Commercial Leases — Key Terms, Common Traps & Negotiation Points

A commercial lease is nothing like a residential lease. There's no implied warranty of habitability, no security deposit limits, and very few statutory protections for the tenant. The lease itself is the entire universe of rights and obligations — if it's not in the lease, it doesn't exist. That means every term matters, and the negotiation happens before you sign.

Types of Commercial Leases

Gross lease (full service): The tenant pays a fixed monthly rent, and the landlord covers operating expenses — property taxes, insurance, and maintenance. Common in multi-tenant office buildings. The simplicity is the appeal, but the rent is higher to account for the landlord's expenses.

Net lease: The tenant pays base rent plus some or all of the property's operating expenses:

• Single net (N): Tenant pays base rent + property taxes
• Double net (NN): Tenant pays base rent + property taxes + insurance
• Triple net (NNN): Tenant pays base rent + property taxes + insurance + maintenance/CAM. The landlord receives "net" rent with virtually no expenses. This is the standard for freestanding retail and many industrial properties.

Percentage lease: The tenant pays base rent plus a percentage of gross sales above a defined threshold ("breakpoint"). Common in retail, especially shopping centers. The breakpoint calculation and the definition of "gross sales" are heavily negotiated.

CAM Charges — The Hidden Cost

Common Area Maintenance (CAM) charges in multi-tenant properties cover landscaping, parking lot maintenance, snow removal, security, and shared utilities. These can add $3–$10+ per square foot to your annual occupancy cost. Key negotiation points:

• CAM cap: Negotiate an annual cap on CAM increases (typically 3–5% per year). Without a cap, your CAM charges can increase dramatically if the landlord decides to repave the parking lot or upgrade the HVAC system.
• Exclusions: Negotiate exclusions for capital improvements, management fees above a stated percentage, costs of vacant space, and landlord's legal fees.
• Audit right: Include the right to audit the landlord's CAM accounting annually.

Terms Every Tenant Should Negotiate

• Use clause: How broadly can you use the space? A narrow use clause ("retail sale of sporting goods") can prevent you from pivoting your business. A broad use clause ("any lawful retail purpose") gives you flexibility.
• Assignment and subletting: Can you transfer the lease to a buyer if you sell your business? Most leases require landlord consent — negotiate that consent "shall not be unreasonably withheld."
• Renewal options: Secure renewal options at predetermined rates or a fair market value formula. Without renewal options, the landlord can dramatically increase rent or refuse to renew at the end of the term.
• Tenant improvement allowance (TIA): For new spaces, negotiate the landlord's contribution to buildout. This is typically expressed as dollars per square foot and is one of the most significant economic terms of the lease.
• Personal guarantee: If you're signing the lease through an LLC or corporation, the landlord may require a personal guarantee. Negotiate a declining or "good guy" guarantee that limits your personal exposure over time.
• Quiet enjoyment: The landlord's promise that the tenant will be able to use the premises without interference. Seems basic, but it's your remedy if the landlord's actions disrupt your business.

Confession of Judgment Clauses

Pennsylvania is one of the few states that enforces confession of judgment clauses in commercial leases. This means the landlord can obtain a judgment against you instantly — without notice, without a hearing — by filing a complaint with an attached lease. The judgment can include the entire remaining rent for the lease term. You can petition to open the judgment, but you're already in a defensive posture with a judgment on your record.

If you're signing a commercial lease in PA, pay attention to the confession of judgment clause. You may not be able to remove it entirely, but you can sometimes negotiate limitations — requiring notice before confession, limiting the judgment amount, or restricting the landlord's ability to confess after the tenant has vacated.