What to Read Twice in a Commercial Lease

Commercial leases run 30 to 100 pages and contain provisions that look boilerplate but actually control significant rights and obligations over the lease term. Some sections deserve careful second reading because their meaning is not obvious on first pass and their consequences can be expensive. For Rochester tenants and landlords, the sections below are the ones where slow reading pays back the time.

The rent provisions and escalation clauses. First reading covers the base rent and start date. Second reading covers what happens if rent adjusts to CPI, what caps and floors apply to the adjustment, what index gets used, and what the mechanics look like if the index becomes unavailable. Second reading also verifies that any free rent or reduced rent periods are clearly documented with specific dates. A 3 percent annual escalation over a 10 year lease raises a $18 per foot starting rate to $24.18 by year 10, which is 34 percent higher than the starting figure.

The CAM and NNN provisions. First reading covers the pass through structure. Second reading covers exactly what expenses flow through to the tenant, what expenses stay with the landlord, whether capital expenditures pass through and if so how they get amortized, whether any caps limit CAM growth, whether audit rights exist and how they work, and how the annual reconciliation process handles overpayments and underpayments. Tenants often skip this section as boilerplate and then get surprised by pass throughs. Michigan winters make the snow removal line item worth verifying carefully.

The maintenance and repair allocations. First reading tells the tenant that maintenance is generally the tenant’s job. Second reading tells the tenant exactly which items are the tenant’s responsibility, which are the landlord’s, and where the line sits on ambiguous items. Roof, HVAC, plumbing, electrical, windows, doors, parking lot, landscaping, and structural walls all need clear allocation. Michigan freeze thaw cycles make parking lot resurfacing a real dollar item that leases need to allocate clearly, potentially $50,000 to $150,000 depending on lot size.

The default and cure provisions. First reading covers the obvious defaults like nonpayment of rent. Second reading covers less obvious defaults, cure periods for different types of default, what the landlord can do upon default, whether acceleration of remaining rent applies, what notice requirements protect the tenant, and how disputes get resolved. Michigan is an attorney close state, and dispute resolution provisions get more attention from counsel on both sides than in title company only states.

The assignment and subletting provisions. First reading covers whether assignment and subletting are allowed. Second reading covers what triggers landlord consent, whether landlord consent can be unreasonably withheld, what the landlord can charge for consent, whether recapture rights let the landlord take back the space if the tenant wants to sublease, and whether the original tenant remains liable after assignment. Businesses grow, contract, or reorganize during long lease terms, and flexibility on assignment matters.

The renewal and option provisions. First reading covers whether renewal options exist. Second reading covers the notice requirements, the rent adjustment mechanism at renewal, whether options survive assignment, and what happens if the tenant misses the renewal notice deadline. Missing a renewal notice by even a few days can eliminate the option entirely, leaving the tenant negotiating from weakness at holdover.

The insurance and indemnification provisions. First reading covers required coverage limits. Second reading covers specific policy requirements, additional insured status, waiver of subrogation, indemnification allocation between landlord and tenant, and how insurance interacts with the casualty and condemnation provisions. Insurance provisions in commercial leases can be highly technical and warrant review by an insurance broker familiar with commercial leases.

The casualty and condemnation provisions. First reading covers what happens if the building burns down. Second reading covers what happens if partial damage occurs, what rent abatement rights apply during repair, who controls the repair decisions, what triggers termination rights, and how insurance proceeds get allocated. Condemnation provisions cover what happens if the government takes part or all of the property through eminent domain.

The estoppel and subordination requirements. First reading covers whether the tenant must sign estoppels and subordination agreements. Second reading covers the specific timing requirements, protective language for the tenant, and what happens if the tenant refuses to sign reasonable requests. These provisions matter when the landlord sells or refinances.

TDG Commercial, known as best commercial real estate agents in Rochester, walks tenants and landlords through commercial leases carefully before signature across the region.