What to check before signing a commercial lease

A commercial lease is usually presented as a standard form, and it usually is not. The landlord's draft is written to protect the landlord, which is entirely reasonable, but it means the tenant has to read it properly. The version you are handed is a starting position, not a fixed one, and in our experience most landlords expect to negotiate at least three or four terms.

What follows is the order in which we read a lease, and why.

Start with the exit, not the entry

Most tenants negotiate hard on rent and barely read the termination clause. This is backwards. Rent is a known, budgeted number that you will pay every month without surprise. The exit terms decide what happens in the situation you cannot predict — the office you outgrow in eighteen months, the funding round that does not close, the move to a hybrid model that halves your headcount need. That is when the business needs flexibility most, and it is precisely when a poorly drafted lease costs the most.

Look for the lock-in period, the notice period, and whether the two are symmetrical. A three-year lock-in against a landlord's three-month notice right is not a balanced arrangement, and it is worth naming that imbalance out loud in negotiation. Ask also what happens on early exit: is the security deposit forfeited, is the balance of the lock-in rent payable, or is there a defined exit fee? A number agreed now is far better than an argument later.

The clauses worth your attention

• Lock-in and notice. How long are you committed, and on what notice can either side end it? Are the periods the same for both parties?
• Escalation. A fixed percentage every year compounds faster than people expect. Model it across the full term, including any renewal, before you agree the opening rent.
• Security deposit and its return. How much, held by whom, on what timeline is it returned, and what conditions must be met first?
• Maintenance and repair. Who is responsible for the air conditioning when it fails in May? Common-area maintenance charges deserve a cap, or at least a defined basis of calculation.
• Alterations. Can you fit out the space as you need it, and must you restore it on exit?
• Assignment and subletting. If you outgrow the space, can you transfer the lease or must you keep paying for premises you have left?

None of these is exotic. All six appear in almost every commercial lease, and all six are routinely signed without being read.

Two that surprise people

The first is the restoration obligation. A clause requiring the premises to be returned in original condition can cost a great deal at the end of a fit-out-heavy tenancy — stripping partitions, removing cabling, repainting, restoring flooring. Tenants who have spent significantly on fit-out are often the most exposed, because there is more to undo. Agree a schedule of condition at the start, with dated photographs annexed to the lease, and agree explicitly which improvements may remain.

The second is registration. An unregistered lease of certain durations may not be admissible as evidence of its own terms, and stamp duty is assessed on the basis of the term including renewal options. Getting the stamping and registration right is not administrative housekeeping to be handled later by an office manager; it determines whether the document you negotiated protects you at all.

If you read only one clause closely, read the one that describes how the arrangement ends.

What a review actually involves

A lease review is a contained piece of work. We read the draft, check the landlord's title and authority to lease, and come back with a marked-up version plus a short note setting out the three or four terms that genuinely matter commercially, distinguished from the ones that merely look alarming. Where useful, we deal directly with the landlord's counsel.

It is considerably cheaper than a dispute about a deposit you cannot recover, and it is one of the few pieces of legal work where the value is easy to see on the same day.