A first-draft commercial lease is the landlord's document. The redline is how the tenant gets to a workable position. This guide walks through the order of operations I use when reviewing a commercial lease on the tenant side.
For the legal background on the specific clauses, see the companion article on the six commercial lease traps. For commercial lease reading mechanics, see how to read a commercial lease.
Inputs you need before negotiating
- • Premises identification: building, suite, square footage measurement standard (BOMA, useable vs. rentable).
- • Term and option rights: initial term, renewal options, notice windows, rent reset mechanism.
- • Use clause and exclusive rights: what the tenant will actually do in the space and what the landlord will not let competitors do nearby.
- • Build-out scope: who designs, who pays, who owns at expiration, and what counts as completion.
- • Worst plausible exits: business failure, expansion, contraction, sale of the entity, force majeure.
Mistakes to avoid
- • Signing an unconditional personal guarantee without asking for a burnoff or a cap.
- • Accepting an uncapped CAM definition without a tenant audit right.
- • Letting the escalation formula reference the landlord's 'actual operating costs' with no ceiling.
- • Ignoring the relocation clause because it looks abstract on first read.
- • Skipping the surrender and restoration analysis until six months before expiration.
Step 1: Read the personal guarantee first
On commercial leases signed by an LLC or corporation, the personal guarantee carries more long-term risk than any other clause. Start there. Ask for a 24-month burnoff tied to on-time payments, a cap limiting exposure to remaining base rent only, or a good-guy guaranty limiting exposure to the period before proper surrender.
Step 2: Cap the CAM and get an audit right
CAM is the second-largest exposure. Insist on an annual cap of 3% to 5% on controllable CAM, with real estate taxes, insurance, and snow removal carved out as uncontrollable. Add a tenant audit right with a 90-day window and interest on overcharges. Without an audit right, the annual reconciliation statement is whatever the landlord says it is.
Step 3: Pin down the escalation formula
The fair version is a fixed 2-3% annual increase or a CPI-based increase with a floor and a cap (typically 0% floor, 4% cap). Any escalation tied to the landlord's "actual operating costs" or "market rate" without a cap is an open option for the landlord to extract value.
Step 4: Narrow the relocation clause
If the lease includes a relocation right, the redline should require: same building, same floor or one above, equal or greater square footage, equal or better window line, tenant approval not unreasonably withheld, and landlord paying all relocation costs including moving, IT cabling, signage, and stationery. Without those constraints, the clause is a one-way option.
Step 5: Reduce the holdover penalty
Negotiate the holdover rate to 125% of base rent. Cap the holdover window at 60 to 90 days. Strike consequential damages entirely, or limit it to documented direct damages. A minor delay closing on a new space should not create six-figure exposure.
Step 6: Settle surrender and restoration before signing
The surrender clause is the easiest to ignore and the most expensive to lose. Attach a schedule of permitted alterations to the lease. Define what the tenant does not have to remove. Exclude landlord-paid build-out from any restoration obligation. Negotiate the right to leave standard improvements in place. Surrender is not a negotiation you want to have at the end of the term with no leverage.
When attorney review is worth it
A commercial lease is the largest fixed financial commitment most small businesses make. On any lease longer than 12 months or larger than 1,000 square feet, the review fee is a rounding error against the total contract value. The firm's flat-fee Commercial Lease Review covers the clause-by-clause analysis, the redline language, and the negotiation playbook for the items the landlord will resist.
Soft next step
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