What Should You Check Before Signing a Commercial Lease?

Before you sign a commercial lease, check three things, in this order: that your specific business use is legally allowed at that exact address, that you understand what the lease term and cost structure actually obligate you to, and that the rent is supportable by the revenue the location can realistically produce. The first one is the item city agencies themselves warn tenants about — Seattle’s own food business guidance says plainly, “Don’t sign a lease before knowing if your preferred location is suitable for your type of operation,” and Los Angeles tells prospective tenants to find out whether zoning restrictions affect their business “before you sign a lease.”

A warning about scope, up front. Commercial leasing and land use are governed at the state and municipal level, so there is very little here that is a national rule, and this page does not pretend otherwise. Where a point comes from one city’s published guidance, it says which city. Use it as a list of questions to take to your own municipality and your own attorney, not as an answer about your jurisdiction.

How do I confirm my business is actually allowed at that address?

You ask the city, before you sign anything. The U.S. Small Business Administration puts the obligation on the tenant: “If you buy, rent, build, or plan to work out of a physical property for your business, make sure it conforms to local zoning requirements,” and it notes that “zoning ordinances can restrict or entirely ban specific kinds of businesses from operating in an area.”

The trap is assuming that a similar business having operated there means your use is approved. Seattle’s food business handbook states it directly: “If there’s a restaurant currently in the location you’re looking at, don’t assume it gives you automatic use approval — the use or zoning is subject to change.” The same page tells you where the real answer lives: “You can find a property’s established use on its Certificate of Occupancy or in its permitting history.”

If the answer comes back no, the fix is a permit, and permits cost time and money you have to budget before signing rather than after. Los Angeles warns that getting an exception or waiver through its Department of City Planning “is often a costly and time-consuming process.” Seattle publishes an actual figure for one specific path in one specific city: a Master Use Permit for an Administrative Conditional Use “can take 5-7 months and cost $3,750-$5,000, with additional hourly fees charged if the project is controversial or appealed.” Treat that as an illustration of the order of magnitude in one city, not a national price. Your city will have its own process, its own timeline, and its own fee schedule, and the only way to know them is to ask it.

Ask early rather than late. Seattle’s guidance is to talk with staff at its Department of Construction and Inspections “as early as possible” to confirm how your use will be classified — before the search for a location, not after a lease is on the table. Whether your own city runs a comparable pre-lease review, and what it costs, is a question for your city; we are not going to claim a service on your behalf that we have not confirmed exists there.

What is a certificate of occupancy, and why does it matter to a tenant?

It is the document that states what a building is legally allowed to be used for, and it can make your intended use illegal in a space you have already agreed to pay for. The New York City Department of Buildings defines it as follows: “A Certificate of Occupancy (CO) states a legal use and/or type of permitted occupancy of a building.” The same page adds two consequences: “Existing buildings must have a current or amended CO when there is a change in use, egress or type of occupancy,” and “no one may legally occupy a building until the Department has issued a CO or Temporary Certificate of Occupancy.”

New York City’s Department of Small Business Services spells out what that means for a tenant in its commercial leasing guide, with an example worth reading twice: “How you use the space must comply with the legal uses allowed by the building’s CO. For example, if you rent a space for a yoga studio and the CO says the space can only be used as an office, your use is not permitted. For your use to be legal, you will need to change the CO. Some landlords may not allow you to change the CO, and making changes can be expensive.”

A change of use can also trigger construction obligations that have nothing to do with your build-out plans. Seattle’s Department of Construction and Inspections describes evaluating “any proposed change of use and the scope of improvements to determine what is required for code compliance,” and notes that “often, accessibility improvements are required based on the scale and construction value of the project. In some cases, life-safety, structural, and/or energy upgrades may also be necessary.” Those costs land on whoever the lease says they land on, which is a reason to have read the lease before you find out.

What lease terms carry the most risk for a first-time tenant?

Start from the fact that the lease is nearly the whole of your protection. New York City’s Small Business Services guide contrasts commercial with residential leasing bluntly: for a commercial tenant, “a tenant’s rights are almost all governed by the lease,” and it gives an example — “unless it is required by the lease, the landlord is not required to make repairs or provide heat.” It also notes that “the landlord is not obligated by law to renew the lease.” Whether every part of that holds in your state is a question for a local attorney, but the general posture — read it, because nothing outside it is protecting you — travels.

Term length is a two-sided bet, and there is a standard way to split it. SCORE frames the tension exactly as it plays out: “Landlords like long lease terms. Tenants prefer shorter leases if things don’t work out and they need to exit.” Its suggested structure is a shorter initial term plus options: “If the landlord wants a five-year term, for example, maybe you take an initial two-year term with a three-year option for renewal.” The important follow-on is easy to skip — “Be sure to negotiate the rent for all options at the outset and include that in the lease. Don’t leave the rent for the options ‘To Be Determined.’” A renewal option with an unset rent is not really an option.

