If you’re looking at getting your business set up in a commercial space, congratulations! Whether you’ve been down this road before or are about to enter into a commercial lease for the first time, opening a new location for your business is a huge step.

As you go through this process, you might wonder “Do I really need to pay a lawyer to review and negotiate my retail space lease? People sign leases for their apartments and houses all the time.” Or, “What should I look for in an office lease? What about a manufacturing lease or warehouse lease?”

This article contains some information below to help answer these questions. Read on for some tips and tricks for how small business owners can confidently rent a commercial space while protecting themselves and their businesses.

Jump to section:

• Why is it important to carefully review and negotiate a Commercial Lease?
• Understanding major terms in a Commercial Lease
• Negotiating better terms in a Commercial Lease
• Our Approach
• FAQs

First, how about an example? A few years ago, we were helping a first-time entrepreneur negotiate his lease for a new coffee shop space. While reviewing the proposed lease from the landlord, we discovered that he would be on the hook for all the maintenance and repairs, so we recommended that he have the HVAC and water heaters inspected before signing. The inspector found that the HVAC was on the verge of death before the lease was signed, so we were able to negotiate into the lease that the landlord would replace the HVAC before he took possession. If we had skipped the review and negotiation process, the entrepreneur would have needed to replace the entire HVAC himself (around $30,000), on top of all the other costs of opening a business.

Many business owners understand leases from personal experience, likely having rented an apartment or other living space. In those leases, the law imposes very strict requirements on the landlord. Even without a lawyer reviewing residential leases, landlords must hold responsibility for things like HVAC repair and replacement.

Commercial leases differ substantially, because the law provides almost no protection for commercial tenants (we include all business space renters, such as those renting office leases, retail leases, warehouse leases, and manufacturing space leases, under the umbrella of “commercial tenants”). The law assumes that commercial landlords and business-owner tenants are sophisticated parties who can negotiate their own protections.

However, the power between landlords and small business tenants rarely balances evenly. We often see two different types of landlords: experienced landlords, with commercial leases drafted by the landlord’s attorneys, and less-experienced landlords who use a lease they found somewhere, likely online. Experienced landlords tend to use long leases that heavily favor the landlord, filled with jargon and legalese that’s slowly evolved over time (some changes can even conflict with other language in the lease!). They come to the table with extensive experience with leases, while even experienced business owners only grapple with a lease every 5-10 years or so. The less experienced landlords will often find a sample lease somewhere to use, and the terms typically don’t match what the landlord and tenant actually discussed.

For these reasons, we recommend talking through your commercial lease with an attorney as soon as possible, but certainly before signing the lease. 

Below, we discuss how an attorney can help you to:

1. Understand the Major Terms in a Commercial Lease and
2. Negotiate Better Terms in a Commercial Lease

This then empowers you to make an informed business decision to either enter into the lease or walk away and find something else more suitable. Our approach has proven successful time and time again.

Surprisingly, it is often difficult to even get a clear picture of basic terms like the monthly rent payment in a commercial lease. Throughout the entire lease, the language often tends towards esoteric legalese (and, frankly, poorly writing), and confusing jargon.

For example, the brokers, landlord, or other parties may throw around terms like “triple net”, “gross”, “net”, “double net”, or a “percentage lease” to describe how much of the landlord’s costs the tenant will pay, in addition to the base rent. The costs could include taxes, insurance, common area maintenance, utilities, structural maintenance, repairs, etc. It could even include a portion of your business’s revenue. These costs could be split in various ways: including just the tenant’s space, some proportion of the common space, or the whole building. We’ve had clients whose monthly payments would have been twice or even three times the amount they expected!

However, even knowing all of the jargon, it can still be very difficult to get a clear picture of what your monthly rent payment will be in a commercial lease, let alone what the other terms are. Some jargon has wiggle room in the definition. “Modified gross”, for instance, can mean anything from a gross lease (where the landlord takes on all extra costs) to a net lease (where the tenant takes on all extra costs). Even worse, in a large percentage of the leases we’ve seen, various terms and language will conflict throughout the lease.

The rent amounts are just one example of terms that can be difficult to parse in a commercial lease. It’s important to carefully read the entire lease, including any riders, get clarification on any ambiguities or contradictions, and redline the lease to ensure you’re signing a version of the lease without ambiguity or contradiction.

