7 Red Flags to Watch For When Signing a Commercial Lease
Unlike residential leases, commercial leases offer very little built-in legal protection for tenants. The assumption in commercial law is that both parties are sophisticated businesses negotiating on equal footing. In reality, landlords often have far more experience than first-time commercial tenants. Knowing the common red flags can protect you from committing to terms that could cripple your business.
Red Flag #1: No Tenant Improvement (TI) Allowance
Most commercial spaces need some level of modification before they're ready for your specific use. A tenant improvement allowance is the landlord's contribution toward those build-out costs. If a landlord refuses to offer any TI — especially in a space that needs significant work — that's a sign either that they don't value your tenancy or that the deal isn't as favorable as it appears on the surface.
Always ask what TI allowance is available. Even a modest amount signals a landlord willing to invest in a good tenancy.
Red Flag #2: Vague or Missing Maintenance Responsibilities
Who fixes the HVAC if it breaks? Who handles the roof? Who maintains the parking lot? If the lease doesn't answer these questions clearly, you could end up responsible for major repair costs you never anticipated. Look for a detailed maintenance and repair clause that explicitly lists what the landlord covers and what falls to you.
Red Flag #3: Unlimited Rent Escalation Clauses
Most long-term commercial leases include rent escalation — periodic increases tied to CPI, a fixed percentage, or market rates. This is normal. The red flag is an escalation clause that is uncapped, vague, or subject entirely to landlord discretion. You should know, in writing, exactly how much your rent can increase and on what schedule.
Red Flag #4: A Personal Guarantee Without Limits
Landlords often require a personal guarantee, meaning you personally back the lease even if your business fails. This is sometimes unavoidable for new businesses with no track record. But watch for unlimited personal guarantees that expose your personal assets for the full remaining lease term.
Negotiate a "good guy" clause — which releases you from personal liability after you vacate and give proper notice — or cap the guarantee to a limited number of months.
Red Flag #5: No Exclusivity Clause in Retail Spaces
If you're renting in a shopping center or multi-tenant building, and your landlord is free to rent the unit next door to a direct competitor, you have a problem. An exclusivity clause protects your market position within the property. Without one, the landlord can undercut your customer base by leasing to a competing business right next to you.
Red Flag #6: Ambiguous "As-Is" Language
Leasing a space "as-is" means you accept the property in its current condition, faults and all. This language is only acceptable when:
- You've had the space independently inspected
- You fully understand what repairs may be needed
- The rent reflects the condition of the space
Signing an as-is lease without a prior inspection is one of the most common — and costly — mistakes commercial tenants make.
Red Flag #7: A Landlord Who Won't Negotiate
Commercial leases are negotiable. A landlord who presents a lease as "standard" and refuses to discuss any modifications is either inexperienced or trying to take advantage of a tenant who doesn't know better. Even minor changes — extending a rent-free period, adjusting the notice requirement, or adding a subletting right — are reasonable requests. A landlord who won't budge on anything is a sign of a difficult long-term relationship.
What to Do Before Signing
- Hire a commercial real estate attorney to review the lease — this is non-negotiable.
- If you're using a broker, make sure they represent you, not the landlord.
- Visit the space multiple times, at different hours.
- Talk to current or former tenants in the building if you can.
- Get all verbal promises in writing before signing.
A commercial lease can bind you for years. Taking the time to identify these red flags upfront can save you from a costly and stressful situation down the road.