Summary. A commercial lease is usually the second largest financial commitment a small business makes, and the landlord drafts it. This checklist follows the money: the letter of intent where leverage exists, rentable area and load factor, operating expense pass-throughs and the four provisions that control them, the improvement allowance and delivery mechanics, use and exclusivity, transfer provisions that matter if the company is sold, the guaranty, the lender documents, and the end-of-term obligations that produce most post-lease disputes.

What this checklist is for. Reviewing a proposed lease from the tenant's side, and identifying what a landlord will and will not give. For the narrative treatment, see Commercial Leases for Small Businesses.

Phase 1 — Letter of intent

  • Negotiate the economic and structural terms in the LOI: rent, term, options, allowance, free rent, expense structure, exclusivity, assignment standard, and guaranty limits.
  • State clearly that the LOI is non-binding except for confidentiality and any exclusivity or good-faith negotiation period.
  • Include the key non-economic points, because "we'll work that out in the lease" means the landlord's form governs.
  • Confirm the broker relationship and who pays commissions.
  • Confirm the identity and standing of the landlord entity and the property's ownership and encumbrances.

Why this matters. Almost all tenant leverage exists before the LOI is signed. Every point deferred to the lease draft is a point conceded.

Phase 2 — Premises, term, and rent

  • Confirm the rentable versus usable square footage and the load factor. A "$40 per rentable foot" deal on a 20 percent load factor is $48 per usable foot.
  • Confirm the measurement standard (BOMA) and, for a large deal, whether remeasurement is permitted mid-term.
  • Confirm what is included: parking (count, cost, reserved or unreserved), storage, signage, roof and riser rights, and after-hours HVAC.
  • Confirm the commencement date mechanism, and that rent does not start before delivery in the required condition.
  • Confirm the rent commencement versus the term commencement — free rent should be stated in months and defined as free of base rent and, ideally, of additional rent.
  • Confirm escalations: a fixed percentage, a fixed dollar step, or CPI with a cap.
  • Confirm the security deposit amount and any burn-down as the tenant establishes payment history; if a letter of credit, confirm draw conditions and reduction schedule.
  • Confirm renewal options: notice window, the rate mechanism (fair market rent with an arbitration backstop, or a stated rate), and that a missed notice date does not silently kill the option.
  • Consider a termination option, expansion option, or right of first offer where the business plan requires flexibility.

Phase 3 — Operating expenses, the most expensive fine print

  • Identify the structure: triple net, modified gross, full service gross, or base year.
  • Insist on an exclusions list: capital expenditures (except amortized cost-saving capital items with a stated useful life), landlord's financing costs, ground rent, leasing commissions and marketing, tenant improvements for others, costs reimbursed by insurance or other tenants, environmental remediation predating the lease, landlord's default costs, and the salaries of personnel above property manager.
  • Negotiate an annual cap on controllable expenses (a 4-5 percent cumulative cap is a common landing point), with taxes, insurance, and utilities carved out.
  • Confirm the gross-up provision operates at 95 percent occupancy for both the base year and comparison years — a base year that is not grossed up produces a large phantom increase in year two.
  • Confirm a base year that is a full and normal year, and that it includes the same categories used in later years.
  • Confirm audit rights: a reasonable window after the statement, access to supporting records, a right to use a third-party auditor, and landlord payment of audit costs if the overstatement exceeds a threshold (commonly 3-5 percent).
  • Confirm the pro rata share denominator and how vacancy is handled.
  • Confirm real estate tax treatment, including whether a reassessment on sale of the building is passed through, and any protest rights.
  • Confirm utilities are separately metered or fairly allocated.
  • Require an annual reconciliation statement with a deadline, after which the landlord cannot bill retroactively.

Phase 4 — Improvements, delivery, and condition

  • Confirm the tenant improvement allowance amount, what it may be spent on (hard costs, soft costs, cabling, furniture, moving), and the disbursement mechanics (progress payments versus reimbursement on completion, lien waivers, and documentation).
  • Confirm what happens to unused allowance — rent credit or forfeiture.
  • Confirm whether the landlord charges a construction management fee and at what rate.
  • Confirm the delivery condition: base building systems in good working order, ADA compliance in common areas, roof and structure sound, and any landlord work defined by a work letter with a plan.
  • Confirm HVAC, electrical capacity, and floor load meet the business's actual requirements; get numbers, not adjectives.
  • Confirm the delivery delay remedies: day-for-day rent abatement, then a penalty, then a termination right at an outside date.
  • Confirm the permitting responsibility and who bears the risk of a permit delay.
  • Confirm at signing which alterations must be removed at the end of the term, and get the answer in writing now rather than at surrender.
  • Confirm existing conditions — environmental, ADA, and code — and obtain a representation and indemnity for pre-existing conditions.

