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The Commercial Lease: Where the Real Rent Hides

The headline rate is never the whole cost. Six clauses that decide what a tenant actually pays.

A lease is a long-dated financial instrument disguised as a formality. For most businesses it is the second-largest cost after payroll, and it is signed once and lived with for years. The clauses below decide whether the 'rent' you were quoted is the rent you pay.

  1. 1. Base rent & measured area

    Original

    Base Rent shall be $40.00 per rentable square foot per annum, based on a Rentable Area of 5,000 square feet.

    What it means

    Note rentable, not usable. Rentable area adds a share of common corridors, lobbies, and shafts — the 'load factor', often 10–20%. You pay for space you cannot occupy. Always convert to cost per usable unit before comparing two spaces.

  2. 2. Triple net (NNN)

    Original

    In addition to Base Rent, Tenant shall pay its proportionate share of Operating Expenses, Real Estate Taxes, and Insurance ('Additional Rent').

    What it means

    This is where the quoted rate stops telling the truth. Under a triple-net lease the tenant carries taxes, insurance, and building operating costs on top of base rent — often another $10–20/sq ft. Ask for the current 'NNN' figure and its history; a low base rent with a high, rising NNN can cost more than a higher gross rate.

  3. 3. Escalation

    Original

    Base Rent shall increase by three percent (3%) on each anniversary of the Commencement Date, compounding.

    What it means

    Compounding matters. A 3% annual escalator over a ten-year term raises rent by about 30% by the final year, not a flat 3%. Model the whole term, not year one. A rent that looks competitive on day one can be well above market by year eight.

  4. 4. Personal guarantee

    Original

    As a material inducement to Landlord, the undersigned personally and unconditionally guarantees all obligations of Tenant under this Lease.

    What it means

    This pierces the corporate veil: if the business fails, the landlord can pursue the signer's personal assets for the entire remaining term. Negotiate a 'good-guy guarantee' instead — personal liability that ends once you vacate and hand back the keys in good order, capping the downside.

  5. 5. Reinstatement / make-good

    Original

    Upon expiry, Tenant shall remove all alterations and restore the Premises to their original condition, reasonable wear and tear excepted.

    What it means

    The forgotten end-of-lease cost. If you built out an office, this clause can require you to tear it all out and rebuild the empty shell at your own expense — a five- or six-figure surprise. Photograph the space at handover, and negotiate a cap or a fixed 'make-good' sum up front.

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