Negotiate the
Best Lease For
Your Business
by Attorneys Janet Portman and Fred S. Steingold
2nd edition
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Acknowledgments
We couldn’t have written this book without the assistance and support of many
people.
We’d like to thank Jake Warner, Nolo’s founder and executive publisher, for his
conviction that we could write this book—and patience while we did it. To the extent
that readers find the text clear and to the point, credit goes to our meticulous editor,
Marcia Stewart, who can spot a mushy sentence a mile away and fix it in a trice.
Others at Nolo who helped include:
Stan Jacobsen, who provided valuable research assistance
Tamara Traeder, who offered useful editorial advice
Terri Hearsh, who designed the book and threw in a little editing, gratis, and
Mike Mansel, of Argo Insurance Group in Pleasanton, California, who is technically
not a Noloid but whose generous help on insurance issues over the years makes him
part of the family.
Thanks go also to the Practicing Law Institute, whose programs and materials on
commercial leasing were invaluable.

Table of Contents

3
Evaluating the Space and the Landlord
A. Visiting and Evaluating Prospective Space 3/3
B. Further Investigation of Promising Space 3/8
C. Environmental Issues to Consider When Evaluating Space 3/12
D. Learning About the Landlord 3/18
E. Management Companies 3/24
F. Holding the Space With a Deposit 3/24
4
Understanding the True Size and Cost of the Rental
A. How Landlords Measure Square Feet 4/3
B. Additional Rent: Gross Versus Net Leases 4/10
C. Percentage Rent—Sharing Income With the Landlord 4/13
D. Computing the True Rental Cost 4/15
5
Setting the Stage to Negotiate
A. How Much Clout Do You Have? 5/4
B. Your Landlord’s Compliance With the Executive Order on Terrorism 5/12
C. Getting Past Deal Breakers 5/14
D. Letter of Intent 5/18
E. Finding and Paying for a Lawyer 5/27
6
Your Negotiation Strategy
A. Your Negotiation Strategy Worksheet 6/4
B. How to Use Your Negotiation Strategy Worksheet 6/12
C. How Your Lawyer Can Help With Negotiations 6/20
D. How to Modify the Landlord’s Lease 6/25
Part II:
Common Lease Terms
7

D. Paying for the Improvements 11/11
E. The Tenant Improvement Allowance (TIA) 11/14
F. The Building Standard Allowance, or “Build-Out” 11/16
G. Paying a Fixed Amount for Improvements 11/17
H. The Landlord Pays for All Improvements 11/17
I. When Do You Start Paying Rent? 11/18
J. Making Alterations During Your Tenancy 11/22
12
Maintenance, Utilities, and Code Compliance
A. Maintenance, Repairs, and Janitorial Services 12/2
B. Utilities 12/6
C. Compliance With Building Codes and Other Laws 12/9
D. Compliance With the Americans With Disabilities Act (ADA) 12/13
13
Parking, Signs, Landlord’s Entry, and Security
A. Parking 13/2
B. Hours of Operation 13/3
C. Signs 13/4
D. Landlord’s Right to Enter Your Rental Space 13/5
E. Building Security 13/7
14
Option to Renew or Sublet and Other Flexibility Clause
A. Restrictions on Your Flexibility 14/3
B. Option to Renew the Lease 14/5
C. Option to Expand Clause 14/8
D. Rights of First Refusal and First Offer 14/11
E. Option to Lease Less 14/13
F. The Assignment and Sublet Clause 14/16
G. Termination Clause 14/28
H. Option to Purchase 14/33

Your Commercial Lease
A. How Leases Are Made and What They Look Like I/2
1. There Are No “Standard” Leases I/2
2. How Leases Are Organized I/3
B. How This Book Can Help You Negotiate a Favorable Lease I/3
I/2 NEGOTIATE THE BEST LEASE FOR YOUR BUSINESS
Y
our business has been a success
and you are ready to move into a
better place. You have decided to
streamline your operations and rent a more
efficient space. Your home business is
bursting out of the garage and definitely
needs its own location. Negotiate the Best
Lease for Your Business is a useful guide
that can help both the person considering a
commercial lease for the first time, as well
as the person who has been down this path
before and would like to negotiate a more
favorable lease for his or her business. It’s
helpful for all types of businesses—from re-
tail stores in strip malls to one-person con-
sulting firms downtown to small
manufacturing firms.
A. How Leases Are Made and
What They Look Like
The lease that you and your landlord sign
defines your legal relationship. It’s a con-
tract in which:
• you agree to pay rent and abide by

