Leasing commercial property is a practical and often necessary decision for many businesses, especially in urban and competitive markets like Los Angeles. However, commercial leases are significantly more complex than residential leases. Business owners must be prepared to understand and negotiate key legal provisions to ensure their rights and operations are protected. Failing to do so can result in long-term financial consequences and legal disputes.

Here’s what every business should know before signing a commercial lease.

1. Identify the Lease Structure

Commercial leases come in different forms, and each type defines how expenses are divided between landlord and tenant:

• Gross Lease: The landlord covers most or all property expenses, including taxes, insurance, and maintenance. The tenant pays a fixed rent amount.
  
  
• Net Lease (Single, Double, or Triple Net): The tenant pays rent plus some or all of the operating expenses. In a triple net (NNN) lease, the tenant is responsible for property taxes, insurance, and maintenance.
  
  
• Modified Gross Lease: Costs are split between the landlord and tenant, typically negotiated case by case.
  
  

Understanding which type of lease is being offered is critical to budgeting and avoiding surprise expenses.

2. Clarify Lease Duration and Renewal Terms

Lease duration affects the flexibility and risk exposure of a business. Long-term leases can secure favorable rental rates but reduce flexibility, while short-term leases offer agility but may lead to frequent relocations.

Key points to review:

• Start and end dates
  
  
• Renewal options and terms
  
  
• Conditions for early termination
  
  
• Penalties for default or breach of contract
  
  

Ask whether renewal terms are automatic or require advance notice. Some leases include escalation clauses during renewal periods, which may increase rent based on market trends.

3. Examine Rent and Escalation Clauses

Base rent is only part of the cost. Escalation clauses allow landlords to raise rent over time. These increases may be structured as:

• Fixed percentage increases each year (e.g., 3% annually)
  
  
• Tied to CPI (Consumer Price Index) to account for inflation
  
  
• Market rent adjustments based on comparable properties
  
  

Request transparency and a clear formula for escalation. If the formula is vague, landlords can increase rent substantially with little recourse.

4. Clarify Responsibilities for Maintenance and Repairs

Commercial tenants are often responsible for more upkeep than residential renters. Depending on the lease structure, tenants may be expected to maintain key components of the property.

Discuss and define responsibility for:

• Roof and structural elements
  
  
• HVAC systems
  
  
• Electrical and plumbing
  
  
• Parking lot and landscaping
  
  

Include language to ensure the landlord will maintain the property in good working condition before and during your tenancy. In the case of shared buildings, clearly define the areas under tenant control.

5. Understand Permitted Use and Compliance Requirements

Most commercial leases restrict how the property can be used. This is referred to as the “permitted use” clause. It must align with your actual operations and any potential business expansions.

Also, confirm that the property complies with:

• Zoning regulations: Check that your business activities are legally allowed in the area.
  
  
• Building codes: Outdated systems or unauthorized modifications may require upgrades.
  
  
• ADA (Americans with Disabilities Act): You may need to install ramps, signage, or accessible restrooms.
  
  

If the space does not meet compliance standards, negotiate whether the landlord or tenant is responsible for upgrades.

6. Negotiate Assignment and Subletting Rights

Your business needs may evolve. Whether you grow, downsize, or relocate, you may want the option to sublease the space or assign the lease to another entity.

Review the lease for:

• Assignment provisions: Can you transfer the lease to another business?
  
  
• Subletting rights: Can you rent a portion of the space to another tenant?
  
  
• Landlord consent clauses: Is consent required, and can it be unreasonably withheld?
  
  

Landlords often require approval and may charge fees or insist on maintaining original tenant obligations.

7. Evaluate Security Deposits and Personal Guarantees

Landlords may require:

• Security deposits: Typically equivalent to one or more months' rent, used to cover damages or unpaid rent.
  
  
• Personal guarantees: Business owners become personally liable if the business fails to meet lease obligations.
  
  

Try to negotiate caps or limitations on guarantees and request that personal liability be removed after a proven track record (e.g., after two years of timely payments).

8. Include Terms for Dispute Resolution

Legal disputes can arise in any lease relationship. Including dispute resolution mechanisms in your lease can save time and costs in the event of a disagreement.

Common provisions include:

• Mediation or arbitration clauses to resolve disputes outside of court
  
  
• Jurisdiction clauses to determine where disputes will be litigated
  
  
• Attorney’s fees clauses, stating which party is responsible for legal fees if a dispute occurs
  
  

Consult an attorney to draft or review these terms to ensure fairness.

9. Conduct a Thorough Property Inspection

Before finalizing any lease agreement, perform a detailed walkthrough of the space. Note existing wear and tear, systems that require maintenance, or structural deficiencies. Document the condition with photos and written reports.

Negotiate a tenant improvement allowance (TIA) if upgrades are needed. This is a common concession where the landlord agrees to fund or contribute to improvements that adapt the space for your specific business.

10. Work with a Legal Professional Before Signing

A commercial lease is a binding contract that can last for years. It defines your rights, responsibilities, and financial obligations as a tenant. Having a real estate attorney review or negotiate your lease ensures you understand all terms and mitigates risk.

At JH Legal Helper, we specialize in helping business owners understand and manage the legal complexities of leasing commercial property. We tailor our guidance to your business model, industry, and long-term goals, ensuring you sign an agreement that supports your success—not undermines it.

A Lease Can Make or Break Your Business

Before signing a lease, make sure you’ve examined every clause and understand all obligations. From hidden fees to use restrictions and dispute mechanisms, a commercial lease is more than just paperwork—it’s a strategic legal document that shapes your business environment.

Don’t sign anything until you’ve had a legal expert review your lease. Book a consultation with JH Legal Helper today, and let us help you secure a lease that protects your business and supports your growth in the dynamic Los Angeles market.

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