Commercial leasing: how the process works in 2027

A commercial lease commits you to years of payments you cannot easily stop. Unlike a residential tenancy, it is negotiated between businesses, and courts generally hold you to what you signed. There is no standard form and no consumer safety net. The landlord's draft is written for the landlord.

Almost everything expensive in a lease is invisible in the headline number. This page walks through the parts that decide what the space actually costs you and what happens when your plans change.

What to take away

Rent is charged on rentable area, so compare offers on total annual cost against the space you can actually use.
A personal guarantee removes your company's liability shield for this one obligation. Negotiate a cap, a burn-down, or a good-guy structure.
Exit terms decide what happens in every scenario that is not the plan. Put them in the letter of intent while you still have room.

The quoted rate is not the rent

Space is measured two ways. Usable square footage is what sits inside your walls. Rentable square footage is your usable area plus a share of the building's common parts: lobby, corridors, shared restrooms, mechanical and janitorial rooms. Rent is quoted and charged on rentable feet.

The gap between the two is expressed as a load factor, add-on factor, or common area factor, depending on who is talking. It is widest in multi-tenant office space and narrow or absent in a single-tenant building. Two buildings can quote the identical rate per square foot and cost you materially different amounts for the same number of desks, because one has a larger share of common area folded into your rentable figure.

So the comparison you want is not rent per rentable foot. It is total annual cost divided by the space you can actually put people or product into.

Things to establish before you compare offers:

Which measurement standard was used, and whether the lease names it. Published standards exist for measuring floor area; a lease that names one is easier to check than a lease that just states a number.
Whether the stated rentable area was measured or inherited from an older document.
Whether the landlord may re-measure during the term, and whether a re-measurement can increase your rent.
Whether the common area share is calculated across the floor, the building, or both.

Walk the space with a tape measure or have someone do it for you. It is a cheap check against a number you will pay on every month of the term.

Who pays for what

Lease structures differ mainly in how operating costs are split. The vocabulary is not used consistently between markets, so treat the labels as a starting point and read the actual clauses.

Structure	Base rent generally covers	Tenant usually also pays
Gross / full service	Taxes, insurance, building maintenance, and often utilities and cleaning	Little beyond rent, until expenses rise past a base level
Modified gross	Some operating costs, split by negotiation	Whatever the lease carves out, commonly utilities and cleaning
Triple net	Rent only	Its share of property taxes, building insurance, and common area maintenance, plus its own utilities and interior repairs
Absolute net	Rent only	Everything, potentially including roof and structure

Net structures dominate in industrial space, where the tenant also picks up interior repairs and often the yard. A triple-net rate and a full-service rate are not comparable figures. Before you can compare them, you need the landlord's estimate of the additional charges, and you need to know how firm that estimate is. Ask for the actual operating expense history for the property rather than a projection, and ask what is excluded from it.

Operating expenses and the base year

In a full-service lease, the landlord absorbs operating costs up to a defined level called the base year, and you pay your share of increases above it. This is where quiet money lives.

Two traps are common. The first is a base year set during a period when the building's costs happened to be low, so that ordinary costs in later years appear as "increases" you pay. The second is a base year set while the building is partly empty. A half-occupied building spends less on cleaning, utilities and management than a full one, so as the building fills, your share of the "increase" rises even though nothing about your own use changed.

The answer to the second problem is a gross-up provision: the base year expenses are calculated as though the building were fully occupied, so later years are compared against a like-for-like figure. Ask for it explicitly.

Other terms worth pushing on:

A cap on controllable expenses. Management fees, landscaping, janitorial and similar line items can be capped at a percentage increase per year. Taxes, insurance and utilities are usually treated as uncontrollable and left outside the cap.
Exclusions. Capital improvements, leasing commissions, the landlord's marketing, the landlord's legal costs in disputes with other tenants, and the cost of correcting conditions that predate your lease should not sit in your operating expense bill.
An audit right. You should be able to review the backup for an expense statement, within a stated window, with a mechanism for who pays the auditor if a material error is found.
The denominator. Your "pro rata share" depends on what the landlord divides by. Total building area and currently occupied area give very different answers.

