6 Red Flags in a Commercial Lease Before You Sign
The clauses that look like standard boilerplate until they're the reason your business is stuck paying for something you never agreed to.
What's inside 11 sections
Quick answer: Watch for an open-ended personal guarantee, vague or uncapped operating expense pass-throughs, a relocation clause with no real limits, restrictive use clauses that box in your future business plans, unclear default and cure provisions, and the absence of a co-tenancy clause if you're depending on anchor foot traffic. Any of these can cost you far more than the rent number ever suggested.
I've watched small business owners get genuinely burned by clauses buried in otherwise standard-looking leases — not because anyone was necessarily acting in bad faith, but because nobody flagged the language before signing. Here's what actually deserves a second look.
1. An Open-Ended Personal Guarantee
A personal guarantee makes you personally liable for the lease, beyond whatever protection your LLC or corporation would otherwise provide. Some level of guarantee is common, especially for newer or smaller businesses without an established credit history. The red flag is one with no cap, no burn-off provision (where the guarantee reduces or disappears after a period of on-time payments), and no limit on duration. Negotiate for a capped or declining guarantee rather than accepting an open-ended one by default. If this is part of your situation, what cap rate actually tells you is worth reading alongside it.
2. Uncapped Operating Expense Pass-Throughs
If you're in a triple net or modified gross lease, look closely at whether there's any cap on annual increases to your share of taxes, insurance, and CAM charges. A lease with no cap at all leaves you exposed to a sharp property tax reassessment or an insurance premium spike with zero protection, which can meaningfully change your total occupancy cost in a single year with no warning. See the Federal Reserve's H.15 interest rate release for the source data behind this.
3. A Relocation Clause With No Real Limits
Some leases give the landlord the right to relocate your business to a different space within the same building or complex, sometimes with minimal notice and limited compensation for your moving costs or business disruption. If your lease includes this, negotiate real limits: adequate notice, comparable or better space, and compensation for the actual costs of relocating. For the primary source behind this, the SBA's business guide is worth checking.
| Red Flag | What to Negotiate Instead |
|---|---|
| Open-ended personal guarantee | Capped amount, burn-off after on-time payment history |
| Uncapped expense pass-throughs | Annual cap on increases (e.g., 5% max) |
| Unlimited relocation clause | Notice period, comparable space, cost compensation |
| No co-tenancy protection | Rent reduction or exit right if anchor tenant leaves |
4. Overly Restrictive Use Clauses
A use clause defines exactly what your space can be used for, and an overly narrow one can box you in if your business model shifts even slightly over the lease term — adding a new product line, a different service offering. Negotiate for language broad enough to cover reasonably foreseeable changes in how you operate, not just your exact current business description.
5. Vague Default and Cure Provisions
Understand exactly what constitutes a default under the lease and how much time you'd have to cure it before facing real consequences like eviction or acceleration of remaining rent owed. A lease with vague or unreasonably short cure periods gives you very little room to fix an honest mistake — a late payment during a genuinely rough month shouldn't immediately spiral into losing your space.
6. No Co-Tenancy Clause When You Need One
If your business genuinely depends on foot traffic from a specific anchor tenant — a coffee shop next to a big box store, for instance — and your lease has no co-tenancy protection, you have no contractual recourse if that anchor leaves and your foot traffic drops sharply as a result. This is a specific, negotiable ask, not something that shows up automatically in a standard lease template.
None of these clauses are automatically deal-breakers on their own — plenty of reasonable leases include a personal guarantee or a use restriction. The point is knowing they're there and negotiating the specific limits before you sign, not discovering the actual scope of what you agreed to after something's already gone wrong.
Assignment and Subletting Restrictions Deserve a Close Read Too
Many commercial leases restrict a tenant's ability to assign the lease or sublet the space, sometimes requiring landlord consent that can be withheld at their sole discretion. This matters more than it might seem at signing, since businesses change — you may want to sell your business (which often includes transferring the lease), downsize into less space, or exit the location entirely before the lease term ends. An overly restrictive assignment clause, with no standard of reasonableness attached to when consent can be withheld, can trap you in a lease with very limited exit options if your business circumstances change. If that side of it applies to you, red flags before signing a lease covers it in more detail.
Exclusivity and Non-Compete Provisions
Depending on your business type, ask whether the lease includes any exclusivity provision protecting you from a directly competing business leasing space in the same building or shopping center — this is common and valuable in retail settings specifically. Conversely, check whether the lease restricts what you yourself can do in the space in ways that might limit a future pivot in your business model; a use clause that's too narrow cuts both ways depending on which side of an exclusivity or restriction provision you're looking at. It's a related question to retail vs. office vs. industrial investment, which digs into that side specifically.
Getting a Second Set of Eyes Before You Sign
Even a seemingly straightforward commercial lease benefits from a real estate attorney's review before signing, particularly for a first-time commercial tenant unfamiliar with how these clauses typically play out in practice. The review fee is a small cost relative to the total value of the lease commitment you're about to make, and an attorney experienced in commercial leasing will often catch language a business owner reading the document for the first time simply wouldn't recognize as unusual or unfavorable.
Force Majeure and Unexpected Disruption Clauses
Check how the lease handles genuinely unexpected disruptions to your ability to operate — extended utility outages, government-mandated closures, or other events outside either party's control. A lease that's silent on this, or that places all the risk of such disruptions entirely on the tenant with no rent abatement provision whatsoever, can leave you paying full rent for a space you're legally or practically unable to use during a genuine crisis. This became a widely discussed lease issue during recent years for obvious reasons, and it's now a much more commonly negotiated term than it once was.
Signage and Branding Rights
For a retail or customer-facing business specifically, don't overlook the lease's language on exterior signage rights — what size, placement, and type of signage you're permitted, and whether that's guaranteed for the lease term or subject to landlord approval that could be withdrawn later. Visibility and branding matter enormously to many businesses' customer traffic, and a lease that leaves this entirely to landlord discretion can create a real operational problem if that discretion is exercised unfavorably down the line.
Reading a commercial lease thoroughly before signing takes real time, but it's time well spent relative to the years you'll spend living with whatever terms you agreed to. Slow down, ask questions about anything unclear, and don't let the pressure to secure a space override the diligence this kind of commitment deserves.
