5 Questions Every Commercial Tenant Should Ask Before Signing a Lease
By: Eric A. Gravink
Most commercial tenants think they are negotiating rent. They are not. They are taking on risk.
After more than 20 years advising clients on commercial leases, I see the same pattern over and over. Business owners spend most of their time focusing on the headline number, but that number usually is not what determines whether the deal actually works. The problems tend to come from somewhere else. Costs increase after signing, buildouts end up being more expensive than expected, and landlords are often more difficult in practice than they appeared during
negotiations.
A commercial lease is not just a price for space. It is a long term commitment to a set of financial and operational conditions that will change over time. The tenants who avoid expensive mistakes are not always the ones who negotiate the hardest. They are the ones who slow down early and
ask better questions before they sign.
Here are five that matter.
1. What will my total occupancy cost actually be over time?
Base rent is only part of the picture, and often not the most important part. In many leases, tenants are responsible for their share of property taxes, insurance, and operating expenses. Those costs change, and sometimes they change quickly as insurance markets shift, buildings age, or new categories of expense show up.
Part of the confusion comes from how leases are described. Some are labeled gross, others modified gross, and others triple net. Those labels sound helpful, but they can be misleading. A gross lease may still include pass throughs above a base year. A modified gross lease may shift certain costs back to the tenant in ways that are not obvious at first. A triple net lease makes the allocation clearer, but it does not make it predictable.
What actually matters is how the numbers work. Which costs get passed through, which ones are capped, and how those costs have behaved over time. A tenant can sign a lease that looks reasonable based on the initial numbers, and then find within a year or two that the total monthly cost is much higher even though the base rent has barely moved. That difference usually comes from operating expenses that were assumed to be stable but were not.
The mistake is treating the lease like a snapshot instead of something that will evolve. A better approach is to ask for historical operating expense data and look at the trend. Have costs been flat, or are they increasing year over year? Without that context, you are not really evaluating the deal.
2. What known events are likely to increase those costs?
Some cost increases are unpredictable, but many are not. In most properties, there are already events on the horizon that will change the economics. That can include a possible sale, a transfer of ownership, planned capital work, or replacement of major systems. These are usually known to the landlord, but they are not always something a tenant hears about unless they ask directly.
In California, property taxes are tied to assessed value, and that value can reset when ownership changes. That does not only happen when a property is sold. It can also happen through certain transfers, including after the death of a long time owner under current limits on parent to child transfers.
This creates a very specific risk for properties that have been held for a long time. The taxes you see today may be based on a much older, lower assessed value. If ownership changes, that value can reset to current market levels, and the increase will often pass directly through to tenants.
This is how it plays out in real life. A tenant signs a lease in a well located project where taxes seem reasonable. Shortly after, ownership changes. The tax basis resets, and the tenant’s share increases in a meaningful way. What looked like a manageable deal becomes something much more expensive.
The same issue comes up with capital work. If the roof is aging, the parking lot needs resurfacing, or the landlord is already planning improvements, those costs are usually foreseeable before the lease is signed. The question is not just what things cost today, but what they are likely to cost once those fairly predictable events happen.
3. What was the last use of the space and what will it take to convert it?
This is one of the most common places where tenants underestimate cost.
Most people think about buildout in terms of how big the space is or how they want it to look. In reality, cost is driven by how different your use is from whatever was there before.
That difference can trigger code issues, permitting requirements, and infrastructure upgrades that are not obvious when you first walk the space. A space can look clean and usable and still be expensive to convert.
For example, a tenant taking over a former retail space for a fitness use might assume a relatively simple buildout. Once the plans are drawn and the permit process starts, the new use may require additional restrooms, upgraded HVAC capacity, and other life safety or accessibility improvements. At that point the scope expands, the budget increases, and the opening is delayed.
The impact is not just construction cost. Delays mean you are paying expenses without generating revenue. Capital stays tied up longer than expected, and your business timeline shifts.
This shows up across restaurants, medical uses, and personal service businesses. The gap between what the space was and what it needs to become is often the main driver of cost. You are not starting from scratch. You are adapting an existing space, and that difference is where most of the risk sits.
4. What condition is the building actually in?
Deferred maintenance does not disappear. It just shows up later, usually during your lease term.
A building can look well maintained on the surface while still having underlying issues. Major systems like roofing, HVAC, electrical, plumbing, and paving all have limited lifespans. If those systems are getting close to the end of their useful life, the cost will come due at some point, and in many leases tenants share in that cost.
Even when those costs are spread out, they still affect your bottom line. There is also an operational impact. System failures, repairs, and construction work can interrupt your business and affect your customers.
A tenant may sign a lease in a building that looks fine, only to run into recurring HVAC problems within the first year. Repairs become frequent, and eventually replacement is unavoidable. Costs increase, and operations are disrupted along the way.
This is not always about what the lease says. It is about what the property actually is. Tenants should be asking about the age and condition of major systems, what maintenance has been deferred, and what work is expected in the near future.
5. How does this landlord actually behave in practice?
This is the question most tenants overlook, and it is often the one that matters the most.
Leases are written with standards that sound reasonable. Approvals will not be unreasonably withheld. Repairs will be handled. Requests will be processed in a timely manner. On paper, most leases look workable.
What matters is how those standards are applied in real situations.
Some landlords are responsive and practical. Others are slow, rigid, or difficult. You usually find out which one you are dealing with when something goes wrong or when you need flexibility.
A tenant may think they have workable assignment rights, only to find that approvals take months and come with additional conditions. Another tenant may expect routine maintenance to be handled quickly, only to deal with delays that affect operations.
You cannot fully fix this through lease language. The most reliable way to understand this risk is to talk to other tenants in the building, especially those who have been there for a few years. They can tell you how the property is actually managed and how the landlord behaves when issues come up.
Turnover can also tell you a lot. In a multi tenant property, frequent turnover often points to underlying problems. Not every departure means something, but patterns usually do.
At the end of the day, a commercial lease is a long term relationship. Understanding who you are dealing with is just as important as understanding the document itself.
Where Tenants Actually Get It Wrong
All of these questions focus on things that are not obvious from the face of the lease. Future costs, building condition, the realities of converting a space, and how the landlord behaves in practice are what determine how the deal actually performs.
Tenants often assume that if they negotiate the lease carefully, they have managed their risk. In reality, a lot of that risk sits outside the document, and that is where most problems start.
A commercial lease does not just give you the right to occupy space. It ties your business to a set of conditions that will evolve over time. Before signing, it is worth understanding not just the terms of the lease, but the environment those terms will operate in.
By the time you are negotiating the lease, most of the important decisions should already be behind you.