Checklist · Real Estate

Reviewing a Commercial Lease: A Practical Checklist

Type
Checklist
Jurisdiction
National
Date
2024-04-18
Topic
Real Estate

A commercial lease is the largest contract most small companies ever sign, and the landlord's form is drafted to allocate every risk to the tenant. This checklist walks a tenant-side reviewer clause by clause through a form office lease: the true economics (base rent, escalations, free rent, CAM, load factor), the term and the option package, use and exclusivity, assignment and subletting, maintenance and building systems, the TI allowance and the restoration trap, insurance and waiver of subrogation, casualty, condemnation, SNDA and estoppels, guaranties, and the default-and-remedies engine. Each phase notes the landlord's legitimate counter-position, so you know which asks are winnable and which are theater. Commercial tenants get almost none of the statutory protection residential tenants enjoy, so nearly everything is a matter of contract — which means everything is a matter of negotiation. Run this against the landlord's form before you sign, not after.

Reviewing a Commercial Lease: A Practical Checklist

Real Estate > Commercial Leasing | Published 18 April 2024 - Updated 26 July 2025 | UpLaw - uplaw.us

A residential tenant is protected by statute. A commercial tenant is protected by whatever it negotiated. The landlord's form lease is not a neutral document — it is an argument, and it is written in the landlord's favor from the first page to the last. Your job is to answer it.

Keywords: commercial lease review, base rent, escalations, CAM charges, operating expense cap, load factor, renewal option, assignment and subletting, tenant improvement allowance, restoration obligation, waiver of subrogation, SNDA, estoppel certificate, lease guaranty, duty to mitigate

How to use this checklist

Work the phases in order. The economics come first because they determine whether the rest of the negotiation is worth having; the risk-allocation clauses come later because that is where a good deal quietly becomes a bad one. Each phase closes with "Why it matters, and the traps" — the doctrine, the landlord's legitimate counter-position, and the specific language that has cost tenants money.

Our running example is Alder & Vale Design, a fourteen-person branding studio that has outgrown a co-working floor. Alder & Vale has been handed a landlord's form office lease for 4,900 rentable square feet in a mid-rise building: seven years, $42.00 per rentable square foot, "landlord's standard form, non-negotiable." (It is negotiable. It always is.)

A note that governs everything below: commercial landlord-tenant law is state law, and commercial tenants receive far fewer statutory protections than residential tenants. The implied warranty of habitability recognized in Javins v. First National Realty Corp., 428 F.2d 1071 (D.C. Cir. 1970), is a residential doctrine; most states do not extend it to commercial space. Confirm your own state's rules — and see the companion Commercial Leases: A Comprehensive Guide to Negotiating and Drafting for the doctrine underneath each clause.

Phase 1 — The economics: base rent, escalations, free rent, and the real cost per year

  • [ ] Identify the base rent and whether it is quoted per rentable square foot per year or per month.
  • [ ] Find the escalation clause: fixed percentage, fixed dollar step, CPI-indexed, or fair-market reset.
  • [ ] If CPI-indexed, confirm the index (CPI-U, which region), the base month, and whether there is a floor and a ceiling (landlords want a floor; ask for a cap).
  • [ ] Confirm free rent / abatement: how many months, when they occur, and whether they abate base rent only or also operating expenses.
  • [ ] Check whether free rent is conditional — many forms recapture abated rent on default ("rent conditionally abated" clauses).
  • [ ] Confirm the security deposit amount and, if a letter of credit, the burn-down schedule and draw conditions.
  • [ ] Check the late fee and default interest rate.
  • [ ] Build a year-by-year total occupancy cost model: base rent + expected escalations + estimated operating expenses + parking + after-hours HVAC + amortized TI overage.

Why it matters, and the traps

The headline rate is the least reliable number in the lease. A 3% annual escalation on a seven-year term means Year 7 base rent is roughly 19% above Year 1; layered on top of uncapped operating-expense growth, an apparently modest deal becomes an expensive one. Model the whole term, not the first year.

Two traps recur. First, conditional abatement: the free-rent clause is drafted so that any event of default — including a curable, technical one — accelerates repayment of every abated dollar. That converts a minor late payment into a five-figure claim. Push for abatement that is unconditional, or at least recapturable only on an uncured monetary default that results in termination.

Second, CPI escalators with a floor but no cap. A "not less than 3%, otherwise CPI" escalator gives the landlord the upside and the tenant none of the downside. If the landlord insists on a floor, insist on a ceiling.

Alder & Vale's form quoted $42.00/RSF with 3.5% annual bumps and four months free — but the free rent was conditional and abated base rent only, so the studio would still owe operating expenses in months it thought were rent-free. Both were negotiated: abatement became unconditional and gross, and the escalator moved to 3.0%.

