Every CRE lease term explained in plain English — with negotiation context, red flags, and links to in-depth guides.
An arrangement where the original tenant leases part or all of their space to a third party (subtenant), while remaining liable to the landlord.
Unlike assignment, the original tenant (sublandlord) remains on the hook for the prime lease. Sublease rent is typically 10–30% below market. Key issues: landlord consent, profit-sharing with landlord, recapture rights, use restrictions for subtenant, and whether the subtenant gets a direct relationship with the landlord.
A tech company subleases 8,000 SF of its 20,000 SF office space to a smaller startup for $38/SF (prime lease: $45/SF). The original tenant's net position: pays $45/SF × 20,000 SF = $900,000/year gross; receives $38/SF × 8,000 SF = $304,000/year sublease income; net cost: $596,000/year vs. $900,000 without the sublease. Savings: $304,000/year, funded by the space they weren't using.
Rentable space located above street level (ground floor).
Above-grade space typically commands lower rents than ground-floor retail but offers natural light advantages over below-grade (basement) space. Important to clarify in your permitted-use clause whether you need street-visible signage.
The process of recovering a Tenant Improvement allowance through above-market rent over the lease term.
When landlords provide a TI allowance, they often recoup it via slightly higher base rent. Ask for a TI amortization schedule to understand what portion of your rent is actually paying down the buildout cost. If you terminate early, unamortized TI may be owed back.
Deep dive: Tenant Improvement Allowance GuideA major, nationally recognized tenant whose presence draws foot traffic to a retail center.
Anchor tenants (e.g., Target, Whole Foods, Home Depot) negotiate significantly better lease terms due to their traffic-driving value. Their departure can trigger co-tenancy rights for smaller tenants. Always check who the anchor tenants are before signing a retail lease.
Deep dive: Co-Tenancy Clause GuideThe transfer of all tenant rights and obligations under a lease to a third party.
Unlike a sublease, an assignment transfers the entire leasehold interest. The original tenant may still be liable as guarantor unless the landlord expressly releases them. Most leases require landlord consent for assignment. Look for a "not unreasonably withheld" standard.
Deep dive: Sublease vs. Assignment GuideThe fixed minimum rent payable each month, before additional charges such as CAM, taxes, or insurance.
Base rent is the foundation of your lease economics. In a gross lease, base rent covers all or most occupancy costs. In an NNN lease, it's just the starting point — add CAM, taxes, and insurance to get your true occupancy cost. Always negotiate the base rent first, then address escalations.
Deep dive: How to Read a Commercial LeaseA reference year used to calculate operating expense pass-through increases to tenants.
In a modified gross or gross lease, the landlord typically covers all operating expenses up to the base-year amount. Any increase above that level is passed through to tenants. Negotiate the base year carefully — a higher base year means fewer pass-through increases to you.
In percentage rent leases, the sales threshold above which percentage rent kicks in.
The natural breakpoint is calculated as base rent ÷ percentage rate. Example: $120,000 base rent ÷ 6% = $2,000,000 natural breakpoint. Sales above $2M trigger percentage rent. An "artificial breakpoint" is a lower, landlord-negotiated threshold that can cost tenants significantly more.
Deep dive: Percentage Rent Clause GuideThe physical improvements made to a commercial space to prepare it for tenant occupancy.
Build-out terms define who designs, manages, and funds the improvements. Key issues: TI allowance amount, who holds the construction contract, completion deadline, and what happens to improvements at lease expiration (restoration obligations).
Deep dive: Tenant Improvement Allowance GuideFees charged to tenants to cover the cost of maintaining shared areas of a property.
CAM typically includes lobbies, parking lots, elevators, landscaping, security, and property management. CAM can add $5–$25/sq ft per year to your base rent. Negotiate a CAM cap, get audit rights, and push for exclusions (capital expenditures, management fees above 3%, vacant space gross-up).
Deep dive: CAM Charges ExplainedLease provision governing rights and obligations if the leased premises are damaged or destroyed.
