You’ve found the perfect office space, and you can already visualize your clients and team walking through the door. But before you get those keys, you need to get the ball rolling and submit a commercial lease offer for the space.
Commercial rent is typically a small business’s largest expense after labor costs. However, the specific terms of a lease offer often don’t get the attention they deserve.
Getting your commercial lease right matters, and this guide covers the essential terms you should include in your offer. It will help you understand what’s important and why. Moreover, if you’re handling negotiations without a broker, understanding these key elements will allow you to draft an offer independently.
What follows are the specific terms that matter most in your commercial lease offer, what they should include, and why even minor adjustments can significantly impact your business for years to come.
Tenant Information
Your commercial lease offer must clearly identify who’s renting the space. Include your full business name and legal entity type (LLC, corporation, partnership, etc.). It might seem basic, but it’s paramount—it determines who’s legally responsible for the lease obligations. Using the wrong entity or your personal name instead of your business entity could expose you to unnecessary personal liability. Double-check that this information matches your business registration documents to avoid complications later.
Date Information
The timing elements of your lease offer set the framework for your entire tenancy. The offer date marks when you submitted your proposal and often starts the clock on the landlord’s response time. Your lease term—3, 5, 10 years, or another duration—represents a significant commitment affecting your business flexibility and negotiating leverage. Longer terms typically offer more stability and predictable rent payments but less flexibility to move or expand. Rent abatements (free rent periods) provide valuable breathing room, especially for businesses needing time to build their space before generating revenue. Think about requesting these free months at the beginning of the lease or spreading them throughout the term.
Premises Details
This section pinpoints the precise space you’re leasing. List the complete building address, specific suite number or floor, and precise square footage. Pay special attention to square footage—even small measurement differences can substantially impact your rent over the lease term. For example, landlords in NYC use “Rentable Square Footage.” Rentable Square Footage is a concept that incorporates the tenant’s share of common areas such as lobbies, hallways, and utility rooms. Note also that the net usable square footage will be at least 28% less than the rentable square footage. Clearly stating these details in your offer prevents misunderstandings and confirms you’re paying for what you’re getting.
Base Rent
Your base rent forms the foundation of your lease’s financial structure. Specify the price per square foot based on rentable square footage (RSF), as this is the standard measurement method in NYC (not useable square footage). To calculate your monthly payment, multiply the annual base rent per square foot by the total rentable square footage, then divide by twelve. For example, a 2,000 RSF office at $75/RSF would equal $12,500 monthly ($75 × 2,000 ÷ 12). Remember to account for additional monthly charges like your share of real estate taxes, building insurance, and operating expenses, plus electricity typically billed separately in NYC (either sub-metered or included as an electric rent inclusion factor). Being specific about these details helps prevent unexpected costs and lets you compare properties fairly.
Rent Escalations
Few landlords will keep your rent the same throughout the entire lease term. Your offer should address how and when rent increases will occur. Common methods include fixed percentage increases (e.g., 3% annually), CPI (Consumer Price Index) adjustments, or step increases at predetermined amounts. The escalation method you choose will impact your total lease cost—a 3% annual increase on a five-year lease means you’ll pay over 12% more by the final year. Consider proposing caps on variable increases or requesting that increases start after the first year to manage your expenses over time better.
Use Clause
The use clause defines what activities you can conduct in your leased space. While it might seem straightforward, an overly restrictive use clause can hamper your business if your operations change. It is important to use language which is as broad as possible. For example, define your use as “Office space for a marketing firm” rather than specifying particular activities to avoid restricting your ability to use the space. If you’re a marketing firm that might add production services, ensure the use clause is broad enough to accommodate this expansion. The use clause often affects other lease provisions like signage rights, operating hours, and even rent structure.
Miscellaneous Monthly Charges
Your base rent is rarely the only recurring expense you’ll face. Miscellaneous charges are most common in Class C and some Class B buildings. They are far less common in more expensive Class A buildings. Clearly outline any additional monthly charges, such as water, sprinkler, and guard, that may be billed separately from your rent.
Security Deposit
Most commercial leases require a security deposit to protect the landlord if you default on rent or damage the property. Express this amount in terms of months of rent (typically anywhere from 2-12 months, but 2-4 for financially strong tenants) rather than a dollar figure to keep it proportional if rent terms change. Consider proposing a burndown contingent on timely rent payments over a fixed period, usually several years. For example, you might negotiate a partial return of two months of security deposits after 24 months (two years) of rent payments, contingent on timely rent payments. You could also request that the landlord hold your deposit in an interest-bearing account that pays interest to your business. Your lease offer should also clearly state the conditions under which the landlord will return your deposit when the lease ends.
Good Guy Guaranty
A Good Guy Guaranty is a watered-down personal guarantee that protects landlords while limiting your personal liability. Unlike a full personal guarantee, it only holds you personally responsible until you vacate the space and leave it in good condition—even if that’s before your lease ends. It can be valuable if your business needs to close or relocate unexpectedly. The “good guy” aspect means an individual on the hook assumes responsibility for the tenant being current on the rent, returning the keys, and leaving the space broom clean if vacating the space before the end of the term. Including this term can sometimes help you negotiate better terms in other lease areas.
Landlord’s Work
Before you move in, the space may need modifications or improvements. Your offer should specifically list what work the landlord will complete, who pays for it, and by what deadline. Be specific about improvements—”new carpet” could mean anything from basic commercial grade to high-end materials. Consider adding an attachment with detailed specifications. State the number of offices or rooms, specific work requirements, electrical outlets, lighting fixtures, floor treatments, HVAC, ductwork, plumbing, etc. Include a floor plan with measurements marked up to indicate the work. Additionally, address the consequences if the landlord doesn’t complete work on time – you might request delayed rent commencement or daily penalties. When you detail this section thoroughly, you guarantee your space is ready when needed and establish who pays for each improvement.
Sublease Clause
Business circumstances change, and you may need to sublease your space to another company. Your offer should address sublease rights or lease assignment to another tenant. Simply include a term labeled “Sublease:” with “Yes” next to it to establish your sublease rights, which landlords generally cannot unreasonably withhold. When landlords agree, as they typically do, your lease will contain specific clauses covering profit-sharing from rents and the landlord’s right to recapture the space. Establishing these terms upfront provides flexibility if your space requirements change before your lease expires.
Final Words: Is It Beneficial for You to Draft an Offer to a Landlord?
Knowing the terms of your commercial lease offer is just step one. The real advantage comes from experience, market knowledge, and a strategic approach—these are what allow you to secure meaningful concessions from landlords and structure truly equitable deals.
Having a commercial real estate professional in your corner when preparing an offer can be invaluable. And to be clear, you’ll want to work with a commercial broker specifically, rather than an attorney, for this phase of the process.
The fact that you’ve taken time to educate yourself about lease terms instead of simply signing whatever document was presented to you already puts you ahead of most. Your business deserves a lease that propels your success rather than hinders it. And you’re already well on your path to making that happen.