What a personal guarantee actually exposes

If you formed a company to hold your business, a personal guarantee undoes that protection for this one obligation. The landlord can pursue you individually, not just the entity.

The exposure is usually broader than people expect. It is not simply the remaining months of rent. Depending on how the lease and guarantee are drafted, it can also reach unpaid operating expense reconciliations, late fees and interest, the unamortized cost of the improvement allowance and the leasing commission the landlord paid to put you in the space, the cost of restoring the premises, and the landlord's expenses in re-letting. If there are several guarantors, each may be liable for the whole amount rather than a share.

Whether a landlord has to make reasonable efforts to re-let the space before claiming the full balance from you is not the same everywhere. It is one of the first things to ask a lawyer in your area.

Ways guarantees get limited, in rough order of how often they are agreed:

A capped guarantee. Personal liability is limited to a fixed sum or a stated number of months of rent, however far into the term a default happens.
A burn-down. The cap shrinks on a schedule as long as you pay on time, and can fall away entirely partway through the term.
A good-guy guarantee. Personal liability covers what is owed up to the day you actually hand back the keys, having given the agreed notice, vacated fully, and paid everything due to that date. It does not cover the rest of the term. The point is to make an orderly exit possible instead of a fight, and it is often easier to sell to a landlord than a flat refusal to guarantee.

Read the guarantee as a separate document, because that is what it is. Check whether it automatically extends to renewals, expansions and amendments you have not seen yet, whether it survives an assignment of the lease, and what event actually releases you.

The fit-out allowance is priced into the rent

A tenant improvement allowance is not a gift. The landlord is putting capital into your space and recovering it through the rent over the term, which is why allowance and term length are negotiated against each other: a longer commitment supports a larger allowance.

Because it is financed, you can see its price. Ask the landlord to quote the same deal with a smaller allowance and see how far the rent falls. That tells you the rate you are effectively borrowing at, and whether you would rather fund the work yourself. Ask how the money is paid, what happens to anything unspent, and who owns the work at the end.

Clauses that can end the lease you just paid to build out

Several standard clauses let the tenancy be cut short or moved. They matter most to a tenant who has just spent money on a fit-out.

Demolition or redevelopment clause. Allows the landlord to terminate on notice in order to demolish or substantially redevelop the property. A business that has just built a kitchen, a lab, or a specialised floor plan can be handed a notice period and nothing else.

Relocation clause. Allows the landlord to move you elsewhere in the building or complex. Common in multi-tenant office buildings, and often written loosely enough that "comparable" means whatever the landlord decides.

Casualty and condemnation. Sets out who can terminate after a fire or a taking, and whether rent abates while you cannot use the space.

Subordination. Your lease usually sits behind the landlord's mortgage. If the lender forecloses, your lease can be at risk unless you have a non-disturbance agreement, an undertaking from the lender that your tenancy continues on the same terms as long as you are not in default. This is normally packaged as an SNDA, covering subordination, non-disturbance and attornment. Ask for one, and ask early, because the lender's cooperation is not the landlord's to promise.

Where a demolition or relocation clause cannot be struck out, the negotiation is about consequences: a long notice period, reimbursement of the unamortized cost of your improvements, payment of moving and reconstruction costs, a bar on relocation during the early years, a floor on the quality, size and floor level of any replacement space, and rent that does not rise because you were moved.

Permitted use, exclusives, and what you are allowed to do

The use clause defines what you may do in the space. Landlords draft it narrowly, which creates two problems. Day to day, adding a service line or a piece of equipment can require the landlord's consent. On exit, a narrow clause shrinks the pool of businesses you could assign or sublet to.

Ask for language broad enough to cover what your business plausibly becomes, not only what it does this year. A general description of your field plus "and any lawful related use" is a common formulation to push for.

Two other checks:

Exclusives already granted. In a multi-tenant property, another tenant may hold an exclusive that limits what you can sell or do. These bite hardest in retail space, but they turn up in mixed-use buildings too. Ask for the list. Also ask whether the property is subject to recorded covenants or a reciprocal easement agreement that binds you regardless of the lease.
Your own exclusive. If a direct competitor moving in next door would damage you, ask for protection, and define what breaches it and what the remedy is.

