What every commercial lease agreement should cover
A commercial lease agreement is a binding contract between a property owner (landlord) and a business (tenant) that governs the use of a commercial space. Commercial leases differ from residential leases in important ways: they are less regulated by consumer protection law, the terms are more heavily negotiated, and the financial consequences of errors are much larger.
**Property description.** Identify the exact premises — street address, suite number, usable square footage, and any included common areas, parking, or storage. If the space is part of a larger building, define what 'common areas' the tenant has access to.
**Lease term and commencement.** Specify the start date, end date, and whether there is an option to renew. Most commercial leases run 1–10 years. Longer terms give tenants stability and landlords predictable income, but reduce flexibility for both.
**Rent structure.** Commercial rents come in several forms. In a gross lease, the tenant pays a flat rent and the landlord covers operating expenses. In a net lease (single, double, or triple net/NNN), the tenant pays base rent plus some or all of property taxes, insurance, and maintenance. In a percentage lease (common for retail), rent includes a base amount plus a percentage of the tenant's revenue above a threshold. Make sure your lease clearly specifies the structure.
**Rent escalation.** Most multi-year commercial leases include annual rent increases — either a fixed percentage (2–5%) or tied to CPI. Negotiate and document this clearly so there are no surprises.
**Security deposit.** Typically 1–3 months of base rent. The lease should state the conditions under which the landlord can retain all or part of the deposit and the timeline for returning it after the lease ends.
**Use clause.** This defines what the tenant is permitted to use the space for. A narrow use clause protects the landlord's tenant mix (e.g., in a shopping center) but limits the tenant's flexibility. Tenants should negotiate broad use language.
**Tenant improvements (TI).** If the space requires build-out, the lease should specify who pays for improvements, the approval process for construction, and who owns the improvements at the end of the lease.
**Maintenance and repairs.** Clarify who is responsible for maintaining the HVAC, plumbing, electrical, roof, exterior, and common areas. NNN leases typically require tenants to maintain the interior; the landlord handles structural repairs.
**Subletting and assignment.** Can the tenant sublease to another business or assign the lease if they sell the business? Most landlords require written consent. This matters enormously if your business circumstances change.
**Insurance.** The lease should specify what insurance the tenant must carry — typically commercial general liability of $1–2M, plus property insurance on tenant's equipment.
**Common mistakes.** Signing a long-term lease without an exit clause. Not negotiating the use clause broadly enough. Overlooking rent escalation terms. Failing to inspect the space and document existing defects before signing. Not confirming zoning allows your intended business use.
**When to involve a lawyer.** Commercial leases are among the highest-stakes contracts most small businesses ever sign. Before executing a multi-year commercial lease, have a licensed real estate attorney review the document. FreeContract generates a useful starting template, but professional legal review is strongly recommended for any binding commercial tenancy agreement.