Commercial Lease Clauses a Trade Shop Should Read First
Why this matters
Most commercial lease forms are written for a tenant who sits at desks or sells from shelves. A trade shop stores compressed gas, refrigerant, chemicals and parts, parks trucks overnight, bolts racks to the floor, and may sell the business someday. Each of those activities runs into a clause that, on the landlord's standard form, either forbids it, makes the tenant pay for it, or makes the tenant undo it at move-out. The clauses are negotiable before signing and almost never after, and the owner who reads them first is the one who gets the changes.
This card is the checklist. Several clauses have their own deeper cards: the HVAC clause, CAM charges, and what happens at the restoration clause when it comes due. Whether to lease at all is covered in Lease vs Buy Your Shop Location Decision Tree.
The checklist, marked for one real draft
Here is a first-draft lease for a 6,800 square foot unit in a small multi-tenant industrial building, five-year term, as one shop owner marked it on the first read. FIX means the clause as drafted conflicts with how the shop operates. ASK means it might be workable but needs a specific answer or change.
LEASE REVIEW - draft 1, 6,800 sq ft unit, 5 years
CLAUSE DRAFT SAYS MARK
Use "general office and FIX
warehouse only"
Haz materials "none on premises" FIX
CAM pro rata, no cap, ASK
no audit right
HVAC tenant maintains, FIX
repairs and replaces
Signage per landlord criteria ASK
Parking/outdoor "nonexclusive; no FIX
overnight vehicles"
Restoration "remove all improvements, FIX
restore original"
Assignment consent in landlord's FIX
"sole discretion"
Guarantee personal, full term, ASK
unlimited
TALLY: FIX 6, ASK 3, OK 0
Nine clauses, nothing passes untouched, and that is normal for a form written for a different kind of tenant. What follows is what each one does to a shop and what to ask for.
Use clause
The use clause says what you may do in the space. "General office and warehouse only" sounds broad until you list what the shop does: dispatch, parts storage, overnight fleet parking, cylinder storage, maybe light fabrication or equipment repair, maybe a counter where customers pick up parts. Anything not covered is a default waiting to be noticed.
Ask for a use clause that names the activities: "a contractor's office, warehouse and service facility, including storage of tools, equipment, parts, materials and compressed gases, parking of service vehicles, and related lawful uses." Landlords commonly refuse to promise that your use is legal under zoning, which is why the lease should be contingent on your own written zoning determination. See related: What Zoning Has to Allow for a Contractor Shop.
Hazardous materials
Standard forms often prohibit any hazardous material on the premises, or allow only "ordinary office and janitorial supplies". A refrigerant recovery cylinder, an acetylene tank, a drum of pool chlorine, a case of pesticide concentrate or a can of PVC cement makes the shop in breach on its first day.
Ask for three things:
- A carve-out for materials customarily used in the tenant's business, in quantities and in a manner that comply with applicable law, with a schedule of the material types attached to the lease.
- A baseline. Contamination that was there before you moved in is not yours. Ask that the lease say so, and photograph floor drains, stains and any previous tenant's leftovers before you take possession.
- A balanced indemnity. You indemnify the landlord for releases you cause; the landlord indemnifies you for conditions that predate you or that other tenants cause.
The hazardous materials clause often survives the end of the lease, which means a cleanup demand can arrive after you have moved out. Read the survival language.
CAM charges
Common area maintenance is your share of the cost of running the property's shared parts, billed monthly on an estimate and reconciled once a year. The draft gives no cap on increases and no right to audit the landlord's figures. Ask for both, and check the denominator the landlord uses to compute your share. See related: CAM Charges and Your Pro-Rata Share.
HVAC maintenance and replacement
"Tenant maintains, repairs and replaces" puts a whole rooftop unit's replacement on a five-year tenant, even if the unit was already near the end of its life at signing. Ask that replacement of the equipment be the landlord's, or capped, and document the unit's age and condition before you sign. See related: Who Pays When the Rooftop Unit Dies Under a Lease.