Nothing in the use clause is permission from the local authority. A landlord who says a use is fine is telling you they will not object, not that the zoning allows it or that the space can be permitted for it. That verification is separate, and it belongs before signature. Where the business also depends on a licence attached to the premises, as hospitality property usually does, the same rule applies with less room for error.

Getting out

Most tenants think about entry terms and ignore exit terms. Exit terms are where a business gets stuck.

Assignment and subletting. Look at the consent standard. "Consent not to be unreasonably withheld, conditioned or delayed" is meaningfully different from consent at the landlord's sole discretion. Ask for permitted transfers to an affiliate, and to a buyer of your business, without consent, since otherwise your lease becomes an obstacle in a sale. Check whether the landlord takes some or all of any profit on a sublease, and whether the landlord can recapture the space instead of consenting, which turns your request to sublet into a termination.

Renewal options. Note the notice window and diary it in two places. These deadlines are usually strict, and a missed notice can extinguish the option. If renewal is at "fair market rent", make sure the lease says how that is determined and what happens if you and the landlord disagree.

Holdover. If you stay past expiry, holdover rent is typically a multiple of the last rent, and some drafts also expose you to the landlord's losses if an incoming tenant cannot take possession. Negotiate the multiple down and try to exclude consequential damages.

Restoration. The lease may require you to remove your improvements and return the space to its original condition. That is a real cost, arriving at the worst moment. Get agreement in writing on what stays.

Security. A letter of credit is not a deposit; it can be drawn quickly and it ties up your bank facility. Ask for a burn-down schedule tied to on-time payment.

Where the bargaining power sits

The sequence usually runs: tour, proposal, letter of intent, lease draft, negotiation, signature, delivery of the space, construction, occupancy.

Your bargaining power is highest before the letter of intent is settled, and drops steadily afterwards. Once the LOI is agreed, every later request looks like reopening a closed point. So the LOI should carry more than rent and term. Put the expense structure, the base year and gross-up, the improvement allowance and how it is paid, free rent, renewal and termination options, the guarantee and any cap on it, the use clause, assignment rights, and your position on relocation and demolition into the LOI, even though it is not binding.

One practical note on representation: the broker listing the space works for the landlord. A tenant representative is normally paid out of the same commission pool the landlord has already budgeted, so having your own is not usually an added cost. Ask directly who pays your broker and whether anyone is acting for both sides.

Before you sign

Have a lawyer who does commercial leasing in your market read the whole document, including the guarantee, the work letter, the rules and regulations, and any exhibits. This is not a formality. The lease will outlive most other decisions you make this year, the protections that apply to residential tenants generally do not apply here, and the cost of the review is small next to a single clause you did not understand.

Bring the lawyer a list, not just the draft:

What is my total annual cost per usable foot, including every additional charge?
What is the maximum amount I could personally owe under the guarantee, and on what date does that stop?
What can the landlord do to my space or my tenancy without my agreement?
If I need to leave early, sell the business, or grow out of this space, what are my routes?
What have I promised to do at the end of the term?

If you cannot answer those five from the document in front of you, the document is not finished.

Common questions

What is the difference between usable and rentable square footage?

Usable is the space inside your walls. Rentable adds a share of the building's common areas, and rent is charged on rentable. Two buildings quoting the same rate can therefore cost different amounts for the same number of desks.

Is a triple-net rate cheaper than a full-service rate?

Not comparable until you add the other charges. Under a net structure you also pay your share of property taxes, building insurance and common area maintenance, plus your own utilities and interior repairs. Ask for the property's actual expense history rather than a projection.

What does a good-guy guarantee actually limit?

It limits personal liability to what is owed up to the day you give the agreed notice, vacate fully and pay what is due to that date. It does not cover the remainder of the term, which is the difference that matters.

Can the landlord really move me after I have paid for a fit-out?

If the lease contains a relocation or demolition clause, yes, on whatever notice it specifies. If the clause cannot be struck out, negotiate reimbursement of the unamortized cost of your improvements, moving and rebuilding costs, and a floor on the replacement space.