How to Read a Commercial Lease
Commercial leases are among the most important and most misunderstood contracts that business owners sign. Whether you are opening a café, launching a retail shop, or expanding your professional office, your lease will shape your financial stability, your operational flexibility, and even your ability to sell or grow your business in the future.
Yet many business owners sign leases without fully understanding the terms. Some rely on templates provided by landlords. Others skim the document because they’re eager to secure the space. Many assume the lease is “standard,” only to discover later that there is no such thing as a standard commercial lease.
At Queenstone Law, we regularly help clients navigate lease disputes, renegotiations, and early termination issues many of which could have been avoided with a careful review at the outset. This guide walks you through how to read a commercial lease, what to watch for, and how to protect your business before you sign.
1. Why Commercial Leases Are Different From Residential Leases
Commercial leases are governed by contract law, not residential tenancy legislation. That means:
• Fewer protections for tenants
• More room for negotiation
• Greater financial consequences if things go wrong
In a commercial lease, the law assumes both parties are sophisticated and capable of negotiating terms. In reality, business owners often face landlords with far more experience, resources, and bargaining power.
Understanding the lease is your first line of defence.
2. Start With the Big Picture: What Kind of Lease Is It?
Before diving into the fine print, identify the type of lease you are dealing with. This determines how rent is calculated and what expenses you are responsible for.
a. Gross Lease
You pay one fixed amount. The landlord covers most operating costs.
b. Net Lease (Single, Double, or Triple Net)
You pay base rent plus some or all of the building’s operating expenses (property taxes, insurance, maintenance).
Triple net leases are common in BC commercial spaces and can significantly increase your monthly costs.
c. Percentage Lease
Common in retail. You pay base rent plus a percentage of your revenue.
d. Modified Gross Lease
A hybrid model where some expenses are included and others are shared.
Why this matters:
Two leases with the same “base rent” can differ by thousands of dollars per month once additional costs are added. Always calculate the true cost of occupancy.
3. Rent, Additional Rent, and Operating Costs
This is where many disputes arise. Commercial leases often separate rent into two categories:
a. Base Rent
The fixed amount you pay for the right to occupy the space.
b. Additional Rent
Everything else often including:
• Property taxes
• Building insurance
• Common area maintenance (CAM)
• Utilities
• Waste removal
• Snow removal
• Security
• Landscaping
• Administrative fees
Key Questions to Ask
• How are operating costs calculated?
• Are they capped?
• Can the landlord add new categories of expenses?
• How often can they increase?
• Do you have the right to audit the landlord’s calculations?
A lease that allows the landlord to charge “any other costs deemed necessary” is a red flag.
4. The Premises: What Exactly Are You Renting?
This section defines the physical space you are entitled to use.
Look for:
• A clear description of the unit
• A floor plan attached as a schedule
• Whether you have rights to common areas
• Whether parking is included
• Whether storage or signage areas are included
Watch for “Rentable” vs. “Usable” Area
Some landlords calculate rent based on rentable area, which may include shared hallways or mechanical rooms. This can inflate your rent.
5. Use Clause: What You Can (and Cannot) Do in the Space
The use clause defines your permitted business activities. A narrow clause can limit your ability to:
• Add new services
• Change your business model
• Sublease to another business
• Sell your business in the future
Example
A clause that says “retail sale of women’s clothing” is far more restrictive than “retail sales.”
Tip:
Ask for a broad use clause with flexibility for future growth.
6. Term and Renewal Options
The term sets how long the lease lasts. Renewal options determine whether you can stay longer.
Key Points
• Renewal options are not automatic.
• They must be exercised in writing, often months in advance.
• Rent for renewal terms may be “market rent,” which can be unpredictable.
• Some landlords require you to be in perfect compliance to renew.
If your business relies on location, restaurants, clinics, retail, losing your space can be devastating. Renewal rights are critical.
7. Tenant Improvements and Build Outs
Most commercial spaces require some level of renovation before you can operate.
Questions to Clarify
• Who pays for improvements?
• Who owns the improvements once installed?
• Do you need landlord approval for every change?
• Are you required to restore the space at the end of the lease?
