs Beyond Rent

Monthly rent is only one part of the picture. Tenants should budget for:

  • Utilities: Electricity, water, internet, HVAC usage.
  • Operating Expenses: Pass Through of Operating Expenses over a Base Year.
  • Maintenance: Some leases shift repair costs for HVAC systems, plumbing, or roofing to the tenant.
  • Insurance: General liability and sometimes property insurance are typically required.
  • Taxes: Depending on lease type, you may pay a share of property taxes.

> Action Step: Request an itemized breakdown of all operating expenses before signing.

 

 Negotiation Points Every Tenant Should Consider

Commercial leases are negotiable. Don’t assume terms are set in stone. Areas worth negotiating include:

  • Tenant Improvement Allowance
  • Rent abatement (free rent during build-out or move-in)
  • Caps on CAM fees or annual increases
  • Parking allocations and signage rights
  • Who pays for repairs to major building systems
  • Renewal options and rent adjustment formulas

> Tip: Hiring a local commercial real estate broker can help uncover negotiation opportunities you may not realize exist.

 

 The Importance of Legal and Professional Guidance

Commercial leases are legally binding contracts, often drafted to favor the landlord. Before signing:

  • Work with a broker to benchmark terms against comparable spaces in your market.
  • Consult an attorney who specializes in commercial real estate law.
  • Review financial projections to ensure your business can handle rent escalations and operating costs over time.

 

Final Thoughts

A commercial lease isn’t just paperwork – it’s a partnership with your landlord that will affect your business’s financial health and day-to-day operations. By understanding the structure, key terms, hidden costs, and negotiation points, you’ll be better equipped to secure a lease that truly supports your business goals.

If you’re considering new space or preparing to negotiate a renewal, working with experienced professionals can give you the clarity and confidence you need – all while securing a more favorable lease.