Signing a commercial lease is one of the most critical decisions for any business. Unfortunately, many tenants make costly mistakes that can lead to financial strain, operational challenges, or long-term lease obligations that no longer fit their needs.
Here are five common lease mistakes to avoid and how to protect your business:
1. Not Negotiating Lease Terms
Many tenants assume lease terms are set in stone. In reality, landlords expect negotiation. If you don’t push for better terms and flexibility, you could be locking yourself into unfavorable conditions.
Solution: Negotiate everything! Anything you want or need from your landlord is on the table including rent escalations, options including renewal, expansion, and contraction, tenant improvement allowances, or even building signage.
2. Overlooking Hidden Costs
Base rent isn’t the only expense—there are often hidden fees and pass through provisions that can drive up costs significantly. Common charges include common area maintenance (CAM), property taxes, insurance, and repair obligations.
Solution: Request a full breakdown of additional costs before signing and negotiate caps on controllable expenses and what the landlord can reasonably make improvements on during your tenancy.
3. Lack of Flexibility / No Termination Clauses
Most leases are long term and inflexible, making it nearly impossible for tenants to exit without massive penalties. Without flexibility (including rights to terminate), you could be stuck in a space that no longer fits your business needs.
Solution: Secure as much flexibility as possible, including termination options. Ensure termination clauses are fair and are not expensive to exercise.
4. Unfavorable Renewal Options
An onerous lease renewal clause when you are looking to extend your lease can leave you scrambling for new space or force you into unfavorable lease terms. Landlords often structure auto renewals to their advantage, locking you into a rent premium.
Solution: Secure renewal rights with flexibility to extend under tenant-friendly terms including defined market rates and right to arbitration.
5. Neglecting Space Expansion & Contraction Rights
Business needs change. If your lease lacks flexibility, you may outgrow your space too quickly or end up paying for square footage you no longer need.
Solution: Negotiate expansion and contraction rights upfront to align with your future growth strategy.
Bonus Mistakes to Watch Out For:
While these five are among the most common, here are two additional pitfalls that can cost your business:
- Failing to Clarify Repair & Maintenance Responsibilities
Many tenants assume landlords cover all major repairs—but this isn’t always the case. Some leases pass structural repairs, HVAC maintenance, and other costly obligations onto the tenant.
Solution: Clearly define who is responsible for HVAC, plumbing, structural repairs, and maintenance before signing.
- Not Conducting a Lease Audit
Overcharges on rent and operating expenses are more common than you think. Many tenants pay more than they should due to errors, inflated costs, or miscalculations.
Solution: Regularly audit lease invoices and expenses to ensure accuracy and compliance with lease terms.
Conclusion
A well-negotiated lease can mean the difference between long-term success and unnecessary financial burden. By proactively addressing these potential pitfalls, you can secure a lease that supports your business’s growth and financial health. If you need expert guidance in lease negotiations, Keyser’s team is here to help.
Contact Keyser
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Frequently Asked Questions:
1. Why is it important to negotiate lease terms instead of accepting the landlord’s initial offer?Landlords expect negotiations, and failing to push for better terms can result in rigid lease conditions, higher costs, and missed opportunities for flexibility. Negotiating can secure benefits such as lower rent escalations, tenant improvement allowances, expansion or contraction rights, and more favorable renewal options.
2. What hidden costs should business leaders look out for in a commercial lease?
Beyond base rent, additional costs like common area maintenance (CAM), property taxes, insurance, and repair obligations can significantly increase expenses. Requesting a full breakdown of these costs and negotiating caps on controllable expenses can help prevent unexpected financial strain.
3. How can a business ensure its lease remains flexible as it grows or changes?
Businesses should negotiate expansion and contraction rights upfront, secure fair termination clauses, and ensure renewal options are tenant-friendly. This flexibility allows companies to adapt their space to evolving needs without incurring excessive costs or penalties.