Look for: (1) how long the landlord has to rebuild, (2) whether you can terminate if damage exceeds a threshold (e.g., 50%), (3) rent abatement during reconstruction, and (4) what happens if damage occurs in the last year of the lease. Weak casualty clauses can trap tenants in unusable space.
A provision allowing a tenant to reduce rent or terminate the lease if key co-tenants leave the property.
Critical in retail leases. Two types: anchor co-tenancy (triggered by departure of a named anchor) and occupancy co-tenancy (triggered when overall occupancy falls below a percentage, e.g., 70%). Remedy tiers typically include alternate rent, then termination right if the situation isn't cured.
Deep dive: Co-Tenancy Clause GuideThe date the lease term officially begins, which may differ from the rent commencement date.
The commencement date triggers your obligations under the lease (insurance, compliance, permitted use). However, rent often doesn't start until the "Rent Commencement Date," which may be delayed by a free-rent period. Both dates should be explicitly stated in the lease.
Lease provision addressing tenant rights if the government takes (condemns) part or all of the leased property.
Also called an eminent domain clause. Key issues: who receives the condemnation award (landlord vs. tenant), whether partial condemnation triggers termination rights, and rent abatement for condemned portions. Tenants should negotiate for a separate award for moving costs and lease value.
Rent escalation tied to the Consumer Price Index, adjusting rent in proportion to inflation.
CPI-linked escalations create variable rent adjustments. Negotiate a cap (e.g., CPI but not more than 3%) and a floor (e.g., not less than 0%) to control your exposure. Fixed annual escalations (e.g., 3% flat) are usually more predictable and preferable for tenant budgeting.
Deep dive: Commercial Lease Negotiation TipsA tenant's or landlord's failure to fulfill a material obligation under the lease.
The default and cure provision specifies notice periods before a breach becomes actionable. Monetary defaults (missed rent) often require 3–5 days notice; non-monetary defaults typically require 30 days + additional time if the cure cannot reasonably be completed in that period. Negotiate reasonable cure periods for both parties.
The specific space being leased, as defined by the four corners of the lease agreement.
The demised premises definition controls your rights. Ensure it includes any storage areas, parking, and signage rights you've negotiated. Verify the rentable square footage matches the space plan attached to the lease — discrepancies can cost thousands per year.
A landlord-favorable provision allowing lease termination if the landlord decides to demolish the building.
Common in older buildings or redevelopment areas. Push for: (1) minimum notice period (12–24 months), (2) relocation assistance, (3) moving expense reimbursement, and (4) the right to terminate earlier if you can't find suitable alternative space. Try to eliminate entirely if possible.
Deep dive: Office Lease Red FlagsThe comprehensive review process conducted before signing a commercial lease.
Lease due diligence includes reviewing: zoning and permitted use compliance, physical inspection, CAM reconciliation history, landlord's financial stability, pending condemnations, existing encumbrances, and lease economics. Typically conducted during an exclusivity period after LOI execution.
Deep dive: Due Diligence ChecklistA contractual right allowing a tenant to exit the lease before its natural expiration.
Termination options typically require advance notice (6–18 months) and a termination fee (often equal to unamortized TI + landlord costs + several months rent). The fee formula matters enormously — negotiate it at lease signing when you have leverage. Having the option is almost always worth paying for.
Deep dive: Early Termination Clause GuideA lease provision that increases rent periodically over the lease term.
Common escalation types: fixed percentage (e.g., 3% annually), CPI-linked, or step increases. Fixed escalations are most predictable. Negotiate a cap on CPI escalations and avoid compounding structures where increases layer on top of previous increases. Escalations compound over a 10-year term.
Deep dive: Negotiation TipsA signed document in which a tenant certifies the current status of the lease, often required by lenders during property sales or refinancing.