Phase 2 — Measuring the premises: rentable vs. usable and the load factor

  • [ ] Find the stated rentable square feet (RSF) and usable square feet (USF).
  • [ ] Compute the load factor (RSF ÷ USF) and compare it to market for the building class and city.
  • [ ] Identify the measurement standard (e.g., a BOMA standard) and its edition — the lease should name one.
  • [ ] Confirm whether the landlord can remeasure during the term and adjust rent.
  • [ ] Confirm the tenant's proportionate share percentage and how it was calculated (tenant RSF ÷ building or floor RSF).
  • [ ] Verify that the proportionate share denominator uses the whole building, not just occupied space.

Why it matters, and the traps

Rent is charged on rentable square feet, but you can only put desks in usable square feet. The gap — the load factor, sometimes called the add-on or core factor — represents your share of lobbies, corridors, restrooms, and mechanical rooms. A 15% load factor is ordinary; a 28% load factor on a single-tenant floor is a rent increase disguised as arithmetic. Ask what standard was used and ask to see the calculation.

The larger trap is the remeasurement right: a clause permitting the landlord to remeasure and increase RSF (and therefore rent and proportionate share) at any time. Delete it, or cap it so that remeasurement cannot increase rentable area during the term.

Watch the proportionate share denominator. If the lease sets the tenant's share as its RSF divided by occupied RSF, then every vacancy in the building silently raises the tenant's share of operating costs. The denominator should be total rentable area of the building.

Phase 3 — Operating expenses and CAM: caps, gross-ups, exclusions, audit rights

  • [ ] Determine the lease structure: full-service/gross, base-year, modified gross, or triple net (NNN).
  • [ ] If base-year, confirm the base year is the first full calendar year of the term and that it is not artificially deflated.
  • [ ] Negotiate a cap on controllable operating expenses (e.g., 5% per year, cumulative and compounding); insurance, taxes, and utilities are typically carved out as uncontrollable.
  • [ ] Confirm a gross-up provision to 95–100% occupancy for variable expenses (this protects the tenant in a base-year lease).
  • [ ] Negotiate an exclusions list: capital expenditures (except those amortized and required by law or that reduce operating costs, amortized over useful life), leasing commissions, marketing, tenant-improvement costs for other tenants, ground rent, debt service, landlord's income taxes, costs reimbursed by insurance or other tenants, penalties from landlord's own violations, and defense costs of landlord's litigation.
  • [ ] Confirm real estate tax treatment, including whether tax refunds and appeal proceeds are shared and whether reassessment on a building sale is passed through.
  • [ ] Secure an audit right: at least 90–180 days after the annual statement, with a right to review backup, and landlord pays the audit cost if the overstatement exceeds a threshold (3–5% is common).
  • [ ] Check the deadline for landlord to bill reconciliations and add an outside date after which unbilled expenses are waived.

Why it matters, and the traps

Operating expenses are the second lease. In a triple-net deal they are the whole deal. Two provisions do most of the work.

The gross-up is counterintuitive but tenant-favorable in a base-year lease. If the building is 70% occupied in the base year, variable costs (janitorial, utilities) are low, so the base year is low — and every subsequent year of higher occupancy produces a large pass-through that reflects lease-up, not inflation. Grossing up variable expenses to 95% occupancy in every year, including the base year, normalizes the comparison.

The capital expenditure exclusion is where landlords recover roof replacements and chiller upgrades from tenants. The tenant-side compromise is familiar: capital items are excludable unless (a) required by a law enacted after the lease date, or (b) reasonably projected to reduce operating expenses — and in either case, amortized over the item's useful life with only the annual amortization installment passed through, with interest at a reasonable rate.

Finally, an audit right that must be exercised within 30 days and waives all objections thereafter is not an audit right. Ask for a real window and a real remedy. The general contract-review discipline in The Commercial Contracts Toolkit: Drafting, Reviewing, and Enforcing Business Agreements applies here with unusual force: this is a pricing clause dressed as an administrative one.