Phase 5 — Use, operations, and neighbors

  • Draft the use clause broadly enough to cover the business as it will evolve, not only as it exists.
  • Confirm compliance with law allocation: the tenant should be responsible for its specific use, not for base building or common area compliance.
  • Negotiate an exclusive use clause in retail, and confirm existing tenants' exclusives do not conflict with your use.
  • For retail, address co-tenancy (opening and ongoing), operating covenants, and percentage rent definitions of gross sales, including online sales attributable to the store.
  • Confirm hours of operation, access (24/7 for offices), and security.
  • Confirm signage rights and approval standards.
  • Confirm rules and regulations cannot be amended to impose material new obligations.
  • Confirm quiet enjoyment, and rights regarding landlord construction, noise, and access.
  • Confirm repair and maintenance allocation, particularly HVAC — a cap on tenant HVAC repair cost and a landlord obligation to replace units is a standard ask.

Phase 6 — Transfer, guaranty, and lender documents

  • Change the assignment and subletting standard from landlord's sole discretion to consent not to be unreasonably withheld, conditioned, or delayed, with a deemed-consent deadline.
  • Add permitted transfers without consent: affiliates, a corporate reorganization, and an assignment in connection with the sale of the business (asset sale, stock sale, or merger). Without this, the lease can block or tax a company sale. See Buying and Selling a Small Business.
  • Address recapture — a landlord right to terminate rather than consent — and limit it to a sublease of a substantial portion for substantially the remaining term.
  • Address profit sharing on a transfer, netting out the tenant's transaction costs and unamortized improvements.
  • Limit the personal guaranty: a good guy guaranty (personal liability ends on surrender in required condition with notice and rent paid current), a burn-down over time, or a capped dollar amount.
  • Confirm the guaranty is released on a permitted transfer and does not spring back.
  • Obtain a subordination, non-disturbance, and attornment agreement (SNDA) so a foreclosure does not terminate the lease; subordination without non-disturbance is a serious risk for a tenant that invested in improvements.
  • Confirm the estoppel certificate obligation is reciprocal, has a reasonable deadline, and is limited to facts within the tenant's knowledge.

Phase 7 — Risk, default, and the end of the term

  • Confirm insurance requirements are commercially reasonable and obtainable; confirm waiver of subrogation is mutual. See Business Insurance and Coverage Disputes.
  • Make indemnity mutual, and exclude the landlord's own negligence from the tenant's indemnity.
  • Confirm casualty: abatement while the space is unusable, a landlord restoration obligation, and a tenant termination right if restoration will take longer than a stated period.
  • Confirm condemnation allocation and the tenant's right to pursue its own award for moving costs, fixtures, and goodwill where state law allows.
  • Confirm notice and cure periods for tenant default (never fewer than 5 business days for monetary, 30 days for non-monetary with an extension for cures requiring longer), and add a landlord default provision with a self-help or offset remedy.
  • Confirm the holdover rate — 200 percent of the last month's rent is common; resist consequential damages exposure.
  • Confirm the surrender standard: broom-clean, ordinary wear and tear excepted, with removal obligations limited to what was designated at approval.
  • Confirm attorney's fees are awarded to the prevailing party, not to the landlord regardless of outcome.
  • Confirm jury waiver and any arbitration clause are acceptable, and check the notice addresses and delivery methods.
  • Diary every date: renewal notice, expansion notice, expense statement deadlines, audit windows, and insurance renewals.

Common mistakes

  • Negotiating the lease instead of the LOI.
  • Comparing rates without the load factor.
  • Accepting an uncapped, unexcluded operating expense clause.
  • A base year that is not grossed up.
  • An assignment clause that blocks a sale of the business.
  • An unlimited personal guaranty.
  • Subordination without an SNDA.
  • No written list of what must be removed at surrender.
  • Missing a renewal notice deadline.

Primary authority

Commercial leasing is governed primarily by state common law, the lease itself, and state statutes on landlord remedies, security deposits, and mechanics' liens. Consult local counsel: eviction procedure, self-help, waiver of jury trial, notice requirements, and personal-guaranty enforcement vary substantially by jurisdiction. See also UCC Article 2A where equipment or fixtures are leased, and state statutes on commercial evictions and lien priority.

Related

This checklist is educational and not legal advice. Leasing law and remedies are state-specific. Consult qualified real estate counsel before signing a commercial lease or guaranty.