Estoppels require you to confirm: lease dates, rent amounts, any defaults, pending disputes, and special rights. Review carefully before signing — estoppel errors can waive your existing claims. Most leases require tenants to respond within 10–20 days of a request.
A provision preventing the landlord from leasing to competing businesses within the same property.
Critical for retail tenants. Define the protected use as broadly as possible. Key issues: what triggers the exclusivity (primary use vs. any sales), geographic scope (property only vs. radius), remedy for violation (rent reduction, termination right), and what existing tenants are "carved out."
Deep dive: Negotiation TipsA lease provision excusing performance when extraordinary events beyond a party's control prevent compliance.
Force majeure typically covers wars, natural disasters, and government actions — but usually NOT economic hardship, pandemics (unless explicitly listed), or supply chain issues. Post-COVID, tenants should negotiate explicit force majeure language covering government-ordered closures and pandemic events.
A period at the start of a lease during which the tenant pays no rent, used as a landlord concession.
Free rent (also called rent abatement) is typically 1–6 months on longer leases. It's structured as the Rent Commencement Date being later than the Commencement Date. Negotiate free rent to cover your buildout period. Note: free rent is often "recapturable" if you default or terminate early.
Deep dive: Negotiation TipsA personal guarantee that burns off once a tenant vacates and provides notice by a specified date, limiting the guarantor's exposure.
A good guy guarantee is more tenant-friendly than an unlimited personal guarantee. The guarantor is only liable until the tenant vacates and provides proper notice (usually 60–90 days). This allows business owners to limit their personal exposure in exchange for an orderly exit from the space.
Deep dive: Negotiation TipsA lease structure where the tenant pays a single fixed rent and the landlord covers operating expenses.
In a full gross lease, base rent is all-inclusive (taxes, insurance, maintenance). In a modified gross lease, some expenses are passed through. Gross leases simplify budgeting but tend to have higher base rents to compensate landlords. Compare total occupancy cost — not just base rent — across different lease structures.
Deep dive: NNN vs. Gross Lease GuideA clause allowing landlords to calculate operating expenses as if the building were fully occupied, regardless of actual vacancy.
Gross-up provisions prevent tenants from benefiting when a building is partially vacant. If a building is 70% occupied and variable expenses (janitorial, utilities) are lower, the landlord can "gross up" those expenses to what they would be at 95% occupancy — and charge tenants accordingly. Negotiate to cap gross-up and limit which expense categories are subject to it.
A provision specifying the tenant's obligations and rent if they remain in occupancy after lease expiration.
Holdover rent penalties range from 110% to 200% of final month's rent. Some holdover clauses also expose the tenant to consequential damages — meaning if the landlord loses a new tenant deal because you didn't vacate, you can be liable for those losses. Always plan your exit well before expiration.
Deep dive: Holdover Tenant GuideHeating, Ventilation, and Air Conditioning system — a major operational cost and responsibility issue in commercial leases.
Clarify: who pays for HVAC maintenance (landlord vs. tenant), what are the "business hours" for HVAC service (after-hours HVAC often costs $50–$200/hour extra), and who replaces major HVAC equipment. A landlord cap on HVAC replacement costs (e.g., tenant responsible up to $2,500/year per unit) is common.
A contractual obligation by one party to compensate the other for losses arising from specified events.
Commercial leases typically include mutual indemnification for negligence. Red flag: one-sided indemnification requiring tenants to indemnify the landlord even for landlord negligence. Negotiate mutual fault-based indemnification and ensure it is consistent with your insurance coverage.
Minimum insurance coverages a tenant must maintain as a condition of the lease.
Typical requirements: general liability ($2M per occurrence), property insurance on tenant improvements, workers' compensation, and business interruption. Review these with your insurance broker before signing — some requirements (especially AI-listed additional insureds) may require policy riders at extra cost.
A provision allowing a party to terminate the lease if a specified condition is not met.