Phase 4 — Term, renewal options, and expansion/ROFR rights

  • [ ] Confirm the commencement date mechanism — fixed date, or tied to substantial completion of landlord's work with a delivery outside date.
  • [ ] Add a delivery delay remedy: rent abatement day-for-day, then a termination right if delivery is more than 60–120 days late.
  • [ ] Confirm whether a commencement date memorandum will be executed.
  • [ ] Review each renewal option: notice window (both the earliest and latest date), rent at fixed rate or "fair market rent," and the FMR determination mechanism (broker appraisal, baseball arbitration).
  • [ ] Confirm renewal rent is measured against comparable space, net of concessions, and cannot fall below prior rent only if you agree to that floor.
  • [ ] Check that options are not personal and non-transferable if you may assign; and that options do not evaporate on any default (limit to uncured material default).
  • [ ] Evaluate expansion rights: right of first offer (ROFO), right of first refusal (ROFR), or must-take space — and the response window.
  • [ ] Consider a termination option (with a fee equal to unamortized TI, commissions, and free rent, plus a modest penalty) if growth is uncertain.
  • [ ] Check for a holdover clause and negotiate the multiplier down (150% is defensible; 200% plus consequential damages is not).

Why it matters, and the traps

Options are worthless if the exercise mechanics are booby-trapped. The classic failure: a renewal notice window that opens 12 months and closes 9 months before expiration, requires notice by certified mail to an address that has changed, and provides that late exercise is void. Calendar every option date the day you sign — twice, with two owners.

"Fair market rent" without a determination mechanism is an invitation to a stalemate. Specify the process: the parties exchange numbers; if they cannot agree, each appoints a qualified appraiser, and either the two appraisers pick a third or the arbitrator must select one of the two submitted numbers (baseball arbitration, which disciplines both sides toward reasonableness). If you want the option to be a real option, also cap the increase.

Holdover is the sleeper. Alder & Vale's form imposed 200% of the last month's rent plus consequential damages if the studio held over even one day. If the landlord has re-let the space, that consequential exposure can dwarf the rent. Negotiate: 125–150% for the first 30–60 days, consequential damages only after a defined grace period and written notice.

Phase 5 — Use, exclusivity, and co-tenancy

  • [ ] Read the permitted use clause. A narrow use ("graphic design services and general office use") limits your own pivot and your ability to assign.
  • [ ] Broaden to "general office use and any other lawful use consistent with a first-class building," subject to zoning.
  • [ ] Confirm the tenant, not the landlord, is not bearing risk for zoning and certificate of occupancy compliance for the base building.
  • [ ] Confirm any exclusive use rights you need (critical in retail; occasionally relevant in office).
  • [ ] Confirm any exclusives granted to other tenants that would restrict you — ask for the list.
  • [ ] In retail, evaluate co-tenancy clauses: opening co-tenancy and operating co-tenancy, with remedies (reduced/percentage rent, then termination).
  • [ ] Confirm operating hours, after-hours HVAC rates, and access (24/7 keycard access for an office tenant).
  • [ ] Check signage rights: suite, lobby directory, and (if applicable) building or monument signage.
  • [ ] Confirm parking: ratio, reserved vs. unreserved, cost, and whether the rate can escalate freely.

Why it matters, and the traps

A narrow use clause is a hidden assignment restriction: even a landlord who must act reasonably on assignment can reasonably refuse an assignee whose business the use clause does not permit. Broaden the use clause and you have quietly improved your exit.

Retail tenants should treat co-tenancy as an economic term, not a courtesy. If the anchor closes, foot traffic collapses; the remedy should be automatic (rent reduction to a percentage-of-sales alternative) and, if the failure persists beyond 9–12 months, a termination right. Landlords will resist because lenders dislike co-tenancy; expect to trade for it.

Phase 6 — Assignment and subletting

  • [ ] Find the consent standard: silent, "sole discretion," or "not to be unreasonably withheld."
  • [ ] Insist on "not to be unreasonably withheld, conditioned, or delayed," with a deemed-consent period (e.g., 15 business days after a complete request).
  • [ ] Add a permitted transfers carve-out requiring no consent: affiliates, successors by merger, purchasers of substantially all assets, and internal reorganizations.
  • [ ] Confirm whether a change of control (equity financing, sale of the company) is deemed an assignment — and carve out financing rounds.
  • [ ] Delete or cap the recapture right (landlord's right to terminate as to the space you propose to sublet rather than consent).
  • [ ] Negotiate profit sharing: a 50/50 split of sublease profits after deducting the tenant's costs (brokerage, TI, downtime, legal).
  • [ ] Confirm the tenant is not released on assignment — and try to get a release, or at least a release on a creditworthy assignee.
  • [ ] Confirm the landlord's review fee is capped at actual, reasonable, out-of-pocket costs.