• Escalations. New York City’s guide defines them as increases above the base year that “can include a fixed amount each year, a percentage increase each year, or an increase based on the landlord’s actual increase in expenses such as real estate taxes.” Which of those three you have is the difference between a rent you can forecast and one you cannot.
• Renewal options. The same guide’s advice is to “protect yourself against a high increase by negotiating for an option to renew in your lease,” with the increase set either as a fixed amount or as fair market rent.
• Typical length. The New York City guide states that “the most common commercial lease term is 10 years with an option to renew for another 5 years.” That is a statement about New York City in a New York City guide, and we found no comparably sourced national figure — so treat it as a reference point, not as what your market does.

A long lease is not automatically the worse deal. The same guide’s own summary is that a short term “may be a good option for a new business or a business that is less certain whether they will be successful,” while a long term “may be a good option for an established business that has a history of success.” The mistake is not picking the wrong one; it is picking without noticing there was a choice.

What does a triple-net lease actually shift onto me?

Costs the landlord would otherwise absorb, charged to you on top of base rent. SCORE defines triple-net charges as “additional actual expense items shared among all tenants, such as CAM charges, building insurance, trash collection and property taxes,” typically apportioned “based on your pro-rata share of common area space, such as lobby, hallways, etc.” Gross rent is the mirror image, defined in the same glossary as “what the tenant pays if the landlord pays NNN charges.”

New York City’s guide describes the same thing under the name additional rent, and lists the forms it takes: a share of the increase in operating expenses, a share of the increase in real estate taxes, a fixed annual percentage increase of the base rent, or an increase pegged to some other measure. Its practical instruction is one sentence long and almost nobody follows it: “To plan for these expenses, ask the landlord or broker for an estimate of additional costs.”

This is why an advertised per-square-foot rate is not a monthly cost, and why comparing two spaces by their headline rate compares nothing. A second measurement gap runs alongside it: SCORE distinguishes rentable square feet, “total square feet used to calculate the rental rate,” which “includes both your business space and your pro-rata share of common area space,” from useable square feet, “total square feet within the walls of the space being leased.” You pay on the first number and operate in the second.

So before you can judge whether a rent is affordable, convert it into one monthly figure: base rent plus every charge the lease makes yours. Then check which of those two figures the benchmark you are comparing against was actually measured on — some published occupancy-cost bands count rent alone and others count rent plus taxes, insurance and common area charges. The guides below each state which basis they use, because measuring a base-rent-only number against an all-in benchmark makes a space look affordable when it is not.

Will I be personally on the hook if the business fails?

Very possibly, and this is the clause that turns a business risk into a personal one. SCORE describes the standard situation for a new business: “If you have a relatively new business, it probably has not established its credit yet. Therefore, even if you rent as a corporation, the landlord will want you to guarantee the lease. In effect, you will cosign the lease, making you personally responsible for all payments. If the business fails, you will be obligated personally to pay all monies due for the remainder of the lease term.”

Guaranties are not all the same size, and the difference is negotiable. New York City’s guide draws the line between a full guaranty, covering “all of obligations of the tenant,” and a partial one it calls a good guy guaranty — “a lease provision that holds the space’s guarantor personally responsible for its obligations only while the business operates there. Once the business vacates the space, the guarantor is no longer personally liable.” Whether that specific instrument is available and enforceable where you are is a question for a local attorney; the general point is that the scope of a guaranty is a term, not a fact.

Your exit rights are worth the same scrutiny. The New York City guide notes that “most landlords will only permit an assignment or sublet with its prior written consent,” and that you can “negotiate a provision in the lease that requires the landlord to be reasonable in giving its consent.” It also removes a common illusion: “Whether you assign the lease or sublet the space, you still have obligations and liabilities under the lease. If the new tenant fails to pay rent, you, the original tenant, will be responsible for the unpaid rent.” Handing the space to someone else is not the same as getting out.

Who should I consult before signing, and what does each one do?

New York City’s guide is unusually concrete about this, and it opens with the general instruction: “Consult an attorney and other professional advisors before you sign a commercial lease.” It lists the roles it considers a leasing team — broker or tenant representative, architect, engineer, contractor, and lawyer — and its advice on timing is to “consult with professionals from the start,” because “it means more costs at the beginning, but will save money in the future.”