Signage
Landlords control signage through sign criteria for the building, and the town controls it through a sign permit. Ask the lease to grant you a specific sign: on the building face, on the door, on any monument or pylon sign, with the size stated. "Per landlord criteria" leaves you with whatever is left. Beyond customers and suppliers, the fire department has to find the right door in a row of identical units, which is a reason to insist on at least a door sign with the unit number.
Parking and outdoor areas
This is where the standard form most often breaks a service shop. "Nonexclusive" parking means every tenant shares every stall, so the neighbor's employees can fill the spaces your vans need at 7 a.m. "No overnight vehicles" means your fleet cannot sleep there at all.
Ask for: a stated number of reserved stalls for your use, the right to park service vehicles overnight in them, and a defined outdoor area for a cylinder cage or storage, with the landlord's consent to any screening the zoning approval requires. If the building has a fire lane along the front, the lease will usually prohibit parking or loading in it, and the fire code does too. See related: Where a Work Truck Is Allowed to Park Overnight.
Restoration at end of term
"Remove all improvements and restore the premises to their original condition" covers every anchor bolt for pallet rack, the cylinder cage bolted to the slab, an epoxy floor, the electrical added for a battery charging area, a wash-bay drain, and the office walls you built. Removing them and patching the slab at move-out can be a real fraction of a year's rent, due at exactly the moment the shop is also paying for the new building.
Ask for: removal obligations limited to alterations the landlord designates in writing at the time it consents to them; ordinary wear and tear excluded; and racking anchors and holes patched to a stated standard rather than "original condition". See related: The Restoration Clause That Came Due at Move-Out.
Assignment and subletting
Assignment means transferring the lease to someone else. Many leases define a sale of the business, or a change in who controls the tenant company, as an assignment. If the landlord's consent is in its "sole discretion", the landlord can block the sale of your business by refusing to let the buyer take over the lease, or use the moment to renegotiate rent.
Ask for consent "not to be unreasonably withheld, conditioned or delayed", and for a permitted transfer, without consent, to a buyer of substantially all of the business that meets a stated financial test. Watch for a recapture clause, which lets the landlord terminate the lease instead of consenting.
Personal guarantee
A personal guarantee makes the owner personally liable if the business cannot pay. Unlimited and full-term means that if the shop closes in year two, the landlord can pursue the owner for the remaining rent of the five-year term, subject to any duty to re-let the space (mitigate) that the state's law imposes.
Ask for one of these limits:
- A cap on the guarantee, stated as a number of months of rent.
- A burn-off, where the guarantee ends or shrinks after a stated period of on-time payment.
- A "good guy" guarantee, common in some markets, where the guarantor's liability ends if the tenant gives notice, pays rent through the date it leaves, and surrenders the space in the required condition.
Working the redline
The owner in the example took the six FIX items into the first redline and held the three ASK items for the conversation, because those are trades rather than conflicts: a cap on the guarantee is easier to win if the shop gives a larger security deposit, and better sign rights may come with accepting the landlord's sign vendor.
Two clauses the shop could not live without were use and hazardous materials, because without them the shop would be in default the day it moved in. Those were non-negotiable. The rest were priced: what each would cost over five years if left as drafted, measured against what the shop was willing to give up to fix it.
Also worth reading, briefly
- Relocation clause: the landlord's right to move you to another unit. For a shop with anchored racks and a cylinder cage, that is a move-out and a move-in at once. Strike it or require the landlord to pay all costs.
- Holdover: rent if you stay past the term, often 150 to 200 percent of the last rent. Matters if the new building is late.
- Insurance and waiver of subrogation: what you must carry and whether each side's insurer can sue the other. A question for your insurance agent.
- Compliance with laws: who pays for code work the building needs, as opposed to work your use triggers. See related: The Certificate of Occupancy and the Change-of-Use Trap.
This is not legal advice. Marking up a lease yourself tells you what to ask for. A commercial real estate attorney turns it into language that holds.
References
- See related: Lease vs Buy Your Shop Location Decision Tree
- See related: Who Pays When the Rooftop Unit Dies Under a Lease
- See related: CAM Charges and Your Pro-Rata Share
- See related: The Restoration Clause That Came Due at Move-Out
- See related: What Zoning Has to Allow for a Contractor Shop