Why it matters, and the traps

This is the single most valuable clause for a growing company, and the one landlords guard hardest. The background rule here is state-specific and genuinely contested, which is exactly why you cannot leave it to the background rule. The traditional common-law position is that a landlord holding an unqualified consent right may withhold consent arbitrarily — no reasonableness required. A substantial line of modern authority rejects that, most prominently Kendall v. Ernest Pestana, Inc., 709 P.2d 837 (Cal. 1985), which implied a commercial-reasonableness limit; California later codified a framework in Civil Code §§ 1995.010–1995.340, and the Restatement (Second) of Property: Landlord and Tenant likewise treats a consent restraint stated without standards as subject to a reasonableness limit. States divide, and some have not squarely decided. Do not rely on whichever rule you hope applies. Write reasonableness into the lease, and define what is reasonable (creditworthiness, use, reputation, no conflict with another tenant's exclusive).

The recapture right is the quiet killer. Alder & Vale negotiated hard for a reasonableness standard and then discovered the landlord could simply terminate the lease as to any space offered for sublease — meaning the studio could never sublet excess space at a profit in a rising market, and would lose the space entirely. Recapture should apply, if at all, only to a sublease of substantially all of the premises for substantially all of the remaining term (which is an assignment in everything but name).

A change-of-control deemed-assignment clause can hand the landlord a consent right over your Series A. Carve out equity financings, affiliate transfers, and any transaction in which the surviving entity's net worth is not less than the tenant's net worth at signing. Founders should read this clause alongside Incorporating a Startup the Right Way: A Founder's Legal Checklist, because the lease can constrain the cap table.

Phase 7 — Maintenance, repair, and building systems

  • [ ] Map the repair matrix: who repairs the roof, structure, foundation, exterior walls, base-building HVAC, plumbing, electrical, elevators, and the premises interior.
  • [ ] In a triple-net or single-tenant deal, carve out roof, structure, and foundation from tenant obligations, or cap tenant exposure.
  • [ ] If the tenant must maintain HVAC, obtain a warranty period for units the landlord installed and a cap on replacement (landlord replaces; tenant maintains).
  • [ ] Confirm services: HVAC hours and temperature specs, janitorial scope and frequency, water, electricity, elevator, and security.
  • [ ] Add a service interruption abatement: rent abates if an essential service is interrupted for more than 3–5 consecutive business days due to a cause within the landlord's control, and a termination right after 90–180 days.
  • [ ] Confirm the tenant's self-help right: after notice and landlord's failure to cure, tenant may perform and offset against rent (capped, e.g., at 25% of monthly rent per month).
  • [ ] Confirm compliance with law allocation, including ADA. Both landlord and tenant are independently liable to the public under Title III of the ADA (42 U.S.C. §§ 12181–12189; 28 C.F.R. § 36.201(b)), even though the lease may allocate the cost between them.
  • [ ] In California, confirm whether the premises have been inspected by a Certified Access Specialist (CASp) — disclosure is required by Cal. Civ. Code § 1938.

Why it matters, and the traps

Commercial leases do not come with an implied warranty of habitability. What a commercial tenant does have is the implied covenant of quiet enjoyment and its enforcement mechanism, constructive eviction: in the general formulation followed in most states, if the landlord's act or omission substantially deprives the tenant of the beneficial use of the premises and the tenant vacates within a reasonable time, the tenant is discharged. The elements and the timing rules vary by state; confirm yours. Reste Realty Corp. v. Cooper, 251 A.2d 268 (N.J. 1969), applied the doctrine to a commercial tenant whose leased space was repeatedly flooded because of a defective driveway; Blackett v. Olanoff, 371 N.E.2d 977 (Mass. 1977) — a residential case whose principle is regularly invoked in commercial disputes — held a landlord responsible for a nuisance condition it had the legal power to control. But constructive eviction generally requires the tenant to move out — an all-or-nothing remedy that no operating business wants to bet on. That is precisely why you negotiate an abatement-and-self-help clause: it gives you a graduated remedy short of abandoning your office.

Also watch the "AS-IS, WHERE-IS, with all faults" delivery clause paired with a tenant obligation to maintain "all systems serving the premises." That combination can make a tenant responsible for replacing a 22-year-old rooftop unit in Year 2. Get a delivery condition covenant: base-building systems are in good working order on delivery, with a warranty period of at least 6–12 months.

Phase 8 — Alterations, TI allowance, and restoration/surrender

  • [ ] Confirm the tenant improvement allowance: dollars per RSF, what it may be spent on (hard costs only, or also soft costs, cabling, furniture, moving), and any unused-balance rights (rent credit vs. forfeiture).
  • [ ] Confirm the disbursement mechanics: progress payments vs. single payment on completion; lien waivers required; landlord's approval of contractors; landlord's construction management fee (cap it at 1–3%).
  • [ ] Confirm who performs the work (landlord's work vs. tenant's work) and who bears cost overruns.
  • [ ] For alterations during the term, confirm the consent standard and a cosmetic-alterations carve-out (no consent for non-structural work under a dollar threshold that does not affect building systems).
  • [ ] The critical ask: require the landlord to state, at the time it approves any alteration, whether it must be removed at expiration. Silence should mean no removal.
  • [ ] Confirm surrender condition: "broom clean, ordinary wear and tear and casualty excepted" — and that the tenant need not restore the premises to base-building or pre-existing condition.
  • [ ] Confirm cabling and low-voltage wiring removal obligations (a routinely overlooked six-figure item).
  • [ ] Confirm the tenant may remove trade fixtures and personal property.
  • [ ] Check the mechanic's lien clause and the tenant's obligation to bond over liens within a defined period.

