Top Legal Considerations When Leasing Commercial Space: A Guide for Landlords and Tenants

Leasing commercial space is a major commitment that carries long-term financial and operational consequences for both landlords and tenants. A well-structured lease agreement not only outlines rights and obligations but also minimizes the potential for costly disputes. Without a thorough understanding of the lease terms, either party could face unexpected expenses, legal conflicts, or restrictions that hinder business operations.

To navigate the complexities of commercial leasing, both landlords and tenants must approach the process with due diligence. From choosing the right lease type to negotiating favorable terms, every aspect of the agreement requires careful consideration. This guide explores the key legal factors to keep in mind when entering into a commercial lease and highlights why professional legal assistance is essential to a successful agreement.

Understanding the Types of Commercial Leases

The financial structure of a commercial lease varies based on the type of agreement in place. Before signing a lease, it’s crucial to understand the terms and obligations associated with each option.

A gross lease is one of the most straightforward agreements. In this structure, the landlord covers the majority of property expenses, including property taxes, insurance, and maintenance, while the tenant pays a fixed monthly rent. This type of lease simplifies budgeting for tenants but often comes with higher base rent costs.

A net lease shifts more financial responsibility onto the tenant. Depending on the structure, a tenant may be required to pay for property taxes (single net), taxes and insurance (double net), or taxes, insurance, and maintenance (triple net). While net leases typically come with lower base rents, tenants must account for fluctuating expenses, which can impact overall costs.

A percentage lease is common in retail settings. Under this arrangement, the tenant pays a base rent plus a percentage of their gross sales. This structure aligns the landlord’s financial success with the tenant’s business performance, making it a viable option for high-traffic commercial spaces.

Each lease type has different financial and operational implications. Tenants should carefully analyze their potential costs, while landlords must ensure that their chosen lease structure aligns with their long-term investment strategy.

Key Lease Clauses to Review Before Signing

A lease agreement is a legally binding contract that governs the relationship between the landlord and tenant. While every clause is important, certain provisions have significant financial and legal consequences.

The rent and payment terms should be clearly defined, including the base rent amount, due dates, and any additional fees. Some leases include escalation clauses, which gradually increase rent over time. Tenants should fully understand how and when rent may increase to avoid future financial strain.

The term and renewal options dictate the lease’s duration and the conditions for extending it. A longer lease term can provide stability for both parties, but tenants should negotiate renewal terms upfront to secure favorable conditions in the future. Understanding early termination penalties is also crucial in case the business outgrows the space or faces unforeseen challenges.

The permitted use clause outlines how the tenant may use the space. It is essential that this clause aligns with the tenant’s business operations. Restrictions on usage could limit expansion plans or require additional approvals for modifications. Tenants should ensure that the lease provides enough flexibility to accommodate potential growth or changes in their business model.

Common Area Maintenance (CAM) Charges: What Tenants Need to Know

Common Area Maintenance (CAM) charges are a frequent source of confusion and disputes in commercial leases. These charges cover the costs associated with shared spaces and services, such as hallways, parking lots, landscaping, security, and building maintenance. Tenants in net leases or multi-tenant properties typically contribute to these costs based on their share of the property’s total square footage.

How to Review CAM Charges Before Signing

Before agreeing to a lease, tenants should carefully review the section detailing CAM charges. Some key questions to ask include:

• What specific expenses are included? Landlords should provide a breakdown of maintenance costs, including janitorial services, repairs, utilities, property management fees, and capital improvements.
• How are CAM charges calculated? Ensure the lease clearly explains the tenant’s share of CAM costs, typically expressed as a percentage based on square footage.
• Are there limits on annual increases? Without a cap on CAM charge increases, landlords could pass on excessive or unpredictable costs to tenants. Negotiating a reasonable cap (e.g., 3–5% per year) can prevent
• financial surprises.

Questioning and Reconciling CAM Charges

Once the lease is in effect, tenants should regularly review CAM charge invoices to ensure accuracy and fairness. Steps to take include:

1. Requesting an Itemized Statement – Tenants have the right to request a detailed breakdown of CAM charges to verify that only allowable expenses are included. If an invoice appears vague or includes unexpected costs, tenants should seek clarification.
2. Comparing Charges to Lease Terms – Tenants should cross-reference the charges with the lease agreement to confirm that they are only paying for expenses explicitly stated in the contract. If charges appear inconsistent, tenants should raise concerns with the landlord.
3. Conducting an Audit – Many commercial leases allow tenants to audit CAM charges if discrepancies arise. If permitted, tenants may hire a financial professional to review records and ensure that expenses are reasonable and correctly allocated.
4. Negotiating Discrepancies – If questionable charges appear, tenants should engage in discussions with the landlord. In some cases, landlords may have inadvertently included non-recoverable expenses or miscalculated a tenant’s proportionate share. If disputes persist, legal assistance may be necessary.

Protect Yourself from Unexpected CAM Costs

To avoid surprises, tenants should negotiate CAM charge provisions before signing a lease. Adding clear definitions, expense exclusions, and annual increase limits can provide greater financial predictability. Seeking guidance from an experienced real estate attorney can ensure that the lease terms protect the tenant’s interests and prevent future disputes over maintenance costs.

Why Legal Guidance Is Essential in Commercial Leasing

Given the complexities of commercial lease agreements, both landlords and tenants should seek legal counsel before finalizing a contract.

A commercial real estate attorney can:

• Review and amend lease agreements to identify potential risks and negotiate favorable terms.
• Ensure compliance with local zoning and accessibility laws, particularly for businesses operating in regulated industries.
• Mediate disputes between landlords and tenants, helping resolve issues without costly litigation.

By working with an experienced attorney, both parties can secure a lease agreement that protects their interests while fostering a successful business relationship.

Secure Your Lease with Confidence—Consult with a Legal Expert Today

Leasing commercial space is a critical decision that impacts your financial security and business success. Whether you’re a landlord looking to maximize your property’s value or a tenant seeking the perfect location, having a well-structured lease agreement is essential.

Our law firm drafts and negotiates commercial leases and assists with real estate transactions, ensuring that lease agreements align with your business goals and legal obligations. Don’t leave your investment to chance—contact us today for expert legal guidance tailored to your needs.

Let us help you negotiate, draft, and finalize a lease that safeguards your interests and sets you up for long-term success.

Mitchell C. Beinhaker, Esq. is a business lawyer and estates attorney who runs a solo legal & consulting practice representing business owners, entrepreneurs, executives, and professionals. Through his 30+ years of experience, Mitchell has handled business development, marketing, firm management, along with business transactional work for clients of the firm. He has extensive experience with corporate governance, commercial transactions, real estate, and risk analysis. Using his years of practical experience, he drafts contracts, negotiates purchases, and can manage outside counsel for any corporate situation. For business owners and executives, he creates and implements estate plans, along with succession plans to help companies continue for future generations.  

Mitchell is the co-author of 10 Ways to Get Sued by Anyone & Everyone:  the small business owners guide to staying out of court, available in paperback and kindle from Amazon.

If you need legal help with any of our services, contact our office for a free consultation.  You can email us at info@beinhakerlaw.com.  To learn more about Mitchell and his practice, visit beinhakerlaw.com.

Beinhaker Law and Mitchell C. Beinhaker, Esq. do not guarantee the accuracy of any information provided in this article.  Its not to be construed as advice of any kind.  Be sure to check with your local professionals before making any decisions.