Tenant kickout: if sales fall below a threshold for a sustained period, tenant can terminate (common in percentage rent leases). Landlord kickout: if landlord receives a bona fide offer to purchase the building, they can terminate the lease. The latter is highly unfavorable to tenants and should be resisted.
Deep dive: Percentage Rent Clause GuideA concise summary of the key terms and provisions of a commercial lease, extracted from the full document.
A lease abstract typically includes parties, property description, rent schedule, CAM obligations, options, guarantee terms, and critical dates. LeaseAI generates lease abstracts in seconds. Essential for portfolio management, renewals, and due diligence.
Deep dive: Commercial Lease Abstract GuideA preliminary document outlining the major terms of a commercial lease before a formal agreement is drafted.
The LOI sets the anchor for negotiations. Most LOI terms are non-binding, but exclusivity and confidentiality provisions typically ARE binding. Draft the LOI yourself when possible — whoever drafts controls the frame. The LOI becomes your baseline for the final lease negotiation.
Deep dive: LOI Complete GuideThe percentage difference between rentable square footage and usable square footage in a commercial space.
Loss factor = (Rentable SF − Usable SF) ÷ Rentable SF. Typical office loss factors range from 15–30%. You pay rent on rentable SF but can only physically use the usable SF. A 20% loss factor means you're paying for 20% more space than you can actually use. Verify the floor plate efficiency before committing.
A hybrid lease structure where the tenant pays base rent plus some (but not all) operating expenses.
Common in office leases. The exact expense split varies by negotiation — some modified gross leases include utilities, some don't. Always get a detailed breakdown of exactly which expenses are included in base rent vs. passed through to the tenant. "Modified gross" without specifics is meaningless.
Deep dive: NNN vs. Gross Lease GuideA tenancy that continues on a monthly basis after the lease expires, terminable by either party with notice.
Month-to-month is distinct from holdover tenancy. It typically requires 30 days written notice to terminate. While it offers flexibility, it also exposes tenants to short-notice displacement. Landlords prefer holdover provisions (200% rent) to incentivize lease renewals over month-to-month arrangements.
Deep dive: Holdover Tenant GuideIn a percentage rent lease, the sales level at which percentage rent exactly equals base rent, calculated as base rent divided by the percentage rate.
Formula: Natural Breakpoint = Annual Base Rent ÷ Percentage Rate. At this sales level, the landlord receives the same income whether charging base rent or percentage rent. Sales above this level trigger additional percentage rent. A natural breakpoint is more tenant-friendly than an artificial (lower) breakpoint.
Deep dive: Percentage Rent Clause GuideA lease structure where the tenant pays base rent plus some or all of the building's operating expenses.
Net leases exist on a spectrum: Single Net (tenant pays taxes), Double Net/NN (taxes + insurance), Triple Net/NNN (taxes + insurance + maintenance). An "Absolute NNN" adds structural repairs and capital expenditures. Each step toward Absolute NNN increases tenant risk and cost.
Deep dive: Triple Net Lease ExplainedA lease requiring the tenant to pay base rent plus all three "nets": property taxes, building insurance, and maintenance costs.
Common in retail, industrial, and single-tenant properties. Total occupancy cost in an NNN lease often runs 40–70% above the stated base rent. Example: $60K/year base rent + $22K taxes + $8K insurance + $8K maintenance = $98K actual cost. Always model total cost, not just base rent.
Deep dive: Triple Net Lease ExplainedAn agreement from a lender that the tenant's lease will be honored if the landlord defaults and the lender forecloses.
Part of the SNDA (Subordination, Non-Disturbance and Attornment) agreement. Without a non-disturbance agreement, a foreclosing lender could terminate your lease. Always request an SNDA from the landlord's lender, especially for long-term leases or significant TI investments.
The costs of running and maintaining a commercial property, often passed through to tenants in NNN and modified gross leases.
Operating expenses include: property taxes, insurance, maintenance, utilities, management fees, landscaping, security, and repairs. Negotiate exclusions for: capital expenditures, landlord entity expenses, leasing commissions, and costs related to other tenants. Request a historical operating expense schedule before signing.