Why it matters, and the traps

The restoration trap is the most expensive drafting error in tenant-side lease review. The form says the landlord may require removal of all alterations "at Landlord's election, at the expiration or earlier termination of the Term." Seven years later — after the tenant has built out a reception desk, a conference room, a kitchen, and 40,000 feet of cabling with the landlord's enthusiastic approval — the landlord elects removal, and the tenant pays to demolish improvements the landlord asked for. Fix it at signing: the landlord must designate removal obligations in writing at the time it approves the plans, and anything not designated stays.

The second trap: the TI allowance that is "available" only if the tenant is not in default at the time of disbursement, has no outside date, and is forfeited if not drawn within a short window. Add a long draw window and limit the default condition to an uncured monetary default.

Alder & Vale received $65/RSF. The form allowed the landlord a 5% construction management fee, forbade soft-cost use, and forfeited any unused balance. Negotiated: fee capped at 2%, up to 15% of the allowance usable for architectural, cabling, and moving costs, and unused balance applied as a rent credit up to $10/RSF.

Phase 9 — Insurance, indemnity, and waiver of subrogation

  • [ ] Confirm the tenant's required coverages and limits: commercial general liability (typically $1–2M per occurrence / $2–5M aggregate, often with umbrella), property insurance on tenant's improvements and personal property (special form, replacement cost), business interruption, workers' compensation and employer's liability, and auto if applicable.
  • [ ] Confirm the landlord (and its lender and manager) are additional insureds on a primary and non-contributory basis — and confirm your broker can actually deliver what the lease requires.
  • [ ] Confirm the landlord's insurance obligations. Many forms impose detailed duties on the tenant and none on the landlord. The landlord should be required to carry property insurance on the building at replacement cost.
  • [ ] Insist on a mutual waiver of subrogation for all losses covered (or required to be covered) by property insurance, and confirm both parties' policies permit it.
  • [ ] Make the indemnity mutual, and limit the tenant's indemnity to claims arising from the tenant's negligence or willful misconduct, with a carve-out for the landlord's negligence.
  • [ ] Reject an indemnity that covers claims arising from the landlord's own negligence (many states' anti-indemnity statutes limit these in any event — confirm your state).
  • [ ] Confirm a mutual waiver of consequential damages, and check whether it is undercut by carve-outs (holdover; indemnity obligations).
  • [ ] Confirm the tenant's insurance obligations do not exceed what a commercially reasonable insurer will write.

Why it matters, and the traps

The waiver of subrogation is the highest-value, lowest-friction provision in the lease. Both parties buy property insurance. Without a waiver, the tenant's insurer pays a fire loss and then sues the landlord as the negligent party — or vice versa — so the parties end up litigating a loss that insurance has already paid, with premiums rising on both sides. A mutual waiver says: each party looks to its own insurer and neither party's insurer may step into its shoes to sue the other. Landlords rarely resist it, because it protects them too. Ask for it every time, and make sure it covers losses that should have been insured, so a party that fails to buy the required coverage cannot benefit from its own breach.

The trap is the one-way indemnity: tenant indemnifies landlord for "any and all claims arising out of or relating to the Premises," full stop — which on its face reaches claims caused by the landlord's own negligence. Many states restrict that by statute or construe it narrowly, but do not rely on it. Make it mutual, tie it to fault, and carve out the indemnitee's own negligence. If the deal goes wrong later, the measure of what you owe is governed by ordinary contract principles — see Contract Damages: How Courts Make the Injured Party Whole.

