Common Red Flags in Commercial Lease Agreements

Signing a commercial lease can feel like a big step forward for your business. Maybe you’ve found the perfect space and you’re ready to move in and start building your future. But before you put pen to paper, it’s important to slow down and take a closer look. Commercial leases can be complex, and buried in all that fine print are terms that could cause major problems later. Continue reading and reach out to a knowledgeable Rochester business lawyer from Lacy Katzen LLP to learn about the most common red flags to look for in commercial lease agreements and how our team can help you avoid them.

9 Common Red Flags to Watch for in a Commercial Lease

1. Unclear Maintenance and Repair Obligations: Many tenants assume that landlords handle maintenance, but that’s not always the case. Some leases make tenants responsible for expensive repairs, including structural work, roof maintenance, or HVAC replacements.
2. Personal Guarantees: Landlords often require small business owners to personally guarantee the lease, meaning you could be held personally liable if the business defaults. Before signing, think carefully about your financial exposure and whether it’s possible to limit or otherwise negotiate the guarantee.
3. Unfavorable Renewal or Termination Clauses: Some leases give landlords all the power when it comes to renewing or ending the lease. Look for provisions that let the landlord terminate early or raise the rent dramatically upon renewal.
4. Common Area Maintenance Fees: These charges can be unpredictable. You might be asked to pay for shared expenses like landscaping, lighting, or even major renovations that don’t directly benefit your space. Make sure you understand what’s included and ask for an itemized breakdown.
5. Use Restrictions: Certain leases limit the type of business activity allowed on the property. If your operations expand or change, these restrictions could stop you from growing. Confirm that your lease provides enough flexibility for future business plans.
6. Sublease and Assignment Restrictions: If your business outgrows the space or you need to relocate, being unable to sublease or assign the lease can trap you in a costly agreement. Always check whether you have the right to transfer the lease to another tenant.
7. Lack of Tenant Improvement Clauses: Many businesses need to renovate or customize their space. Without a tenant improvement clause, you could end up paying for upgrades that the landlord later owns, or even face penalties for making changes without permission.
8. Vague or Hidden Rent Increases: Always check how your rent is calculated and whether it can increase over time. Some leases tie rent to factors like inflation or “market adjustments,” which can make your monthly payments jump unexpectedly.
9. Unclear Responsibility for Insurance and Taxes: Commercial leases often require tenants to carry insurance or pay a portion of the property taxes. Ensure these obligations are clearly defined.

The truth is, commercial leases are written to protect landlords first. That’s why having an experienced business lawyer review the document before you sign is so important. If you have additional questions or would like to speak with an attorney about your case, please contact Lacy Katzen LLP today.