Legal Red Flags to Watch for in Commercial Lease Agreements

Commercial lease agreements are often lengthy, detailed, and filled with legalese. Yet too many business owners sign these contracts without fully understanding the legal implications, sometimes locking themselves into one-sided terms that are difficult to escape. 

Whether you are a landlord or a tenant, navigating a commercial lease without legal guidance can put your investment, operations, and future at risk.

A New York City commercial business lawyer can help you identify red flags, negotiate fair terms, and ensure the lease aligns with your business goals. Below, we examine some of the most common legal pitfalls in commercial lease agreements and how to avoid them.

The “use clause” defines how the tenant can utilize the leased premises. If the language is too narrow, it could prevent a business from expanding its services or even make subleasing impossible.

Red Flag: The lease limits usage to specific activities (e.g., “only for the sale of coffee”) instead of allowing broader operations (e.g., “food and beverage services”).

Solution: A commercial business attorney in New York can help draft a flexible use clause that supports long-term business growth and evolving needs.

Many leases require tenants to pay a portion of the landlord’s maintenance costs. These charges can include landscaping, security, snow removal, and property taxes. However, some leases allow landlords to pass on unexpected or unreasonable costs.

Red Flag: The lease does not cap CAM charges or lacks transparency about what is included.

Solution: Negotiate a cap on annual increases, request detailed CAM breakdowns, and clearly define which costs are included and excluded.

Commercial leases often divide repair responsibilities between the landlord and the tenant. Without clear language, tenants may end up responsible for expensive structural repairs they never anticipated.

Red Flag: The lease uses vague language such as “tenant shall maintain premises in good condition,” without specifying responsibilities.

Solution: Clarify which party is responsible for structural issues, roof repairs, HVAC maintenance, plumbing, and electrical systems. A New York commercial business lawyer can help ensure the lease reflects fair and balanced terms.

Some commercial leases include automatic renewal clauses, while others require the tenant to give notice of intent to renew. Poorly written terms can result in rent spikes or losing the lease entirely.

Red Flag: The lease lacks renewal options or gives the landlord sole discretion on renewal terms.

Solution: Secure the right to renew with pre-defined terms, such as a fixed rent increase or a formula tied to market rates. Negotiate timelines for the renewal notice and ensure they are realistic.

Landlords often require small business owners to guarantee the lease personally. This means the landlord can go after personal assets if the business fails or defaults.

Red Flag: An open-ended personal guarantee with no time limit or liability cap.

Solution: Work with a commercial business attorney in New York to negotiate “good guy” guarantees, which limit personal liability if you vacate the space and pay rent up to that point.

Most commercial leases include a list of what constitutes default, but many do not provide equal rights to tenants if the landlord breaches the agreement.

Red Flag: The lease allows immediate eviction or penalties for tenant violations, but gives the landlord wide latitude with no consequences.

Solution: Include mutual default provisions. If the landlord fails to make necessary repairs or breaches key obligations, the tenant should have remedies such as rent reduction, termination rights, or repair-and-deduct options.

As your business evolves, you may need to relocate, merge, or bring in a partner. Lease terms that restrict assignment or subletting can limit your options and trap your business in an inflexible arrangement.

Red Flag: The landlord has absolute discretion to deny subletting or assignment.

Solution: Negotiate a clause that allows subletting or assignment with landlord consent, which “shall not be unreasonably withheld.” This provides flexibility and protects future opportunities.

Landlords sometimes include hidden fees in leases, such as administrative charges for CAM reconciliations or late rent penalties. These costs add up and can strain a tenant’s budget.

Red Flag: The lease allows the landlord to charge undefined or discretionary fees.

Solution: Ensure all potential fees are listed explicitly in the lease and capped where appropriate. Have your New York commercial business lawyer flag any open-ended cost provisions.

Environmental liability can be devastating if not addressed in your lease. Some clauses shift the burden of compliance—or even historical contamination—to the tenant.

Red Flag: Language that holds the tenant responsible for all environmental issues, regardless of fault.

Solution: Clarify that tenants are only responsible for hazardous materials they introduce or cause. Ensure the lease includes indemnification for pre-existing conditions and compliance with state and federal environmental laws.

The COVID-19 pandemic highlighted the need for robust “force majeure” (Act of God) clauses. These protect both parties if an unforeseeable event prevents fulfillment of the lease.

Red Flag: No mention of pandemics, government shutdowns, or supply chain interruptions.

Solution: Update force majeure clauses to include pandemics, natural disasters, labor strikes, and government orders. This can prevent legal disputes during future emergencies.

Landlords typically increase rent annually or periodically. Escalation clauses must be clearly defined to avoid disputes over timing or amount.

Red Flag: The lease references “market rate” adjustments with no formula or cap.

Solution: Use defined metrics, such as CPI increases or fixed annual amounts. Ask your commercial business attorney in New York to verify that the escalation language is enforceable and predictable.

Many tenants need to customize their space with renovations or improvements. If the lease is silent on this, it could lead to ownership disputes or refusal by the landlord to reimburse costs.

Red Flag: No mention of who owns tenant improvements or who pays for build-outs.

Solution: Specify whether improvements revert to the landlord or can be removed at lease end. Include terms regarding who pays for improvements, the approval process, and any TI allowance the landlord may provide.

Dispute resolution mechanisms, including mediation, arbitration, or litigation, should be fair to both parties. Some leases require tenants to travel out of state or pay for arbitration in jurisdictions that favor landlords.

Red Flag: Mandatory arbitration in another state or excessive attorney fee provisions.

Solution: Negotiate local dispute venues (preferably in New York) and ensure attorney fee provisions apply equally to both sides.

No business owner should enter a commercial lease without fully understanding its legal implications. What seems like a standard agreement can carry clauses that increase liability, limit flexibility, and place your business at financial risk.

A New York commercial business lawyer can help you interpret complex clauses, spot risks before you sign, and negotiate terms that support your long-term success. Whether you are opening a new location, relocating, or renewing an existing lease, working with a trusted attorney is one of the smartest business decision. 

A commercial business attorneys in New York work closely with business owners, landlords, and tenants to protect their rights, reduce risk, and ensure smooth leasing transactions. If you are reviewing or negotiating a commercial lease, contact our team today to schedule a consultation and gain the legal insight you need to move forward with confidence.

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