Phase 10 — Casualty, condemnation, SNDA, and estoppel certificates

  • [ ] Casualty: confirm rent abates proportionately to the untenantable portion, from the date of casualty.
  • [ ] Require the landlord to deliver a restoration estimate within 30–60 days of the casualty.
  • [ ] Confirm a mutual termination right if restoration will take longer than a stated period (180–270 days), and a tenant termination right if the landlord fails to complete on time.
  • [ ] Reject a clause letting the landlord terminate merely because insurance proceeds are insufficient or the lender takes the proceeds — that is the landlord's financing risk, not yours.
  • [ ] Check whether casualty late in the term (e.g., last 12–18 months) gives either party a termination right.
  • [ ] Condemnation: confirm rent abatement, a termination right on a taking of a material portion, and that the tenant may pursue a separate award for moving expenses, trade fixtures, and (where state law allows) leasehold value — without reducing the landlord's award.
  • [ ] SNDA: confirm the tenant's right to a subordination, non-disturbance, and attornment agreement from any existing lender as a condition to the lease, and from any future lender as a condition of subordination.
  • [ ] Confirm the SNDA's non-disturbance language actually preserves the tenant's option rights, TI allowance, and rent credits after foreclosure (lenders routinely try to disclaim them).
  • [ ] Estoppels: confirm the tenant's response period is at least 10–15 business days, that the form is reasonable, and that a "deemed" estoppel (silence = agreement) is deleted or limited.
  • [ ] Confirm the estoppel obligation is mutual — you will want one from the landlord if you finance or are acquired.
  • [ ] Consider recording a memorandum of lease where state law permits, to protect priority and put purchasers on notice.

Why it matters, and the traps

Subordination is the clause nobody reads until the building goes back to the bank. If the lease is junior to the mortgage — and the standard subordination clause makes it junior — a foreclosure can extinguish the lease, taking with it the tenant's below-market rent, its renewal options, and its unpaid TI allowance. The non-disturbance covenant is the fix: the lender agrees that so long as the tenant is not in default, foreclosure will not disturb its possession, and the tenant agrees to attorn to the new owner. Never sign an automatic-subordination clause without conditioning it on delivery of a commercially reasonable SNDA. And read the SNDA: a lender's form typically says the successor is not bound to complete landlord's work, not liable for the TI allowance, and not bound by amendments. Negotiate those back where the dollars are material.

The deemed estoppel is an underrated hazard. A clause providing that failure to respond within five days is conclusive confirmation of everything in the landlord's proposed certificate can, in a refinancing, lock in a statement that the landlord owes you nothing — including the $318,500 TI allowance you have not yet drawn. Ask for a real response window and delete the deeming provision.

Phase 11 — Guaranties, default, remedies, and mitigation

  • [ ] Determine whether a guaranty is required and from whom (parent entity, principals personally).
  • [ ] If personal, negotiate a "good guy" guaranty: personal liability limited to rent and charges through the date the tenant actually surrenders the premises broom-clean with advance notice — not the full remaining term.
  • [ ] Alternatively, negotiate a capped guaranty (e.g., 6–12 months' rent) or a burn-down (guaranty reduces or terminates after N years of no monetary default).
  • [ ] Confirm the guaranty does not waive every defense in existence and does not survive an assignment you did not consent to.
  • [ ] Review the default definitions. Monetary default should require written notice plus a 5–10 business day cure period; non-monetary default should get 30 days plus a reasonable extension if the cure cannot reasonably be completed in 30 days and the tenant is diligently pursuing it.
  • [ ] Delete "no notice required after the second default in any 12-month period" clauses, or narrow them.
  • [ ] Review landlord's remedies: termination, re-entry without termination, rent acceleration, landlord's lien on tenant property, and self-help lockout.
  • [ ] Test any acceleration/liquidated damages clause: accelerated rent should be discounted to present value and credited with rents actually or reasonably obtainable on reletting, or it risks being an unenforceable penalty (see Restatement (Second) of Contracts § 356).
  • [ ] Confirm the landlord has a duty to mitigate — do not assume it; state it in the lease.
  • [ ] Add a notice-to-lender-and-guarantor provision so cure rights are not lost through a missed notice.
  • [ ] Add a landlord default clause with notice, cure period, and tenant remedies — most forms have none.
  • [ ] Consider attorneys' fees (make it mutual and prevailing-party) and any jury-trial waiver or forum-selection clause.

Why it matters, and the traps

Whether a commercial landlord must mitigate damages after a tenant abandons is state-specific and consequential. Sommer v. Kridel, 378 A.2d 767 (N.J. 1977), rejected the old property-law rule that a landlord may simply let the space sit and sue for rent as it comes due, holding that a landlord seeking damages has a duty to make reasonable efforts to relet. The Restatement (Second) of Property: Landlord and Tenant takes a similar position, and in the commercial context Austin Hill Country Realty, Inc. v. Palisades Plaza, Inc., 948 S.W.2d 293 (Tex. 1997), imposed a mitigation duty on commercial landlords. Other jurisdictions retain the no-mitigation rule, sometimes by statute. Do not litigate your state's rule after the fact — contract for it. A one-sentence covenant that "Landlord shall use commercially reasonable efforts to relet the Premises and shall credit net proceeds against Tenant's obligations" costs nothing to ask for and can be worth years of rent.

