Learn how to write a commercial lease review that protects your business. Matt Bingaman shares a practical framework for analyzing CRE lease documents.
One of the most valuable things I do for my clients is sit down with them and walk through a commercial lease review before they sign anything. I cannot tell you how many times I’ve seen business owners — smart, experienced, successful people — hand over a signed commercial lease and later discover provisions they didn’t fully understand that cost them dearly. A thorough commercial lease review is not optional. It’s essential. And whether you’re conducting one yourself or directing your attorney on what to prioritize, here’s the framework I use.
What Is a Commercial Lease Review?
A commercial lease review is a systematic analysis of a commercial lease document that identifies:
- Key financial terms and their real cost impact
- Operational provisions that affect how you use and manage your space
- Risk allocation clauses that determine your liability exposure
- Exit and flexibility provisions that govern your options if circumstances change
- Red flags and non-standard provisions that deviate from market norms and require negotiation
Step 1: Establish the Financial Framework
Start by extracting and summarizing all financial obligations:
Rent and Escalations
- Base rent (per square foot per year or per month)
- Rent commencement date and any free rent period
- Rent escalation schedule (fixed percentage, CPI-linked, or market review)
- Total rent obligation over the full lease term
NNN and Operating Expense Obligations
- What expenses are the tenant’s responsibility?
- How are expenses calculated and reconciled?
- Are there caps on annual NNN expense increases?
- What is included in and excluded from CAM charges?
Other Financial Obligations
- Security deposit amount and conditions for return
- Tenant improvement allowance amount, timing, and conditions
- Landlord contribution to fitout or refurbishment
- Parking costs and any other recurring fees
Step 2: Analyze the Lease Term and Key Dates
Create a timeline of all critical dates in the lease:
- Lease commencement and expiration dates
- Rent commencement date (may differ from lease commencement)
- Option exercise deadlines (renewal, expansion, termination)
- Rent review dates
- Notice periods for any lease action
Pro tip: I recommend creating a standalone critical dates calendar as part of any lease review — missed deadlines are one of the most common and costly mistakes tenants make.
Step 3: Review Permitted Use and Exclusivity
- What uses are permitted under the lease?
- Is the permitted use broad enough to accommodate your current and likely future business activities?
- Does the lease include an exclusivity clause preventing the landlord from leasing to a competitor?
- Are there any restrictions on operating hours, signage, or customer access?
Step 4: Assess Maintenance and Repair Obligations
Clearly identify who is responsible for:
- Structural elements (roof, foundation, exterior walls)
- Building systems (HVAC, electrical, plumbing)
- Interior fit-out maintenance
- Common areas and parking
- Compliance with building codes and regulations
Ambiguity in maintenance provisions is a frequent source of landlord-tenant disputes. The clearer the language, the better.
Step 5: Evaluate Flexibility and Exit Provisions
This is where I spend a lot of time in any lease review because these provisions determine your future options:
- Renewal options: How many, at what rent, and with what notice requirements?
- Expansion rights: Right of first offer or first refusal on adjacent space?
- Contraction rights: Ability to give back space if your needs change?
- Early termination right: Under what conditions and at what cost?
- Assignment and subletting rights: Can you transfer the lease if you sell the business?
Step 6: Review Default and Remedy Provisions
- What constitutes a default under the lease?
- What is the cure period for monetary vs. non-monetary defaults?
- What remedies does the landlord have upon default?
- Does the lease include a personal guarantee, and if so, what are its terms?
Step 7: Identify Non-Standard or Red Flag Provisions
Every lease review should flag provisions that deviate from market norms or create unusual risk:
- Unlimited landlord relocation rights
- Overly broad landlord access rights
- Unreasonable restoration or make-good obligations
- Unilateral rent adjustment rights
- Onerous assignment restrictions that could impede business sale
Structuring Your Written Review
When I write up a formal lease review summary for a client, I organize it as follows:
- Executive Summary: One-page overview of key terms, total financial obligation, and critical issues
- Financial Summary: Detailed breakdown of all financial obligations
- Critical Dates Calendar: All key dates and deadlines
- Key Provisions Summary: Plain-English summary of major operational and legal provisions
- Issues and Recommendations: Specific provisions requiring negotiation or clarification
- Risk Assessment: Overall risk rating and priority action items
Conclusion
A thorough commercial lease review is one of the most important steps you can take before committing to any commercial space. The investment of time and professional fees at this stage is a fraction of what you could lose by signing a lease you don’t fully understand.
About to sign a commercial lease and want an expert review before you commit? Contact Matt Bingaman for a comprehensive lease review and negotiation strategy.