5 things to understand about commercial leasing requirements

Commercial leasing requirements run both ways. The landlord has a list of what you must prove about your business before they commit space to you; you should have a list of what you need from them before you commit money to their building.

Five things to understand

Financial capacity and security:Be ready to show how the business can pay, and understand whether the landlord wants a deposit, a guarantee, or both.
Permitted activity and operating credentials:Describe your business accurately, confirm the lease permits that activity, and check the insurance, references, and signatory requirements.
Building costs, condition, and records:Review service charge history, building rules, measurement basis, insurance information, and the property’s condition before committing.
Risk allocation in the lease:Understand who bears repair, indemnity, alteration, and assignment obligations, including what happens at the end of the term.
Permission to operate:A lease does not establish that your activity is allowed at the property; verify zoning and any required local approvals separately.

What to take away

Landlords are underwriting your ability to pay for the whole term, not your ability to pay next month. Everything they ask for follows from that.
A young or thinly capitalized business will be asked for security, and the form of that security is more negotiable than whether there is any.
Your own requests matter as much. Ask for service charge records, building rules, insurance information, measurement details, and any transaction documents that affect your occupancy before you are committed.

What the landlord will ask you for

Financial standing. Accounts, sometimes management figures, sometimes a bank reference. If your business is new, expect the question to move to whoever stands behind it.

What Landlords Ask For

Financial standingaccounts, bank reference
Securitydeposit, guarantee, or both
Guaranteeseparate obligation, read separately
Activity descriptionbecomes permitted use clause
Insurancerequired limits, named parties
Referenceslandlord, supplier, adviser
Identity and authoritywho signs

Security. A deposit, a guarantee, or both. What a security deposit covers and how it is returned is a matter of the lease and applicable state law, so ask what triggers a deduction and what releases it. A letter of credit may be offered as an alternative to a cash deposit; confirm the amount, draw conditions, and release terms.

A guarantee. Where the tenant company is not strong enough on its own, someone is asked to stand behind it. A guaranty is a separate obligation from the lease, it usually survives things people assume end it, and it should be read separately and by a property lawyer.

Whether it can be limited in amount, capped in time, or released once the business has traded for a period is the negotiation worth having.

There is no single federal cap or return deadline for commercial security deposits that applies nationwide; rules depend on the property state, and state statutes may treat commercial and residential leases differently. Check the state’s official code and ask a local commercial real estate attorney to identify the applicable statute before relying on a cap or deadline.

Typical deposit asks run from one to six months of rent, with three months common for a new business. A guarantee cap is often set at six to twelve months of rent, though the landlord's view of your covenant drives the number.

A description of your activity. This becomes the permitted use clause, so what you say here binds you for the term. Describe what you do now and what you might plausibly do, because a narrow clause blocks a pivot.

Insurance. Confirmation that you carry what the lease requires, at the limits it sets, naming whoever it names.

References. From a previous landlord, a supplier, or a professional adviser.

Identity and authority. Who is signing and whether they can bind the entity.

What you should ask the landlord for

Nobody hands you this one.

Documents To Demand

Lease in full with schedules
Building rules and regulations
Reconciled service charge statements
Measurement basis for the area
Last approved use and alterations
Delivery condition as a list
Ownership and authority evidence
Planned building works

Service charge history.Ask for the last three reconciled statements and the current budget. Reconciliation typically arrives 90 to 180 days after the service charge year ends; a landlord who cannot name that date is a warning.
Building rules.Ask for the house rules and any regulation the lease incorporates by reference.
Measurement basis.Confirm whether rent is based on rentable or usable area and whether it includes a load factor for shared areas. For office space, ask whether the rentable-area figure follows a BOMA International measurement standard and request the stated basis.
Landlord's insurance.Request the policy summary for the building and common areas.
Condition report.Ask for a dated schedule of condition with photographs, agreed before handover.
Permitted use confirmation.Get written confirmation that your described activity is allowed under the lease and check zoning separately. If the transaction involves lender or ownership paperwork, ask whether you will need an estoppel certificate or an SNDA (subordination, non-disturbance, and attornment agreement), and review the required documents before signing.

The requirements that are really about risk allocation

Some of what the landlord asks for is not information but position. Read these as negotiation rather than as administration.

Risk Allocation Clauses

Landlord position

Repair and condition: Accept as seen
Indemnity: Broad cover
Alterations: Consent refusable
Assignment: Conditions and liability

Tenant position

Repair and condition: Record condition survey
Indemnity: Narrow to control
Alterations: End-of-term bills
Assignment: Asset or liability

Repair and condition.What you take on depends on the state you accept it in, which is why a recorded condition survey at the start is worth more than any wording about reasonable wear.
Indemnity.What you agree to cover on the landlord's behalf. The general shape of an indemnity is broad, and the negotiation is about narrowing it to things you actually control.
Alterations.Confirm whether consent can be refused, who pays for the work, and whether you must remove improvements or restore the space at the end. Those obligations can produce bills years later; the details also matter when planning tenant improvements.
Assignment.Confirm whether you can transfer the lease, what consent conditions apply, and whether you remain liable after a transfer. Those terms determine whether the lease can be transferred as part of a business sale or remains your liability.

A one-page brief for your side

Item / What you state

Entity: Who takes the lease and what stands behind it
Activity: What you do, in words you can live with for the term
Area and shape: Derived from how the team or the operation actually works
Term: What you can commit to, and what you need a way out of
Condition: What you need the space to be on day one
Non-negotiables: The two or three things that would kill the deal
Timing: When you must be operating, and what drives that date

The sizing that feeds the third row is in office space for a floor and in industrial space for an operation. The commercial reasoning behind the term sits in commercial leasing.

Before any of it, the permission question

A landlord's requirements say nothing about whether your activity is allowed at the address. Check with the city or county planning or zoning department for the property's zoning designation and whether your activity requires a conditional-use permit, building permit, or certificate of occupancy. The required approvals and application forms vary by jurisdiction, so request written guidance from the local authority before spending money on the lease. The zoning and permits overview can help you identify the questions to ask.

Common questions

Can I refuse to give a personal guarantee?

You can ask, and on a strong covenant you may succeed. More often the useful negotiation is about limiting it: a cap, a fixed period, or a release once the business has traded successfully for a defined time.

A cap is usually expressed as a number of months' rent, commonly six to twelve. A release often depends on a rent cover test, such as profit of two times the annual rent, for two consecutive years. A guarantee signed by a director is personal and usually survives the sale of the business.

Is a larger deposit better than a guarantee?

For you, usually, because it is bounded and it is money you can see. For the landlord it is often less attractive, which is why it costs something to substitute one for the other.

The cost is often expressed as extra months of deposit or a higher rent. A deposit also has a defined end, while a guarantee can run for the whole term and any holding over. Ask who holds the deposit and what evidence releases it.

What if the landlord will not produce the service charge history?

Ask why in writing, and price the space assuming the least favorable outcome. A refusal on the one document that shows actual costs is itself an answer.

Ask also for the current budget and the reconciliation for the year just closed. If the refusal continues, treat the missing history as a rent reduction you will need elsewhere. Check whether the lease gives you a right to audit the service charge.

Who checks the measurement?

Nobody, unless you do. Ask what basis was used and whether it includes shared areas. Two buildings quoted on different bases are not comparable, and the difference is not small.

You can commission a measurement from a surveyor, typically for a few hundred dollars, which is small against a multi-year rent. Ask for the floor plan and the load factor used.