Commercial lease review checklist: 40 items before you sign

Most lease review failures are not subtle. They are provisions nobody read because they were on page 44 in an article with a boring name. A checklist does not replace counsel, but it does make sure the boring articles get opened.

This is organized by consequence rather than by document order, because document order is why the surrender article gets read last.

Economics

• Base rent for every year of the term, stated as actual numbers, matched against the LOI
• Rentable square footage and the load factor used to derive it, verified against the measurement standard named in the lease
• Escalation mechanism: fixed percentage, CPI, or stated schedule, and whether CPI has a floor and a ceiling
• Operating expense structure: triple net, base year, or full service
• Estimated operating costs for year one, in writing
• Pro rata share, including whether the denominator is rentable or leased area
• Exclusions from operating expenses, reviewed line by line
• Expense cap: the percentage, and whether it is cumulative or non cumulative
• Gross-up provision applied to variable costs only, and applied to the base year as well as comparison years
• CAM reconciliation: outside date for delivery, dispute window measured from receipt, audit rights with cost shifting
• Rent abatement: whether it abates gross or net, and the clawback trigger
• Tenant improvement allowance: amount, draw deadline, eligible costs, supervision fee, default condition
• For retail: percentage rent rate, natural versus artificial breakpoint, and the gross sales exclusions
• Parking: spaces, whether reserved, and whether the charge is fixed or floats
• Utilities: separately metered or allocated, and how allocation is calculated

Exit and transfer

This is the section that gets skipped and the section that costs the most when a business changes.

• Assignment and subletting consent standard, ideally not to be unreasonably withheld, conditioned or delayed, with a response deadline and deemed consent
• Permitted transfers to affiliates, successors by merger, and asset purchasers, requiring no consent
• Change of control treatment, specifically whether an equity financing triggers it
• Profit sharing on transfer, net of commissions, legal fees, improvement costs and free rent
• Recapture right, and whether the tenant may withdraw its consent request if the landlord elects to recapture
• Release of the original tenant on assignment to a creditworthy assignee
• Option to renew: the exercise window, how fair market rent is determined, and whether concessions are taken into account
• Right of first refusal or first offer on adjacent space, including response window and whether it survives one decline
• Early termination or kick-out right, and the fee formula
• Surrender condition and restoration obligation, ideally limited to items identified at the time consent to the alteration was given
• Holdover multiplier, and whether consequential damages are capped or excluded

Credit support

• Security deposit amount and form
• Burndown schedule with objective conditions
• Letter of credit terms: draw conditions, bank downgrade replacement window, transfer fees on a building sale
• Guaranty form: full, capped, burndown, or good guy
• Whether the guaranty covers the lease as amended without guarantor consent
• Whether the guaranty is released on a permitted assignment

Operating obligations

• Permitted use, drafted broadly enough to cover a realistic change in the business
• Exclusive use protection, its carve outs, and its remedy
• Co-tenancy for retail: named anchors, threshold, cure period, alternate rent
• Continuous operation covenant, and whether it can be limited in duration or converted to a landlord recapture right
• Maintenance and repair split, specifically roof, structure, and HVAC
• HVAC replacement responsibility, which is the most commonly disputed single item in industrial and small retail leases
• Alterations: consent standard, and whether cosmetic work under a dollar threshold is permitted without consent
• Signage rights, including any building or pylon position
• Hours of operation and after hours HVAC charges
• Compliance with law, and whether the tenant is responsible for building wide compliance triggered by its use

The provisions people skip

• Subordination, and whether it is conditioned on delivery of a non disturbance agreement. See SNDA
• Estoppel certificate clause: response window, knowledge qualifier, and deletion of deemed execution language
• Default and cure: monetary and non monetary cure periods, and whether notice is effective on receipt or on deposit
• Landlord default: whether the tenant has any remedy at all, and whether there is a self help or offset right
• Insurance limits and waiver of subrogation
• Indemnity scope, and whether it is mutual
• Casualty and condemnation: rent abatement, restoration obligation, and termination thresholds
• Force majeure, and whether it caps landlord delivery delay
• Relocation right, and whether the landlord may move the tenant at all
• Notice addresses and method, including whether email notice is effective
• Governing law and venue
• Brokerage representation and who pays

Working the checklist across rounds

The first draft is where most of these items are settled or flagged. The problem is rounds two through five, where a checklist run once at the start does not help.

Two habits handle it. Keep a single open items list carrying every unresolved item forward with its current status, rather than rereading the document each round. And re run the economics section of this checklist against every draft, because those numbers appear in the basic lease provisions at the front of the document, which is exactly where attention drops off after the first read.

For the mechanics of reading each round, see how to read a commercial lease redline. CRE Redline automates the tracking part: every change pulled out of the file's own revision marks, ranked by materiality, with contested clauses carried across rounds.

This checklist is general information and not legal advice. Every lease is specific and every market has its own conventions. Use it to make counsel's time count, not to replace it.