Before signing a 5-year commercial lease, confirm the total cost over the term (base rent, escalations and expense pass-throughs), your rights to renew, expand, sublease or exit early, who pays for repairs and build-out, what personal guaranties you are giving, and what you must restore when you leave. A 5-year lease is a commitment of hundreds of thousands of dollars for many businesses, so have an attorney review it and negotiate the key terms in a letter of intent first.
Five years is a common term because it gives landlords stable income and lets tenants amortize build-out costs. It is also long enough that a business can outgrow the space, change direction or face a landlord sale. The sections below cover what to review.
What should I look for before signing a commercial lease?
Use this checklist as a starting point. Each item is explained below.
- Total occupancy cost over five years
- Rent escalations and how they apply
- CAM, tax and insurance pass-throughs
- Permitted use, exclusives and zoning
- Tenant improvement allowance and who controls construction
- Renewal, expansion and termination options
- Assignment and subletting rights
- Security deposit and personal guaranty
- Repair, maintenance and capital replacement duties
- Default, holdover and restoration provisions
- Landlord's obligations, delivery condition and dates
Calculate the true five-year cost
Do not judge a lease by the first-year rent. Add up base rent for each year with the escalations, your share of operating costs, utilities, parking, build-out costs above the allowance and moving costs, then subtract free rent and allowances. For example, a hypothetical $25 per square foot rent with 3 percent annual increases on 4,000 square feet costs $100,000 in year one and a little more than $530,000 in base rent over five years, before any expenses. Free rent or a larger allowance can change that comparison significantly. Our guide on negotiating a lower commercial rental rate shows how to compare offers on a net effective basis.
Understand the lease type and expenses
A gross, modified gross or triple net lease determines which costs you pay beyond rent. Under a net lease, ask for the landlord's recent expense history and read how CAM charges are calculated. Request caps on controllable expenses, exclusions for the landlord's own costs and audit rights. More detail is in what expenses to negotiate in a commercial lease.
Check the options that protect your flexibility
The right to adapt is often worth more than a small rent reduction. Consider each of these:
| Provision | What it does | What to look for |
|---|---|---|
| Renewal option | Lets you extend beyond year five | Notice deadline, number of terms, how renewal rent is set (fixed, capped or fair market value) |
| Expansion right | Gives you a path to more space | Right of first offer or refusal on adjacent suites |
| Early termination | Lets you leave before the term ends | Timing, notice, fee, and repayment of unamortized concessions |
| Assignment and sublease | Lets you transfer or sublet if plans change | Whether the landlord's consent can be unreasonably withheld, and any profit sharing |
| Contraction right | Lets you give back part of the space | Notice, fee and which portion |
Miss a renewal notice date and you can lose the option entirely, so calendar every deadline in the lease on the day it is signed.
Permitted use, exclusives and zoning
The lease should describe your use broadly enough to cover how the business may change. Confirm that local zoning and the building's rules allow it, including signage, hours, parking needs and any restrictions in a shopping center. In retail, ask for an exclusive use clause if a competitor next door would damage your business, and check what existing exclusives held by other tenants might limit you. Zoning and permitted uses in Fairfax, Loudoun and Prince William counties and in towns such as Manassas differ, so verify with the jurisdiction or your attorney before committing to a build-out.
Tenant improvements and delivery condition
If you are building out the space, determine who does the work, who pays, what the allowance covers and how it is paid. Confirm the date the space will be delivered, what condition it will be in, and what happens to your rent start date if the landlord is late or permits are delayed. Ask whether the landlord must deliver working building systems, and for how long a warranty runs. Our post on negotiating tenant improvement allowances covers the details. Also check how restoration works: some leases require you to remove improvements and cabling at lease end, at your cost.
Security deposit and personal guaranty
Landlords often require a deposit and, for small or newer companies, a personal guaranty from the owner. Read the guaranty carefully. It may be unlimited, cover the full term or burn off over time. Reasonable asks include limiting the guaranty to a number of months of rent, reducing it after a period of on-time payments, or replacing it with a larger deposit or letter of credit. Because a guaranty can put personal assets at risk, review it with your attorney.
Repairs, maintenance and building systems
Find out who is responsible for the roof, structure, HVAC, plumbing, parking lot and other building systems, and whether capital replacements can be passed through. A five-year term should not leave you paying for a full system replacement whose useful life extends well beyond your lease. This matters especially in older industrial and retail buildings, which are common in parts of Northern Virginia along I-95 and Route 1.
Default, holdover and landlord changes
Look for the events that count as default, how much notice and cure time you get, and what remedies the landlord has. Check the holdover rent if you stay after expiration. Ask what happens if the building is sold or foreclosed: a non-disturbance agreement from the lender helps protect your lease. Also review the landlord's duties, including repairs, services, access and what happens if they fail to perform.
Start with a letter of intent
Business terms are easier to negotiate before the lease draft arrives. A letter of intent captures rent, term, escalations, allowances, options and deposits, so the attorney's review focuses on legal language. See how a commercial real estate letter of intent works, and read how to negotiate a better commercial lease. For timing, how long it takes to find and lease commercial space explains why starting early leaves you more options.
Should I sign for five years or a different term?
It depends on your growth plans, the cost of moving and the build-out. A shorter term gives flexibility but may mean a higher rent and a smaller allowance. A longer term can unlock concessions but increases risk if your needs change. If you are also weighing ownership, see whether to buy or lease commercial property. Consult your attorney and CPA on legal and accounting implications.
Next step
If you have a lease proposal in hand and want a second set of eyes on the business terms, call 703-505-3501 or use our contact page. Our tenant representation team can also help you compare options, and you can browse current properties for lease.
Frequently asked questions
Can I break a 5-year commercial lease early?
Only if the lease allows it or the landlord agrees. Without a termination option, you generally remain liable for the rent through the term, subject to the landlord's duty to mitigate under applicable law. Ask an attorney about your specific lease.
Are commercial lease terms negotiable?
Yes. Rent, free rent, allowances, escalations, expense caps, options and many legal provisions can be negotiated. The landlord's form is a starting point, not a final document.
What is a personal guaranty in a commercial lease?
It is a promise by an individual to pay the tenant's obligations if the business fails to. Review its scope and duration, and negotiate limits where possible.
What is a renewal option?
A right, usually at the tenant's choice, to extend the lease for another term on stated conditions. Pay close attention to the notice deadline and how renewal rent is determined.
Can I sublease my space if I outgrow it?
Only to the extent the lease allows it. Most leases require landlord consent, so negotiate that consent cannot be unreasonably withheld and that you can transfer to affiliates or in a business sale.
Should I review the lease with a lawyer and a broker?
Yes. A real estate attorney reviews legal terms and risks, while a tenant representative handles market comparisons and negotiation of business terms. Read whether a broker can negotiate a lease on your behalf.