A tenant right to buy the leased property during the lease term at a pre-agreed price or formula.
Purchase options can be valuable if you believe the property will appreciate. Key terms: purchase price (fixed vs. fair market value), option exercise window, how existing improvements affect price, and financing contingencies. Lenders may require subordination of purchase options to their mortgage.
A contractual right giving the tenant the option to extend the lease for additional term(s) at pre-agreed or market-based rent.
Renewal options must be exercised within a specific notice window (often 6–12 months before expiration). Missing the deadline forfeits the option permanently. Three option types: fixed rent (most tenant-friendly), Fair Market Rent (requires rent negotiation/arbitration), CPI-adjusted (variable). Always calendar the notice deadline.
Deep dive: Renewal Option GuideAdditional rent paid by a tenant based on a percentage of gross sales above a breakpoint threshold.
Common in mall and strip center retail leases. Rates vary by tenant type: restaurants 6–8%, clothing 5–6%, grocery 1–2%. Key negotiating points: gross sales definition (negotiate wide exclusions), reporting frequency, landlord audit rights, and whether the breakpoint is natural or artificial.
Deep dive: Percentage Rent Clause GuideThe clause defining what business activities the tenant is authorized to conduct in the leased space.
Negotiate the permitted use as broadly as possible. Overly narrow definitions can prevent legitimate business pivots and subletting. Red flag: permitted use that exactly matches your current business (e.g., "sale of women's clothing only" vs. "retail sales of apparel and accessories"). Broad uses also make subleasing much easier.
Deep dive: Office Lease Red FlagsAn agreement by an individual (often a business owner) to be personally liable for the tenant's lease obligations.
Personal guarantees are common for small-business and startup tenants. Negotiate: time limit (burns off after year 3), dollar cap (not to exceed X months rent), good guy provision, and exclusion of consequential damages. Never sign an unlimited, unconditional personal guarantee without professional review.
Deep dive: Negotiation TipsA landlord's covenant guaranteeing the tenant's right to use and enjoy the leased space without interference.
The covenant of quiet enjoyment protects tenants from landlord interference, third-party claims superior to the lease, and disturbances from landlord's actions. It's typically an implied covenant in most states, but having it explicitly stated in the lease provides stronger protection, especially in subordination and SNDA contexts.
The date rent obligations begin, which may be later than the Commencement Date due to a free-rent period.
The gap between Commencement Date and Rent Commencement Date is your free rent period. During this time, you can build out the space without paying rent. Ensure the rent commencement trigger is tied to an objective event (e.g., a specific date) rather than a subjective one (e.g., "substantial completion of landlord's work").
A comprehensive listing of all tenants in a property, their lease terms, rental rates, and expiration dates.
Investors and lenders use rent rolls to underwrite properties. Before signing a lease in a multi-tenant property, review the existing rent roll to assess: nearby tenant mix, upcoming expirations (vacancy risk), any anchor tenant lease expiration, and overall occupancy rate and stability.
The total area of a leased space including the tenant's usable space plus a proportionate share of common areas.
Rentable SF is what you pay rent on. It equals usable SF plus a load factor for common areas. A 4,000 SF usable office in a building with a 25% load factor = 5,000 SF rentable. At $40/SF, that's a $40K/year difference between usable and rentable rent. Always verify the measurement method (BOMA standard preferred).
A tenant's contractual right to make the first offer to lease or purchase additional space before the landlord markets it.
A ROFO requires the landlord to offer you the space first, but you set the price. This gives tenants a right to bid but no price protection. Compare to ROFR (Right of First Refusal), which lets you match any third-party offer. ROFO is more landlord-friendly; ROFR is more tenant-friendly.
A tenant's contractual right to match any third-party offer to lease or purchase adjacent space or the building.
