Negotiating a commercial lease is one of the most consequential financial decisions a business makes. Unlike residential leases, commercial leases are largely unregulated and highly negotiable.
29 steps across 7 sections
1. Triple Net Lease (NNN)
- Tenant pays: Base rent PLUS property taxes, building insurance, and common area maintenance (CAM)
- Landlord pays: Structural repairs only (roof, foundation, exterior walls)
- Common for: Single-tenant retail, industrial, standalone buildings
- Tenant risk: Variable expenses can increase unpredictably
- Tip: Always negotiate CAM caps and exclusions
2. Gross Lease (Full-Service)
- Tenant pays: Single flat monthly rent that includes all operating expenses
- Landlord pays: Taxes, insurance, CAM, utilities, janitorial
- Common for: Office space, multi-tenant buildings
- Tenant benefit: Predictable costs, easier budgeting
- Landlord strategy: Base year expenses are set at lease signing; tenant pays increases above the base year
3. Modified Gross Lease
- Hybrid: Landlord and tenant negotiate which expenses each party covers
- Most flexible: Expense allocation is fully negotiable
- Common for: Multi-tenant office and industrial
- Example: Tenant pays base rent plus utilities and janitorial; landlord pays taxes, insurance, and CAM
4. Percentage Lease
- Tenant pays: Base rent PLUS a percentage of gross sales above a breakpoint
- Common for: Retail in shopping centers and malls
- Breakpoint example: $500,000 base; tenant pays 5% of all sales over $500,000
- Negotiation focus: Breakpoint level, percentage rate, definition of "gross sales"
5. Before Negotiating
- Understand the market: Research comparable rents, vacancy rates, and recent lease deals in the area
- Know your leverage: High vacancy = tenant's market; low vacancy = landlord's market
- Get multiple quotes: Look at 3-5 spaces to create competitive pressure
- Hire a tenant rep broker: They work for you (paid by the landlord's commission split), know the market, and negotiate daily
6. During Negotiation
- Start with a Letter of Intent (LOI): Non-binding summary of proposed terms before drafting the full lease
- Negotiate the business terms first: Rent, TI, free rent, term, options — before getting into legal language
- Everything is negotiable: Don't assume any term is "standard" or non-negotiable
- Total occupancy cost matters: Compare total cost (base rent + NNN/CAM + escalations) across options, not just base rent
- Get concessions for longer terms: If you commit to 7-10 years, push hard for more TI, free rent, and lower escalations
7. After Negotiating
- Hire a commercial real estate attorney: Review the full lease before signing; cost is $1,500-$5,000 and worth every penny
- Document everything: All verbal promises should be in the written lease
Common Mistakes
- Not hiring a tenant rep broker
- Ignoring CAM details
- Accepting the first offer
- Not reading the full lease
- Skipping the attorney