Module 03 of 07
Understanding your lease obligations
A commercial lease is the most significant legal document most small business owners ever sign — and the one they understand least. Unlike a residential lease, a commercial lease is almost entirely negotiable and almost entirely in the landlord's favor by default. Knowing what's in it, and what's binding, can be the difference between a business that survives a tough year and one that doesn't.
What a commercial lease actually obligates you to
Most small business owners focus on monthly rent when signing a lease. But the rent is just one line in a document that specifies dozens of obligations — many of which can cost you far more than the base rent. Click each clause to understand what it means.
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In a triple-net (NNN) lease — the most common type for retail — you pay base rent plus a proportional share of building operating costs: property taxes, insurance, landscaping, parking lot maintenance, and management fees. CAM charges typically add 20–40% on top of base rent and can increase annually. Always ask for a CAM cap (e.g., 5% annual increase) and the right to audit CAM charges.
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This clause defines exactly what your business is allowed to do in the space. A narrow clause ("women's apparel retail") can prevent you from adding products, services, or a café area without landlord approval — and approval can be withheld or conditioned on additional rent. Negotiate for a broad permitted use clause that gives you flexibility as your business evolves.
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Most commercial landlords require the business owner to personally guarantee the lease — meaning if your LLC defaults, they can come after you personally for the remaining rent. Landlords often ask for a full-term personal guarantee (5 years of rent). Try to negotiate a "good guy" clause that limits your personal liability if you vacate and hand the keys back in good condition.
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This clause governs what you can change about the space and who pays for it. Tenant Improvement Allowance (TIA) is money the landlord contributes toward buildout — negotiate this before signing. The lease will also specify whether improvements revert to the landlord at lease end or must be removed (at your expense). Removing a custom bar or built-in shelving can cost thousands.
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If you miss rent, how long do you have to pay before the landlord can start eviction proceedings? Standard leases give 3–5 days notice for monetary defaults and 30 days for non-monetary defaults. Negotiate for a longer cure period — 10 business days for rent, 30 days for other violations — to protect yourself in a slow month or a banking error.
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An exclusivity clause prevents the landlord from renting to a direct competitor in the same shopping center or building. It doesn't exist by default — you have to ask for it. If you're a specialty bakery and the landlord later rents the space next door to another bakery, you have no recourse without this clause. Specificity matters: define exactly what type of competitor is excluded.
In this Module
What a lease obligates you to
Clauses that catch people off guard
When to get a lawyer
Real-world example
Related Modules
Business structure
Business insurance
The clauses that catches people off guard
Signage restrictions. Many leases require landlord approval for all exterior signage — size, lighting, colors, and placement. In a strip mall or multi-tenant building, the landlord often has a signage criteria document. Know this before you design a sign. Some leases prohibit window graphics or require a specific style that may not match your brand.
Assignment and subletting. If you want to sell your business, a key part of what a buyer is purchasing is your lease. Most commercial leases require landlord approval to assign (transfer) the lease — and landlords can withhold approval or require higher rent. Negotiate for a clause allowing assignment to a qualified buyer without unreasonable restriction.
Continuous operation. Some retail center leases require that you operate your business during specified hours — you can't just close up for a month and continue paying rent. Violating this can be treated as a lease default.
Real-world example
Teresa ran a gift shop for 4 years and found a buyer willing to pay $85,000 for the business. The deal collapsed when the landlord refused to approve the lease assignment unless the buyer agreed to a rent increase of $800/month. There was nothing in Teresa's lease that prevented this. She eventually sold for $42,000 — less than half the original offer — after the buyer got a new lease at higher rent and deducted the cost from their offer.
When to get a lawyer involved
A commercial lease is one of the situations where an attorney review is genuinely worth the cost. A real estate attorney can typically review a commercial lease for $300–$700 — a small fraction of the annual rent commitment you're about to make.
What a lawyer review actually does
A commercial real estate attorney will flag unusual provisions, identify clauses that are negotiable (most are), suggest protective language the landlord may accept, and ensure you understand what you're signing. They can often save you more than their fee in a single negotiated clause. Minimum recommended: any lease over 1 year or with rent over $2,000/month.
The landlord's attorney wrote that lease
Commercial leases are drafted by the landlord's attorney to protect the landlord. Nothing in it is there for your benefit — that's your job to negotiate in. Many landlords will push back less than tenants expect, especially in a slower market. The worst they can say is no.