A ROFR is triggered when the landlord receives a bona fide third-party offer. The tenant then has a set period (usually 10–30 days) to match the offer exactly. This is more protective than a ROFO because you get to see a real market offer before deciding. Landlords dislike ROFR because it complicates their ability to market space.
Deep dive: Renewal Option GuideA cash deposit held by the landlord as collateral for tenant performance under the lease.
Typically 1–3 months base rent for creditworthy tenants. Negotiate: burn-down provisions (deposit reduces after year 2 if no defaults), letter of credit alternatives (better for cash flow), and conditions/timeline for return after expiration. In most states, landlords must return the deposit within 14–30 days of lease end.
A three-part agreement between tenant, landlord, and lender governing what happens if the landlord defaults on their mortgage.
Subordination: your lease is junior to the mortgage. Non-Disturbance: the lender agrees to honor your lease if they foreclose. Attornment: you agree to pay rent to the new owner post-foreclosure. Always request an SNDA from the landlord's lender. Without non-disturbance, a foreclosing lender can terminate your lease.
An arrangement where the original tenant leases part or all of their space to a third party (subtenant), while remaining liable to the landlord.
Unlike assignment, the original tenant (sublandlord) remains on the hook for the prime lease. Sublease rent is typically 10–30% below market. Key issues: landlord consent, profit-sharing with landlord, recapture rights, use restrictions for subtenant, and whether the subtenant gets a direct relationship with the landlord.
Deep dive: Sublease vs. Assignment GuideMoney provided by the landlord to fund improvements to the leased space.
TI allowances range widely: $20–$80/SF for office space, $10–$40/SF for retail. Key negotiating points: how is unused TI handled (refundable, rent credit, or forfeited?), who manages construction (landlord-managed vs. tenant-managed TI), timing of disbursements, and whether TI is tied to a specific lender.
Deep dive: Tenant Improvement Allowance GuideA commercial real estate broker who represents the tenant's interests in a lease transaction.
Tenant reps are typically paid by the landlord (commission split with listing broker). This makes them free to the tenant in most cases. A good tenant rep provides market data, comparable transactions, and negotiation expertise. Always use a dedicated tenant rep — not the listing broker who represents the landlord.
See NNN (Triple Net) Lease.
A lease in which the tenant pays base rent plus property taxes, building insurance, and maintenance costs. The most common lease type for single-tenant retail and industrial properties. Total cost of occupancy often exceeds base rent by 40–70%.
Deep dive: Triple Net Lease ExplainedThe portion of a Tenant Improvement allowance that has not yet been "paid back" through above-market rent, typically owed as a termination fee.
Landlords provide TI allowances expecting to recover them over the lease term through rent. If you terminate early, you owe back the unamortized portion. Formula: TI × (Remaining Months ÷ Total Lease Months). On a 5-year lease with $200K TI, terminating at month 24 means owing roughly $120K in unamortized TI.
Deep dive: Early Termination Clause GuideSee Permitted Use.
The clause defining what business activities a tenant may conduct in the space. Broad use clauses maximize flexibility for subleasing and business pivots. Narrow use clauses protect exclusivity rights but constrain the tenant's operations.
The actual, physical floor space within the demised premises that a tenant can use, excluding common areas.
Usable SF is what you actually occupy. Rentable SF is what you pay rent on (usable + load factor for common areas). A building with high loss factors (25%+) effectively increases your per-usable-SF cost significantly. Always calculate the cost per usable SF when comparing properties.
A document attached to the lease specifying the landlord's scope of construction work and the tenant's build-out allowance.
The workletter defines: what the landlord will build (landlord's work), how much the landlord will contribute (TI allowance), the construction management fee, the timeline, and what happens if costs exceed the allowance. This is one of the most negotiated and complex attachments to a commercial lease. Have an architect review the workletter before signing.
Deep dive: Tenant Improvement Allowance GuideLeaseAI extracts all key terms from your lease in under 30 seconds — rent, CAM, escalations, options, guarantees, and more. Every field, defined and surfaced.
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