starts with a form that’s widely used in your
community, printed and distributed by a
big real estate management firm, or ac-
cepted by other tenants who lease from this
landlord, it can always be modified. The
only constraints on your landlord’s ability
to negotiate come from preexisting prom-
ises to other tenants in the building, and
obligations to lenders or insurers.
Commercial leases can and should reflect
the give-and-take between the landlord and
tenant—one size simply doesn’t fit all. No
matter how official-looking the document
that comes out of the landlord’s or broker’s
briefcase, keep in mind that it’s negotiable.
WHAT KIND OF SPACE DO YOU NEED? I/3
Just how negotiable depends on decidedly
nonlegal issues such as how tight the mar-
ket is for your desired space, how badly
the landlord wants to rent the space to you,
and how badly you want it. Within the
range of negotiability, however, your
knowledge of what you want out of your
lease space, and your understanding of the
meaning and interrelatedness of lease
clauses will determine the success of the
lease negotiation.
2. How Leases Are Organized
Leases are usually organized by numbered
paragraphs or clauses. Often, the Arabic or

thinking about loading docks and access to
highways. Part I will help you develop not
only your list of “must have” characteristics
for your particular commercial space, but
also a negotiating strategy to achieve them
at the best terms possible. While this book
may not be appropriate for someone devel-
oping a highly complex chemical facility, it
will help most business owners and manag-
ers think about the general needs of their
businesses, and the specific space charac-
teristics that will serve those needs.
If you already know exactly want you
want in your space and in your lease, go
directly to Part II, Common Lease Terms
(Chapters 7 through 17). “Common Major
Lease Clauses,” shown at the end of this
I/4 NEGOTIATE THE BEST LEASE FOR YOUR BUSINESS
introduction, will give you a quick
roadmap to the dozens of specific clauses
covered in the second part of the book.
Chapters 7 through 17 address specific
lease provisions, their legal meaning, how
they will affect your business, and how to
change a particular clause to get what you
want out of your lease. The types of lease
terms covered in these chapters include
rent, security deposits, improvements and
alterations, maintenance, parking, renewal
options, and other provisions common to

Clause name What it’s about Where it’s discussed
Parties or
Lessor and Lessee or
Landlord and Tenant The names of the landlord and tenant Ch. 7, Sec. B
Premises A description of the space you’re renting Ch. 7
Rent Explains how the rent is calculated Chs. 4 & 9
Term When the lease begins and how long it
will run Ch. 8
Deposit The security deposit demanded by the landlord Ch. 10
Hold Over What happens if you don’t move out as
planned at the end of your lease Ch. 8, Sec. D
Use Restrictions and requirements on how you
use your rented space Ch. 7, Sec. D
Utilities Explains how utilities are metered and
how costs are apportioned Ch. 12, Sec. B
Taxes Describes which taxes you will have to
pay for, and how much Ch. 9, Sec. B
Insurance & Covers which insurance policies you must
Indemnity take out or pay for Ch. 9, Sec. C; Ch. 15
Security Covers the building security and who
pays for it Ch. 13, Sec. E
Parking Describes available parking and how it’s
paid for Ch. 13, Sec. A
Maintenance Covers the common area maintenance
(CAM) costs you have to pay for Ch. 12
Alterations & Explains which alterations you may
Repairs make and whether you need permission;
delegates repair duties Ch. 11
I/6 NEGOTIATE THE BEST LEASE FOR YOUR BUSINESS
■

Part I:
Finding and Evaluating Space and
Developing a Negotiation Strategy

Chapter 1
What Kind of Space Do You Need?
A. Do You Need to Move Now? 1/4
1. Working From Home 1/4
2. Staying in Your Current Rental 1/6
3. Buying Instead of Renting 1/7
B. Setting Your Priorities 1/9
C. Rent, Deposits, and Improvements 1/10
1. Rent 1/10
2. Deposits 1/10
3. Other Improvements and Expenses 1/11
D. Location 1/11
1. Neighborhood and Neighbors 1/11
2. Commuting Time 1/13
3. Access to Public Transportation 1/13
4. Expressways, Freeways, and Throughways 1/13
E. Length of the Lease and When It Begins 1/13
1. Length of the Lease 1/14
2. Move-In Date 1/16
F. Size and Physical Features 1/16
1. Size of Space 1/16
2. Interior Needs 1/17
3. Soundproofing 1/18
1/2 NEGOTIATE THE BEST LEASE FOR YOUR BUSINESS
4. Operating Windows 1/18
5. Control of Heating and Cooling 1/19

• You’re interested in expansion or pur-
chase rights in your lease.
• You’d like guidance on how to sys-
tematically arrive at your rental priori-
ties, which can form the basis for your
lease negotiation strategy.
You can skip this chapter
if you’re an old hand at
commercial leasing and understand
space measurement, or you’ve al-
ready picked out your rental and
need information on negotiating the
lease.
Y
our business needs should shape
your search for commercial space.
Rent will be an obvious consider-
ation, as will the building’s location, and
the size of the space. But for most small
businesses, finding the right space involves
considering more than price, location, and
size. Parking, the ease of making improve-
ments, the types of nearby complementary
and competing businesses, and numerous
other factors, such as the building’s image
and potential for expansion, may affect
your choice of a rental space.
Depending on your requirements, the
number of rentals that will satisfy them will,
naturally, shrink.