Tenant Improvement Allowances
Some landlords offer a financial contribution. Understand:
• When it is paid
• Whether it is a reimbursement
• Whether unused amounts can be applied to rent
8. Repairs and Maintenance: Who Is Responsible?
This is one of the most overlooked sections and one of the most expensive.
Typical Structure
• Tenant: interior repairs, fixtures, HVAC servicing
• Landlord: structural repairs, roof, exterior walls
But leases vary widely. Some shift major repair obligations to the tenant.
Watch for:
• Responsibility for HVAC replacement
• Responsibility for plumbing or electrical systems
• Responsibility for roof repairs
• Responsibility for windows and doors
A single HVAC replacement can cost $10,000–$20,000. Know what you are signing up for.
9. Insurance Requirements
Commercial leases often require tenants to carry:
• Commercial general liability
• Property insurance
• Business interruption insurance
• Tenant improvements insurance
Important:
Check whether the landlord requires you to name them as an additional insured. This is common, but it affects your coverage.
10. Indemnity and Limitation of Liability
These clauses determine who bears the risk if something goes wrong.
Indemnity Clauses
Often require the tenant to compensate the landlord for losses arising from:
• Tenant’s use of the premises
• Tenant’s negligence
• Tenant’s employees or customers
Some clauses are extremely broad and can expose you to significant liability.
Limitation of Liability
Landlords often limit their own liability. Tenants rarely get the same protection unless they negotiate for it.
11. Assignment and Subletting
This section determines whether you can:
• Sell your business
• Bring in a partner
• Sublease part of the space
• Transfer the lease to a new owner
Common Restrictions
• Landlord approval required
• Landlord can refuse for any reason
• Landlord can charge administrative fees
• Landlord can increase rent on assignment
If you ever plan to sell your business, this clause is crucial.
12. Default and Remedies
This section outlines what happens if you breach the lease.
Common Defaults
• Late rent
• Failure to maintain insurance
• Unauthorized renovations
• Violating the use clause
Landlord Remedies
• Penalties
• Interest
• Termination of the lease
• Seizure of property
• Legal action for damages
Some leases allow landlords to terminate after very short notice periods. Others allow “self help” remedies, such as entering the premises to make repairs at your cost.
13. Personal Guarantees
Many business owners sign personal guarantees without fully understanding the consequences.
A personal guarantee means:
If your business cannot pay the rent, you are personally responsible.
This can affect your personal assets, credit, and financial future.
Negotiation Options
• Limiting the guarantee to a fixed amount
• Limiting it to the first year of the lease
• Releasing the guarantee after certain conditions are met
Never sign a personal guarantee without understanding its scope.
14. Early Termination and Exit Strategies
Most commercial leases do not allow tenants to terminate early without significant penalties.
Look for:
• Early termination rights
• Buy out clauses
• Relocation clauses
• Demolition clauses
Relocation and Demolition Clauses
These allow landlords to move you or terminate the lease if they redevelop the property. They can be highly disruptive.
15. Red Flags That Should Prompt Legal Review
• Vague or undefined operating costs
• “Landlord may charge any other expenses deemed necessary”
• No cap on annual increases
• Narrow use clause
• Broad indemnity clause
• Personal guarantee with no limits
• Landlord can terminate “at its sole discretion”
• No renewal rights
• Tenant responsible for structural repairs
Final Thoughts
A commercial lease is more than a contract it is a long term commitment that can determine the success or failure of your business. Understanding the terms, asking the right questions, and negotiating strategically can protect your investment and give your business room to grow.
At Queenstone Law, we help business owners resolve issues arising from commercial leases across British Columbia. You can book an appointment with us here.
NOT LEGAL ADVICE. Information made available on the Queenstone Law website in any form is for information purposes only. It is not legal advice. You should not rely on, or take or fail to take any action, based upon this information. We would be pleased to discuss any specific legal concerns you may have.
Although we attempt to keep the information on our site accurate and up-to-date, due to the ever changing nature of the law, as well as, the speed at which new cases are released, we cannot guarantee that the content is fully up to date or remains completely accurate.