Commercial Lease Due Diligence: The 15-Point Checklist Attorneys Actually Use

Why Systematic Review Matters

Commercial leases are dense documents that can run 60 pages or more before exhibits and addenda. The difference between a thorough review and a cursory one often comes down to having a system. Experienced commercial real estate attorneys do not read these documents cover to cover hoping to catch everything. They work from a checklist and they follow it every time.

This is the 15-point checklist distilled from conversations with practicing commercial real estate attorneys across the country. It is ordered by the sequence in which issues typically appear in a lease, not by importance. Every item on this list has been the subject of litigation.

1. Premises Description and Measurement

Verify that the premises are described with specificity. A suite number alone is insufficient. The lease should reference an attached floor plan and specify the measurement standard used to calculate rentable square footage. BOMA standards are common, but the specific version matters. A difference in measurement methodology can result in a 10 to 15 percent variance in rentable area, which directly affects rent calculations for the entire lease term.

2. Lease Term and Commencement

Confirm the commencement date is tied to a specific event, not just a calendar date. If the landlord is performing build-out work, the commencement date should be conditioned on substantial completion. Review the definition of substantial completion carefully. Check whether the tenant receives any rent abatement if delivery is delayed and whether there is a termination right if the delay exceeds a specified period.

3. Base Rent and Escalation

Review the rent schedule for the full term, including any renewal periods. Verify that escalation provisions are clearly calculated. Fixed increases are straightforward. CPI-based escalations require careful attention to the index used, the base year, and any cap or floor provisions. Percentage rent clauses in retail leases require analysis of the breakpoint calculation and what categories of revenue are included in gross sales.

4. Operating Expense Pass-Throughs

This is among the most frequently disputed provisions in commercial leasing. Review the definition of operating expenses with extreme care. Look for broad catch-all language that could include capital expenditures, management fees above market rate, or costs attributable to other tenants. Confirm there is a base year or expense stop mechanism. Verify whether the tenant has the right to audit the landlord's operating expense calculations and within what time frame.

Common traps include operating expense definitions that allow the landlord to pass through the cost of structural repairs, roof replacement, or HVAC system upgrades that should properly be treated as capital expenditures amortized over their useful life rather than current-year expenses.

5. Common Area Maintenance

For multi-tenant properties, review how CAM charges are calculated and allocated among tenants. Verify the tenant's proportionate share calculation. Check whether the landlord is required to maintain the common areas to a specified standard. Confirm whether CAM charges are subject to a cap and whether the cap applies to controllable expenses only or to all CAM items including insurance and taxes.

6. Permitted Use and Exclusivity

Review the permitted use clause to ensure it is broad enough to accommodate the tenant's business operations, including any reasonably foreseeable expansion or pivot. For retail tenants, check whether the lease grants an exclusivity provision preventing the landlord from leasing to a competing business within the same property or development. Verify the remedies available if the landlord violates an exclusivity provision, as a mere right to terminate is often inadequate compared to rent abatement or injunctive relief.

7. Assignment and Subletting

Determine whether the tenant can assign the lease or sublet the premises and under what conditions. Most commercial leases require landlord consent, but the standard varies enormously. "Sole discretion" gives the landlord an effective veto. "Consent not to be unreasonably withheld" provides the tenant more flexibility but invites disputes about reasonableness. Review whether the landlord has a recapture right that allows it to terminate the lease rather than consent to an assignment. Check whether the tenant retains any excess rent from a sublease or whether the landlord claims a share.

8. Maintenance and Repair Obligations

Clarify the allocation of maintenance and repair responsibilities between landlord and tenant. In a triple-net lease, the tenant bears most or all maintenance costs. In a gross lease, the landlord retains more responsibility. Regardless of the lease type, ensure the allocation is explicit. Ambiguity in maintenance obligations is a reliable source of disputes, particularly regarding HVAC systems, plumbing, and roof maintenance. Verify whether the tenant's maintenance obligations include structural elements and, if so, whether that is reflected in the economic terms.

9. Insurance Requirements

Review the insurance provisions for both landlord and tenant. Confirm the tenant's required coverage types and minimum limits are commercially reasonable for the use. Check whether the landlord requires the tenant to carry business interruption insurance. Verify that the lease includes mutual waiver of subrogation provisions to prevent the landlord's insurer from pursuing claims against the tenant and vice versa. Confirm that the tenant is named as an additional insured on the landlord's property policy where appropriate.

10. Casualty and Condemnation

Review what happens if the premises are damaged by fire, flood, or other casualty. The key questions are whether the landlord is obligated to rebuild, within what timeframe, and whether the tenant receives rent abatement during the restoration period. Verify whether the tenant has a termination right if the damage exceeds a specified percentage of the premises or if restoration cannot be completed within a specified period. For condemnation, check how the condemnation award is allocated and whether the tenant retains the right to make a separate claim for its leasehold interest and relocation costs.

11. Default and Cure Provisions

Review the events that constitute a default by the tenant. Monetary defaults should include a notice and cure period, typically five to ten business days. Non-monetary defaults typically allow a longer cure period of 30 days, with additional time if the default cannot reasonably be cured within that period. Check whether the landlord's remedies upon default are proportionate. Acceleration of the entire remaining rent obligation is aggressive and may not be enforceable in all jurisdictions. Verify whether the tenant has corresponding default rights if the landlord fails to perform its obligations.

12. Personal Guarantee

If the landlord requires a personal guarantee from a principal of the tenant entity, review the scope and duration carefully. A full-term, unlimited guarantee is the most onerous form. Negotiate for a declining guarantee that burns off over time as the tenant establishes a payment history. Verify whether the guarantee survives assignment of the lease and whether the guarantor is released upon a qualifying assignment. Check whether the guarantee is limited to specific obligations such as rent payment or extends to all tenant obligations including indemnification.

13. Renewal and Expansion Options

If the tenant has negotiated renewal or expansion options, verify that the exercise procedures are clearly defined. A missed notice deadline can extinguish a valuable renewal right. Confirm how the renewal rent is determined. "Fair market value" invitations to negotiate can result in contentious disputes. A specified formula, such as the greater of current rent or 95 percent of fair market value, provides more certainty. For expansion options, verify the tenant's right of first offer or first refusal applies to specifically identified space.

14. Holdover Provisions

Review what happens if the tenant remains in possession after the lease expires. Most commercial leases impose a holdover penalty, typically 150 percent of the last month's rent, and convert the tenancy to month-to-month. Verify whether the holdover rate is commercially reasonable. Some leases impose 200 percent or higher holdover rates, which courts in certain jurisdictions may view as unenforceable penalties. Check whether the holdover provision creates a new periodic tenancy or treats the tenant as a tenant at sufferance.

15. Estoppel and Subordination

Review provisions requiring the tenant to deliver estoppel certificates confirming the lease terms and the absence of defaults. These certificates are typically required in connection with the landlord's financing or sale of the property. Verify the response time is reasonable, typically 10 to 15 business days. For subordination provisions, check whether the lease is automatically subordinate to future mortgages or whether subordination is conditioned on the lender delivering a non-disturbance agreement protecting the tenant's leasehold interest in the event of foreclosure. A subordination, non-disturbance, and attornment agreement should be required as a condition of any subordination.

Building Your Review Practice

This checklist is a starting point, not an exhaustive analysis. Every commercial lease has unique provisions that reflect the specific property, market, and transaction. The value of a systematic approach is that it ensures you address the issues that generate the most disputes and the most significant financial exposure before you spend time on the provisions that are less likely to create problems.

The attorneys who review commercial leases efficiently are not faster readers. They are more disciplined about where they invest their attention first.