What to Know Before You Sign a Commercial Lease

Sep 9

Signing a commercial lease is a major decision for any business. The terms you agree to can affect your finances, growth potential, and day-to-day operations. Before putting pen to paper, it’s essential to understand the critical elements of a commercial lease. This guide provides things to know before signing a commercial lease and a practical lease signing checklist to help tenants make informed decisions.

1. Understand the Lease Structure

Commercial leases differ from residential leases. Key points to review include:

Lease type: Triple net (NNN), gross, or modified gross leases.
Base rent and escalation clauses: Know how rent may increase over time.
Operating expenses: Understand what costs you’re responsible for beyond base rent.

2. Check Lease Length and Renewal Options

Consider how long you plan to occupy the space and whether the lease includes renewal or extension options. Flexibility can be critical if your business grows or downsizes.

3. Review Tenant Improvement (TI) Allowances

If your space needs modifications, negotiate tenant improvement allowances. Clarify what improvements the landlord will provide and who is responsible for maintenance.

4. Evaluate Exit and Termination Clauses

Understand the lease’s exit options, including early termination clauses, subleasing rights, and penalties. Knowing your flexibility protects your business if circumstances change.

5. Inspect the Property

Before signing, ensure the space is in good condition. Document any issues, verify compliance with safety codes, and confirm that utilities, HVAC, and other systems are functioning properly.

6. Consult Professionals

Commercial leases can be complex. A real estate broker or attorney can review terms, identify risks, and negotiate favorable conditions on your behalf. Their expertise ensures you avoid costly mistakes.

Lease Signing Checklist for Tenants

Understand lease type and rent obligations
Review operating expenses and hidden costs
Confirm lease length and renewal options
Negotiate tenant improvements if needed
Evaluate exit and termination clauses
Inspect the property thoroughly
Consult a professional before signing

Bottom Line

Taking the time to review these things to know before signing a commercial lease ensures you enter an agreement with confidence. Using a lease signing checklist protects your business, helps you avoid surprises, and sets the stage for a successful tenancy.

Robert Hunt