The Commercial Lease Clauses That Cost Startups The Most Money

A first commercial lease usually gets negotiated on one number: the rent per square foot. Founders compare it with a few other listings, push for a modest discount, and sign. The expensive surprises arrive later, buried in clauses that were never discussed.

Commercial leases are not consumer contracts. They offer far fewer protections, they are drafted by the landlord's lawyers, and they are often binding for years. The clauses below decide what the space really costs and how hard it is to leave.

What the rent figure includes

Leases describe rent in different ways. A gross lease bundles most building costs into a single rent payment. A net lease adds some or all of the building's operating costs, such as property taxes, insurance and maintenance, on top of base rent. A triple net lease passes most of those costs to the tenant.

Two spaces with the same quoted rent can cost very different amounts once these extras are added. Ask the landlord for the current estimate of operating expenses per square foot and the history of those charges over recent years.

In net leases, operating expenses and common area maintenance are usually estimated in advance and reconciled at year-end. If actual costs are higher, the tenant pays the difference.

Read the definition of operating expenses closely. Some leases allow landlords to pass through capital improvements, management fees or costs that mainly benefit other tenants. Negotiate exclusions for capital projects, a cap on annual increases in controllable expenses, and the right to audit the landlord's calculations.

Most leases raise rent every year, either by a fixed percentage or by reference to an inflation index. Over a multi-year term, the escalation can matter more than the starting rent. Model the full cost of the lease across its term, not just year one, and check whether escalations apply to base rent alone or to operating expense charges as well.

Personal guarantees

Landlords often ask founders of young companies to guarantee the lease personally. That turns a corporate obligation into a personal one: if the company cannot pay, the landlord can pursue the guarantor.

Push for alternatives. A larger security deposit, a letter of credit, or a guarantee capped at a fixed amount or a fixed number of months of rent all reduce your personal exposure. A good-guy guarantee, where liability ends once the tenant gives notice, vacates and hands back the space in good order, is common in some markets.

Read what the guarantee actually covers. Some cover only rent, while others reach every obligation under the lease, including restoration costs and the landlord's legal fees. Ask whether the guarantee shrinks or ends after a period of on-time payments, which landlords will sometimes accept from a tenant that has shown it can pay.

Assignment, subletting and change of control

If your company grows out of the space or is acquired, you will want to sublet the space or transfer the lease. Many leases require landlord consent for either, and some treat a sale of the company as an assignment that needs approval.

Negotiate the right to sublet with consent not unreasonably withheld, and a carve-out allowing assignment to an acquirer or successor company without consent. Without these, a lease can complicate a fundraising or an acquisition.

Build-out and restoration

Leases specify who pays for improvements and whether you must remove them when you leave. A tenant improvement allowance helps fund the build-out. A restoration clause can require you to return the space to its original condition at your own cost, which can be a large bill at the end of the term.

Ask who manages construction, how cost overruns are split, and when rent starts. If rent begins on a fixed date but the build-out runs late, you can end up paying for space you cannot yet use. Tying the rent start date to substantial completion of the work protects against that.

What to do before signing

Get the landlord's estimate of total occupancy cost, including operating expenses, for each year of the term. Ask a commercial tenant broker, paid by the landlord in many markets, to compare the terms to recent deals. Have a real estate attorney review the full lease, not a summary. And negotiate the guarantee, assignment and restoration clauses as hard as the rent, because they are where the long-term cost lives. Keep a one-page summary of the signed terms, including key dates and notice deadlines, where finance can find it, so renewal and break options are never missed.

This is general information, not legal advice. Speak to a qualified attorney in your jurisdiction before acting on any of it.