Commercial Lease for a Small Business: The 8 Clauses to Negotiate

1. Base rent and escalations

Check the starting rent, how it is calculated (per square foot, and whether usable or rentable area), and how it increases. Annual escalations of a fixed percentage are common. Ask for a lower escalation, a rent-free period while you fit out the space, or rent that starts when you open rather than on signing.

2. Operating expenses and CAM charges

In net leases, you pay a share of the building's operating expenses, often called common area maintenance or CAM. This can add significantly to rent and rise every year. Ask for a cap on annual increases in controllable expenses, exclusions for capital improvements and the landlord's own costs, a clear definition of your share and the right to audit the landlord's calculations.

3. The personal guarantee

Landlords often ask small business owners to guarantee the lease personally, making your personal assets liable if the business cannot pay. Try to limit it: cap it at a set number of months' rent, have it reduce over time, or have it end after a period of on-time payment. A "good guy" guarantee, which limits liability if you give notice, vacate and hand back the keys, is another common compromise.

4. Term and renewal options

A longer term gives stability but increases risk. Many small businesses prefer a shorter initial term with renewal options at the tenant's choice, with a pre-agreed rent or a clear method for setting it. Note the deadline for exercising options; missing it can lose you the right to stay.

5. Permitted use and exclusivity

The permitted use clause limits what your business can do in the space. Make it broad enough for your current business and reasonable growth. In retail centers, ask for an exclusive use clause preventing the landlord from leasing nearby space to a direct competitor.

6. Repairs and maintenance

Commercial leases often shift repairs to tenants, sometimes including major systems like heating and air conditioning, roofs and structural elements. Ask the landlord to keep responsibility for structure, roof and major systems, or to cap your share of replacement costs. Get the condition of systems inspected before signing.

7. Assignment and subletting

If you sell the business or need to downsize, you will want to assign or sublet the lease. Ask that consent not be unreasonably withheld, that a sale of the business to a qualified buyer is allowed, and that you are released from liability after an approved assignment.

8. Early termination and relocation

Ask for a right to end the lease early after a set period, with a defined fee. Check for landlord relocation clauses that let the landlord move you to another space; our guide on retail relocation clauses covers them in detail.

Also check

• Security deposit amount and when it will be returned or reduced.
• Tenant improvement allowances and who owns the improvements.
• Insurance requirements and indemnities.
• Signage rights.
• Default and cure periods before the landlord can terminate.

A worked example

Rosa is leasing 1,500 square feet for a bakery. The landlord's form includes 4% annual rent increases, uncapped CAM, an unlimited personal guarantee and tenant responsibility for all heating and air conditioning repairs. She negotiates 3% increases, a 5% annual cap on controllable CAM, a guarantee limited to 12 months' rent that ends after three years of on-time payment, and the landlord keeping responsibility for replacing the heating and air conditioning unit. Her expected five-year cost falls, and her personal risk is capped.

Sample request wording

"We are interested in the space and would like to discuss a few terms: a cap of 5% on annual increases in controllable operating expenses, a personal guarantee limited to 12 months' rent that ends after 36 months of timely payment, landlord responsibility for replacing major building systems, and a renewal option for five years at 95% of market rent."

Common mistakes

• Signing a landlord's form without negotiating.
• Ignoring CAM and operating expense exposure.
• Giving an unlimited personal guarantee.
• Missing renewal option deadlines.
• Accepting responsibility for major systems without inspection.

Quick checklist

• How is rent calculated, and how does it increase?
• Are operating expenses capped and auditable?
• Is the personal guarantee limited?
• Are renewal options included?
• Is permitted use broad enough, and is there exclusivity?
• Who repairs and replaces major systems?
• Can you assign or sublet if you sell?
• Is there an early termination right?

Key terms explained

These are common commercial lease terms.

• Base rent: the fixed rent before operating expenses.
• CAM: common area maintenance charges shared among tenants.
• Personal guarantee: an owner's promise to pay if the business does not.
• Renewal option: a tenant's right to extend the lease.
• Exclusive use clause: a restriction on the landlord leasing to competitors.
• Tenant improvement allowance: landlord funding for fitting out the space.

Before you negotiate: prepare

Research comparable rents in the area, ask a commercial broker who represents tenants, and know how much space you actually need. Have a realistic view of your business's cash flow for the first two years, including fit-out and opening costs. A landlord takes a tenant with a clear plan and realistic requests more seriously.

Letters of intent

Many commercial deals start with a letter of intent summarizing the key terms before the full lease is drafted. It is usually non-binding on the main terms, but it frames the lease. Negotiate the eight clauses at this stage, while the landlord is focused on securing a tenant, rather than after a long lease draft arrives.

Use clauses and licensing

Before signing, confirm that your intended use is allowed under local zoning and that you can get the required licences and permits, such as food service, alcohol or health permits. Ask for a contingency allowing you to terminate if permits are not obtained by a certain date. Check for building restrictions, such as ventilation for cooking or limits on hours.

Insurance and indemnities

Commercial leases usually require liability insurance, property insurance and sometimes business interruption cover, often naming the landlord as additional insured. Check that indemnities are mutual, so the landlord is responsible for its own negligence and building issues, and that the insurance requirements are available at a reasonable cost. Ask your insurance broker to review the requirements before you sign.

Default and cure periods

Check how much time you get to fix a missed payment or other breach before the landlord can terminate or lock you out. Ask for written notice and a reasonable cure period, such as 10 days for rent and 30 days for other breaches. Some states limit landlord self-help remedies in commercial leases, but many do not, so the lease terms matter.

Get the final lease reviewed

Check that the signed lease matches the agreed terms, including every exhibit and schedule.

Get the lease reviewed before you commit

Commercial leases carry more risk than residential ones and fewer protections. Upload your commercial lease to have these eight clauses, and more, reviewed with state-specific notes before you sign.