Two more. Rent acceleration without a present-value discount and a reletting credit is a liquidated-damages clause pretending to be a remedy; courts frequently strike such provisions as penalties, but you would rather not be the test case. And guaranties: the landlord asks for a full-term personal guaranty as an opening position; the good-guy guaranty is the standard market compromise, because it gives the landlord what it actually wants (a tenant who leaves cleanly rather than squatting) without betting the founder's house on seven years of business performance.

Note also what happens in bankruptcy: under 11 U.S.C. § 365, a debtor-tenant may assume or reject an unexpired lease, and 11 U.S.C. § 502(b)(6) caps the landlord's damage claim (broadly, the greater of one year's rent or 15% of the remaining term's rent, not to exceed three years). That cap is one reason landlords want guaranties from non-debtor parties.

Finally, if the lease heads toward a fight, the dispute-resolution clause you skimmed on page 47 will govern. Decide deliberately — see Choosing a Dispute-Resolution Forum: Litigation, Arbitration, and Mediation Compared and, if arbitration is the answer, Drafting an Arbitration Clause: A Practical Checklist. In New York, a commercial tenant facing a notice to cure should know about the Yellowstone injunction — a tolling device recognized in First National Stores, Inc. v. Yellowstone Shopping Center, Inc., 21 N.Y.2d 630 (1968) — and should confirm the lease has not waived the right to seek one, because many landlord forms now try.

Common mistakes to avoid

  1. Negotiating rent and stopping there. The escalator, the operating-expense cap, and the restoration obligation move more money over seven years than $1.50/RSF on the base rate.
  2. Accepting "landlord's standard form, non-negotiable." It is a negotiating position, not a fact. Even in a landlord's market, the risk-allocation clauses (subrogation waiver, notice and cure, mitigation, restoration designation) are usually available because they cost the landlord nothing in cash.
  3. Missing the option notice window. Calendar every date at signing.
  4. Signing an automatic subordination clause with no SNDA condition. Foreclosure can wipe out your lease.
  5. Letting the landlord decide restoration at the end of the term. Force the designation at approval.
  6. Ignoring the free-rent recapture clause. A conditional abatement turns a technical default into a large liability.
  7. Giving a full-term personal guaranty. Ask for a good-guy or capped guaranty; you will usually get one.
  8. Assuming a duty to mitigate exists. In many states it does not, or its scope is unsettled for commercial leases. Write it in.
  9. Ignoring the letter of credit draw conditions. A landlord who can draw on demand, without a default, has your cash.
  10. No landlord-default clause. If the lease specifies remedies against you and none against the landlord, you have no leverage when the HVAC dies in August.
  11. Assuming residential protections apply. Notice periods, deposit statutes, and habitability warranties largely do not reach commercial tenants — that is the point of Residential Landlord-Tenant Compliance and Eviction: A Practical Checklist, which describes a different and far more regulated world.

The consolidated lease-review checklist

  • [ ] Total occupancy cost modeled for every year of the term, including escalations and expected pass-throughs.
  • [ ] Escalator capped; CPI floor matched by a ceiling.
  • [ ] Free rent unconditional (or recapturable only on an uncured monetary default resulting in termination).
  • [ ] Load factor verified against a named measurement standard; no mid-term remeasurement right.
  • [ ] Proportionate share denominator = total building RSF.
  • [ ] Controllable operating expenses capped; capital expenditures excluded or amortized; exclusions list negotiated.
  • [ ] Gross-up to 95% occupancy applied to variable expenses in every year, including the base year.
  • [ ] Audit right with a real window and landlord-pays-if-overstated threshold.
  • [ ] Delivery outside date with abatement and termination remedy.
  • [ ] Renewal option: notice window calendared; FMR mechanism specified; option survives assignment to a permitted transferee.
  • [ ] Holdover multiplier reduced; consequential damages deferred and noticed.
  • [ ] Use clause broad; other tenants' exclusives disclosed.
  • [ ] Assignment consent "not to be unreasonably withheld, conditioned, or delayed," with deemed consent and permitted-transfer carve-outs; recapture narrowed; profit split after tenant's costs.
  • [ ] Change of control carved out for financings and affiliate transfers.
  • [ ] Repair matrix mapped; roof/structure/foundation with landlord; base-building systems warranted on delivery.
  • [ ] Service-interruption abatement and capped self-help right.
  • [ ] ADA/compliance-with-law allocation understood (both parties remain liable to the public).
  • [ ] TI allowance: draw mechanics, soft-cost eligibility, construction management fee capped, unused balance as rent credit.
  • [ ] Restoration obligations designated in writing at plan approval; surrender = broom clean, wear and tear excepted; cabling addressed.
  • [ ] Mutual waiver of subrogation; mutual, fault-based indemnity; mutual consequential-damages waiver.
  • [ ] Casualty: abatement, restoration estimate, mutual termination right on long restoration.
  • [ ] Condemnation: separate tenant award preserved.
  • [ ] SNDA from existing and future lenders; non-disturbance preserves options and unpaid allowance.
  • [ ] Estoppel: reasonable window; deemed-estoppel deleted; obligation mutual.
  • [ ] Guaranty: good-guy, capped, or burn-down.
  • [ ] Default: notice and cure for monetary and non-monetary defaults; landlord default clause added.
  • [ ] Acceleration discounted to present value with reletting credit; duty to mitigate stated expressly.
  • [ ] Attorneys' fees mutual; dispute-resolution forum chosen deliberately.
  • [ ] Every exhibit read — including the rules and regulations, which are amendable by the landlord and can swallow the lease.

