What Should I Know Before Signing a Commercial Lease Agreement?

The fine print can hide clauses that affect your business, so read the entire agreement very carefully and be sure to run everything past a lawyer. Look for a default clause that outlines what happens if you miss rent or break any other terms. In Texas, landlords can act quickly to enforce any penalties in this clause, including eviction or seizing assets, and the courts are typically favorable to landlords in these circumstances. Ask for a reasonable cure period so you have time to fix issues before penalties kick in: 10 to 30 days isn’t an unreasonable ask here.

Another clause to watch is the use clause because this limits how you can operate in the space. A lease might, for instance, restrict you to retail sales only, and this might prevent you from adding a small office or hosting events. The use clause needs to fit with your business plans, and a lawyer can help you think through whether this clause is likely to limit you unnecessarily. If you anticipate growth or changes, you’ll want to negotiate some flexibility here. You might also want to ask for exclusivity clauses that will prevent the landlord from leasing nearby spaces to your competitors. 

Insurance requirements are another critical detail, and most commercial leases will require tenants to carry liability insurance with minimum coverage amounts. The landlord may also require you to name them as an additional insured party, so be sure to review these obligations with your lawyer (and possibly also an insurance agent) to confirm you can meet them.

Planning for the end of a lease is just as important as planning for the start. It’s common for commercial leases to include strict terms limiting the ability to terminate the agreement early, and without an exit clause, you could be liable for rent until the lease ends, even if your business were to close. Ask your lawyer about negotiating a break clause that would let you exit early under specific conditions, such as by paying a penalty or giving enough advance notice.

Subleasing lets you rent the space to another tenant, while assignment transfers the lease entirely, and these options will be very helpful if for some reason you need to move before the lease ends. The reality, however, is that many Texas landlords restrict these rights or require their approval before a lease can be sublet or assigned. Often the right move here is to push for terms that will allow subleasing, but with reasonable oversight, to reduce financial risk for you and the landlord simultaneously. If you plan to sell your business, check whether the lease can be transferred to the buyer. Some leases will require the landlord’s consent for such a transfer.