Legal Advice

10 Essential Clauses for Commercial Lease Agreements

April 18, 2025

Crafting a Comprehensive Commercial Lease Agreement

Commercial lease agreements are significantly more complex than residential leases. They require careful consideration of business needs, property use restrictions, and long-term financial commitments. This guide covers the 10 most essential clauses every commercial lease should include.

1. Detailed Property Description and Use Clause

A thorough description of the leased premises is critical, including:

Exact square footage (rentable vs. usable space)
Common areas included in the lease
Permitted uses of the property
Exclusivity rights (preventing the landlord from leasing nearby space to competitors)

The use clause should clearly state what business activities are allowed on the premises. Tenants should negotiate for broader use terms when possible to allow for business evolution.

2. Rent Structure and Escalation Terms

Commercial leases typically have complex rent structures:

Base rent: The minimum monthly payment
Percentage rent: Additional rent based on a percentage of gross sales (common in retail)
Triple net (NNN) charges: Tenant's share of taxes, insurance, and maintenance
Rent escalations: Annual increases, often tied to CPI or fixed percentage

Each component should be clearly defined with calculation methods and payment schedules specified.

3. Term and Renewal Options

The lease term section should specify:

Commencement date (fixed date or upon completion of tenant improvements)
Expiration date
Renewal options with terms for exercising them
Rent calculation method for renewal periods

Tenants should negotiate for renewal options that provide business continuity and protection from significant rent increases.

4. Maintenance and Repair Responsibilities

This section delineates who is responsible for:

Structure and roof maintenance
HVAC systems maintenance and replacement
Common area maintenance
Interior repairs and maintenance
Compliance with building codes and regulations

In triple net (NNN) leases, tenants typically bear most maintenance costs, while gross leases place more responsibility on landlords.

5. Tenant Improvement Provisions

This critical section should address:

Tenant improvement allowance (TIA) amount and eligible expenses
Approval process for improvement plans
Construction standards and requirements
Ownership of improvements upon lease termination
Restoration obligations at lease end

Well-negotiated improvement provisions can significantly reduce a tenant's initial capital outlay.

6. Assignment and Subletting Rights

These provisions govern a tenant's ability to:

Assign the lease to another entity
Sublet all or portion of the space
Transfer the lease in case of business sale or merger

Tenants should negotiate for flexibility, while landlords typically want approval rights and possibly a share of any profits from subletting.

7. Default and Remedies Clauses

These provisions define:

What constitutes a default (payment failures, covenant breaches, etc.)
Cure periods for different types of defaults
Landlord remedies (eviction, damages, etc.)
Tenant remedies for landlord defaults

Tenants should negotiate for adequate notice and cure periods before landlord can exercise remedies.

8. Insurance Requirements

The lease should specify insurance obligations:

Types of coverage required (liability, property, business interruption)
Minimum coverage amounts
Named insured requirements
Waiver of subrogation provisions
Evidence of insurance requirements

Both parties should consult with insurance professionals to ensure adequate protection.

9. Operating Expenses and CAM Charges

Common Area Maintenance (CAM) provisions should address:

What expenses are included in CAM
Calculation method for tenant's proportionate share
Caps on annual CAM increases
Audit rights for tenants to verify charges
Exclusions from CAM (capital improvements, etc.)

Tenants should negotiate for expense caps and exclusions to provide budget predictability.

10. Early Termination and Relocation Rights

These provisions address circumstances where:

Tenant may terminate early (with specified penalties)
Landlord may relocate tenant to comparable space
Force majeure events that may affect lease obligations
Business interruption scenarios and remedies

These rights provide flexibility for both parties but should include fair compensation for disruption.

Creating Your Commercial Lease Agreement

Given the complexity of commercial leases, many businesses utilize our Commercial Lease Generator as a starting point to ensure all essential provisions are included. This tool creates a customized framework that can then be refined based on specific negotiation points.

Remember that commercial leases are highly negotiable documents, and provisions should be tailored to your specific business needs and property characteristics. For significant leases, review by a qualified real estate attorney is always recommended.

Our legal clause library provides additional state-specific provisions that may be required in your jurisdiction.