Signing a commercial lease is a significant commitment for any business. While leases are often presented as standard agreements, many provisions are negotiable and can have a substantial impact on a tenant’s costs, flexibility and potential liability.

‍

Before signing, tenants should pay attention to the following five areas in particular:

‍

Events of Default and Cure Periods

Default provisions determine when a landlord can exercise enforcement rights, including terminating the lease. Tenants should negotiate reasonable written notice requirements and sufficient time to remedy defaults, with longer cure periods for non-monetary breaches that may require additional time to resolve.

‍

Operating Costs and Additional Rent

Operating costs can include property taxes, utilities, maintenance, repairs and management fees, sometimes adding significantly to base rent. Tenants should carefully review how these costs are calculated and allocated, and consider negotiating caps on annual increases, audit rights and exclusions for major capital expenditures, pre-existing defects and structural repairs.

‍

Assignments and Subletting

Assignment and subletting provisions provide flexibility if a tenant needs to exit or restructure its business before the lease expires. Tenants should negotiate reasonable landlord consent requirements, exceptions for corporate reorganizations and affiliate transfers, and a release from ongoing liability following an approved assignment. Landlord recapture and profit-sharing rights should also be reviewed carefully.

‍

Tenant Incentives

Free rent can help offset relocation, renovation and start-up costs. However, tenants should confirm whether the incentive applies to base rent only or also covers additional rent, and whether it is conditional on opening dates or other lease obligations.

‍

Insurance Requirements

Insurance obligations should be reviewed by the tenant’s insurance broker before the lease is signed. Coverage limits and endorsements may be costly or difficult to obtain, and tenants should ensure the requirements are commercially reasonable and consistent with available coverage.

‍

Getting the Lease Right

A commercial lease extends well beyond the monthly rent payment. Its terms can significantly affect a business’s financial obligations, operations and long-term flexibility. Having the lease reviewed and negotiated before signing can help tenants avoid unexpected costs, manage risk and secure

‍