What lease terms should a business owner think about when renting a space?

Some terms we’ve been able to negotiate include:

• Personal Guarantees: Removing or limiting them to a certain dollar amount or having them phase out or end after a certain number of years.
• Rent: Limiting total costs required to be paid by the tenant (including additional costs, like common area maintenance (CAM), insurance, and taxes). 
• Repairs and Maintenance: Limiting the burden on the tenant to pay for repairs and maintenance. For example, making clear who is responsible for replacing a broken HVAC.
• Zoning Restrictions and Permit Contingencies: To make sure your business can operate in the location, and that you can get out of the lease if your type of business is not permitted in the space.
• Quiet Enjoyment: Restrictions on landlords interfering with your space or business. We may be able to include self-remedies for this in the lease so you can withhold rent rather than have to file a lawsuit to protect your rights.
• Unique Terms: Protect anything specifically important to the tenant. For example, one client wanted us to reserve the right to hang wallpaper in her office space.
• Exclusivity: Prevent the landlord from renting nearby space to one of your competitors. 

This, of course, is not an exhaustive list. Commercial leases contain more terms than we could possibly list here. 

We do want to set expectations. Sometimes, we’re not always able to negotiate all (or sometimes any) of the above for every tenant. It’s not unusual for landlords to be reticent about negotiating at all. However, even in those cases, we find that the process of negotiation often proves beneficial. It’s ultimately up to you to evaluate whether you want to end up in an ongoing business relationship with the landlord, and the negotiation process provides valuable information on what that relationship might look like in the years to come. Some of our happiest clients walked away from the first commercial space they fell in love with because the landlord wasn’t willing to agree on acceptable terms. We always say they probably dodged a bullet and saved a lot of money and headaches in the long run.

How and when do commercial lease negotiations happen?

The commercial lease process can vary a lot, but a common process might look like the following:

Step 1: Finding a Space. A lot of business owners work with a broker to find a commercial, retail, or office space to rent. It’s not necessary to have a broker, some business owners find commercial space on their own.

Step 2: Negotiating the Major Terms. Brokers can help negotiate big-picture terms like rent amount, caps on CAM (common area maintenance), and term or length of the lease. They can also help secure rent abatements (when rent starts being due), tenant improvement allowances for any buildout, and/or work the landlord will do prior to lease commencement. Many brokers work differently and focus on different terms to negotiate, so it’s important to keep an eye out for what is important to you and some business owners negotiate these terms themselves.

Step 3: The LOI. Typically, the big-picture terms will go in a preliminary, non-binding outline document called an LOI, or Letter of Intent. The tenant and landlord will usually sign the LOI before moving on to the actual lease.

Step 4: Negotiating the Lease. The landlord provides the lease, which can be anywhere from 7-75 pages. Then the tenant and landlord will negotiate back and forth, usually with redlines to the lease. Some things to keep in mind:

• It is VERY common for a tenant to review the lease and negotiate terms. Often a landlord or their broker will push back with time pressures. Don’t let that prevent you from thoroughly reviewing the lease and making sure it’s a good fit for you and your business. We have rarely, if ever, seen a landlord walk away from the negotiations because a business owner took time to review and negotiate the lease.
• Note that your own broker might also apply time pressure at some point during negotiations. Remember that they have their own incentive for you to sign the lease because that’s when they get paid. And while brokers understand market rates and trends, they do not necessarily understand the legal implications of the terms in the lease.
• There are no “standard” or “common” terms that appear in all commercial leases (although we have heard landlords say otherwise). The terms in commercial leases differ greatly, and you can negotiate all of them.
• Shorter doesn’t always mean better. While longer leases take much more time to review, shorter leases have a ton of baggage. They often come from a generic web search. Sometimes the landlord cobbled one together by cutting and pasting from different versions. These documents do not include the correct terms (and often leave out a lot of important terms or have conflicting terms).
• This is also a good time to check out the landlord and the property.

Step 5: Decision-making. Based on how negotiations go, the tenant either signs the lease OR walks away. 

It’s never too early to bring on an attorney – even at step 1.