30 Commercial Lease Clauses Explained

A rent escalation clause is a lease provision that provides a predetermined mechanism for increasing the base rent over the lease term.

A commencement date clause defines when the lease term officially begins and, accordingly, when the tenant's obligation to pay rent commences.

A rent abatement clause provides the tenant with a defined period of free or reduced rent at the beginning of the lease term — commonly referred to as "free rent" or a "rent holiday." The abatement period allows the tenant to generate revenue from the space before full rent obligations begin, partially compensating for build-out costs and the time required to establish operations in the new location..

An operating expense stop is a lease provision that sets a maximum dollar threshold for operating expenses included in the base rent — the landlord bears all operating costs up to the stop amount, and the tenant is responsible for any expenses above that threshold.

A base year clause establishes a reference year — typically the first full calendar year of the lease term — against which future operating expense increases are measured.

A gross-up provision requires the landlord to adjust the operating expense reconciliation to reflect what expenses would have been if the building were 95%–100% occupied, rather than the actual occupancy level during the measurement year.

A co-tenancy clause is a lease provision — almost exclusively found in retail leases — that gives a tenant the right to pay reduced rent or terminate the lease if certain anchor tenants or a minimum occupancy threshold in the shopping center falls below a specified level.

An exclusive use clause grants the tenant the sole right to operate a specific type of business or sell particular products within the shopping center or building.

A go-dark clause gives a tenant the contractual right to stop operating its business and cease all commercial activity at the leased premises while continuing to pay rent, without being in default of the lease.

A kick-out clause is a lease provision that grants the tenant the right to terminate the lease early if sales revenue fails to reach a specified threshold within a defined measurement period.

A self-help remedy clause gives the tenant the right to perform repairs or maintenance that are the landlord's obligation under the lease when the landlord fails to do so within a specified cure period, and to deduct the cost of those repairs from future rent payments.

A non-disturbance clause is a promise by the landlord's lender that, in the event of foreclosure on the property, the lender will not disturb the tenant's possession and will allow the lease to remain in force — provided the tenant is not in default.

A right of first refusal (ROFR) gives the tenant the right to match any bona fide third-party offer the landlord receives for adjacent or specified expansion space before the landlord can lease that space to the third party.

A right of first offer (ROFO) gives the tenant the right to make the first offer to lease specified expansion space before the landlord markets that space to third parties.

An expansion option gives the tenant the contractual right to lease additional specified space within the building or property at a predetermined rental rate or formula, during a defined window within the lease term.

A contraction option — also called a reduction right or give-back right — gives the tenant the right to reduce the size of the leased premises at specified points during the lease term, typically by surrendering a defined portion of the space.

A purchase option gives the tenant the right — but not the obligation — to purchase the leased property from the landlord during a defined exercise window at a specified price or by a specified valuation method.

A demolition clause reserves the landlord's right to terminate the lease early if the landlord decides to demolish or substantially reconstruct the leased building.

A relocation clause gives the landlord the right to move the tenant to a different space within the same building or property during the lease term.

A continuous operation clause requires the tenant to keep the leased premises open and actively conducting business during all required business hours throughout the lease term.

A radius restriction clause prohibits the tenant from operating a competing business within a defined geographic radius of the leased premises during the lease term.

A recapture clause gives the landlord the right to take back — recapture — the leased premises when the tenant requests consent to assign the lease or sublet the space.

A force majeure clause excuses a party's performance obligations under the lease when extraordinary events beyond their control — including natural disasters, pandemics, wars, government orders, and utility failures — make performance impossible or commercially impracticable.

A subordination clause provides that the tenant's leasehold interest is subordinate — lower in priority — to the rights of the landlord's lender.

An attornment clause requires the tenant to recognize and "attorn to" a new owner of the property — typically a lender who has foreclosed on the landlord's mortgage — as the new landlord under the existing lease.

A holdover clause defines the legal consequences for a tenant who remains in possession of the leased premises after the lease expiration date without executing a new lease or renewal.

An assignment and consent clause governs the tenant's ability to transfer its entire leasehold interest to a third party (assignee) who then becomes the new tenant under the lease.

A subletting and sublease consent clause governs the tenant's ability to lease all or part of the premises to a subtenant (sublessee) while the original tenant (sublessor) retains the primary lease obligation.

A personal guarantee clause is a provision by which an individual — typically the principal owner or officers of the tenant entity — unconditionally guarantees all obligations of the tenant under the lease.

A Good Guy Guarantee is a modified personal guarantee that limits the guarantor's liability to the period during which the tenant is actually in possession of the premises.