Drafting, review and negotiation of retail, office and industrial leases.
Reading a lease as a financial document, not a form
A commercial lease is negotiable in far more places than the rent line. Landlords typically present their own form, drafted to protect their interests and tenants who negotiate only the rent figure leave meaningful terms unaddressed.
Rent structure and operating costs
- Base rent and scheduled escalations over the term.
- CAM definitions, caps and the tenant's audit rights over landlord-calculated charges.
- Real estate tax and insurance pass-throughs and how they are prorated among tenants.
- Percentage rent clauses in retail leases tied to gross sales.
Use, exclusivity and operational control
The permitted use clause defines what the tenant may operate, and a narrow use clause can limit a business's ability to pivot. Exclusivity clauses, common in retail centers, restrict the landlord from leasing to a competing use, but only to the extent the language is specific and enforceable against future tenants.
Guaranties, build-out and holdover
- Personal guaranties: scope, burn-off provisions and whether they survive an assignment.
- Tenant improvement allowances: amount, disbursement conditions and treatment of unused funds.
- Build-out approval: landlord consent rights over plans, contractors and timing.
- Holdover: the rent multiplier and consent requirements if the tenant remains after the term ends.
Negotiation process
- 1
Review
Read the landlord's proposed form against the letter of intent and the tenant's operating needs.
- 2
Redline
Mark up rent mechanics, use, assignment, guaranty and default provisions.
- 3
Negotiate
Work through counterproposals with the landlord's counsel or broker.
- 4
Finalize
Confirm exhibits, work letters and any side letters are consistent with the signed lease.
Answers
Frequently asked questions
- Should I always negotiate against a personal guaranty?
- Not always, but a guaranty should be scoped deliberately: limited in amount, subject to a burn-off after a track record of timely payment and expressly capped if the lease is assigned. An unlimited, uncapped guaranty carries different risk than a short-term, declining one.
- What is a tenant improvement allowance?
- It is a sum the landlord contributes toward the buildout of the space, often disbursed on completion of defined milestones. The lease should specify what the allowance covers, when it is paid and what happens to any unused portion.
- Can a landlord change what I'm allowed to do in my space?
- Generally no, not unilaterally: the permitted use clause defines the tenant's rights, and expanding or narrowing it requires an amendment. Tenants should draft the use clause broadly enough to accommodate reasonably foreseeable changes to the business.
- What happens if I stay in the space after my lease ends?
- Holdover clauses typically impose an increased rent, often a multiple of the prior rent and may require the landlord's written consent to continue occupancy. Some leases treat holdover as a default. Renewal or exit planning should begin well before the term's end.
- Is CAM negotiable?
- Yes. Common negotiated points include capping annual CAM increases, excluding capital expenditures from the CAM pool and securing audit rights to verify the landlord's calculations.
Official sources
Consult the official sources above for current rules and procedures.