• A real-estate attorney is the one reading the document you are bound by. The guide’s description: “The lawyer is your legal representative and is critical to protecting your rights. A lawyer reviews the lease to determine your responsibilities and liabilities under the lease.” On timing: “It is important to engage a lawyer early in the process, especially before you sign the lease. Even if your broker or tenant representative is negotiating the basic terms of the lease, a lawyer has additional expertise.” What an attorney does not do is tell you whether the location will sell anything. We could not find a government or professional-body source publishing a typical cost for commercial lease review, so this page does not quote one — ask for a fee estimate in your own market before you engage anyone.
• A commercial broker finds and shows you space and knows the market. The guide’s description is that brokers “can offer information about the space’s surrounding neighborhood, provide expertise on what parts of the lease the landlord may negotiate, and insight on how the landlord operates.” A tenant representative is a different arrangement with different incentives, covered in the next section.
• An accountant is the one who turns the lease into a number your business either can or cannot carry. Worth noting honestly: the New York City guide’s professional list does not include an accountant, so we are not citing it for a role it does not describe. The gap it leaves is the affordability question — whether the all-in occupancy cost is a sane share of the revenue you actually expect — which is what the vertical guides at the end of this page are for.

There is also free help, and most first-time tenants never use it. The SBA states that “SBA and our network of partners offer free or low-cost counseling and training in your area,” delivered through Small Business Development Centers, SCORE mentors, Women’s Business Centers and Veterans Business Outreach Centers. New York City goes further for its own tenants: its guide says its staff “can assess your lease needs and connect you to a pro bono lawyer for free legal consultation and lease review.” Whether your city offers the same is worth one phone call.

Why get an independent read if I already have a broker?

Because of how the people around the deal are paid, not because of who they are. This is an argument about structure, and it is worth making without any suggestion of bad faith: brokers and landlords are overwhelmingly ordinary professionals doing their jobs honestly. The point is that their jobs are defined by the deal closing.

New York City’s guide states the broker’s compensation plainly: “The broker is only paid if the tenant signs the lease. The landlord usually pays a commission to the broker that is a percentage of the annual rent or equal to a number of months’ rent.” SCORE draws the same line from the other direction: “The leasing agent has the listing of the property and represents the interest of the owner of the building.” Read those two sentences together and the incentive is not hidden or improper — it is disclosed, structural, and pointing one way: toward a signature, on a larger rent, for a longer term.

The published fix is to change the incentive rather than to distrust the person. The same New York City guide describes the alternative arrangement: “A tenant representative only represents your interests and not the landlord’s interests. You pay a flat fee whether or not you sign a lease.” That last clause is the whole design — an advisor whose fee does not depend on the outcome can tell you the space is wrong. The same logic is why an attorney’s lease review is useful: you pay for the reading, not for the deal.

Extend the test to everyone in the room. If you are buying an existing business rather than leasing raw space, the seller’s accountant prepared the seller’s figures, which is not the same as an independent verification of them. The question to ask of any opinion you are handed is not whether the person is honest. It is what happens to them financially if you walk away. Where the honest answer is “nothing,” the opinion is worth more.

How do I know if the rent is affordable for my type of business?

You measure the all-in occupancy cost against the revenue the location can plausibly produce, and the healthy ratio is different for every kind of business. A laundromat and a coffee shop signing the identical lease are not in the same position, because they do not convert square footage into revenue the same way. That comparison only works when both numbers are on the same basis — some published benchmarks count rent alone, others count rent plus taxes, insurance and common area charges, and mixing the two produces a confident wrong answer.

We publish one guide per vertical, each built on a named, openly readable source, and each stating which basis its band is measured on:

• Restaurants — the food-service pillar, built on the National Restaurant Association’s Restaurant Operations Data Abstract.
• Fast casual restaurants — where fast casual sits inside the limited-service data, and why no fast-casual-only median exists.
• Coffee shops — including an honest account of why no coffee-specific occupancy benchmark is publicly verifiable.
• Laundromats — the outlier, and the one where reading the basis wrong changes the answer most.

Whichever applies to you, the arithmetic runs the same way: take the all-in monthly cost, divide by the benchmark percentage, and you have the revenue the space requires. Then ask whether that address can produce it.

How do I know whether a specific address can produce that revenue?

Everything above is checkable from documents: the zoning map, the certificate of occupancy, the lease, the benchmark. The last question is not. Whether a particular corner will produce the revenue the lease requires depends on who walks and drives past it, how many people live and work within reach of it, how many competitors already serve them, and how easily a customer can stop.

That is what an OpenReady LocIQ report measures for one specific commercial address: the real-world conditions at the location, the revenue they can plausibly support, and whether the rent you have been quoted fits inside that. One report, one price, results in minutes. It does not replace an attorney or a call to your city’s planning department — it answers the one question neither of them can.