Primary Authority

  • Restatement (Second) of Property: Landlord and Tenant — the leading synthesis of American landlord-tenant doctrine, including the treatment of restraints on alienation (consent-to-assignment clauses) and the landlord's duty to mitigate damages after abandonment.
  • Restatement (Second) of Contracts § 356 — liquidated damages and penalties; the framework for testing rent-acceleration and stipulated-damages clauses.
  • Sommer v. Kridel, 378 A.2d 767 (N.J. 1977) — a landlord seeking damages after abandonment must make reasonable efforts to relet; the leading modern statement of the mitigation duty.
  • Austin Hill Country Realty, Inc. v. Palisades Plaza, Inc., 948 S.W.2d 293 (Tex. 1997) — extends a mitigation duty to commercial landlords.
  • Reste Realty Corp. v. Cooper, 251 A.2d 268 (N.J. 1969) — constructive eviction and the implied covenant of quiet enjoyment in a commercial lease.
  • Blackett v. Olanoff, 371 N.E.2d 977 (Mass. 1977) — landlord liability for a nuisance condition within its legal control that breaches quiet enjoyment; a residential case, but the control principle is routinely argued in commercial disputes.
  • Javins v. First National Realty Corp., 428 F.2d 1071 (D.C. Cir. 1970) — implied warranty of habitability; cited here for the contrast, because it is a residential doctrine most states do not extend to commercial space.
  • Kendall v. Ernest Pestana, Inc., 709 P.2d 837 (Cal. 1985) — implies a commercial-reasonableness limit on a landlord's withholding of consent to assignment, departing from the traditional arbitrary-withholding rule. States divide on this question; do not assume your state's answer. See also Cal. Civ. Code §§ 1995.010–1995.340 (California's codified framework).
  • First National Stores, Inc. v. Yellowstone Shopping Center, Inc., 21 N.Y.2d 630 (1968) — origin of the New York Yellowstone injunction tolling a lease cure period.
  • 11 U.S.C. § 365 — assumption and rejection of unexpired leases in bankruptcy; 11 U.S.C. § 502(b)(6) — statutory cap on a landlord's lease-rejection damages claim.
  • Americans with Disabilities Act, Title III, 42 U.S.C. §§ 12181–12189; 28 C.F.R. § 36.201(b) — landlord and tenant are each liable to the public; the lease allocates the cost between them but not the liability.
  • State commercial landlord-tenant statutes — e.g., Cal. Civ. Code § 1950.7 (commercial security deposits); Cal. Civ. Code § 1938 (CASp accessibility disclosure); N.Y. Real Property Law and RPAPL (commercial summary proceedings). Commercial tenants receive far fewer statutory protections than residential tenants. Confirm your own state's rules — including the statute of frauds requirement that a lease exceeding one year be in writing, recording requirements for long-term leases, and any anti-indemnity statute limiting indemnification of a party's own negligence.

Secondary Sources

  • Friedman on Leases (Randolph, ed.) — the standard practitioner's treatise on commercial leasing; the first place to look for clause-level analysis.
  • Powell on Real Property — comprehensive treatment of leasehold estates, covenants, and remedies.
  • Corbin on Contracts and Williston on Contracts — for the contract-law layer sitting on top of the property-law layer.

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This checklist is general legal information from UpLaw (uplaw.us), not legal advice, and does not create an attorney-client relationship. Commercial landlord-tenant law is state-specific and changes over time; verify current requirements in your jurisdiction and consult qualified counsel before signing or enforcing a lease.