Bobadilla v. Brick & Mortar
On commercial leases, the terms most founders don't know to ask for, and what I negotiated for myself.
A commercial lease is probably the longest commitment your small business will make and the one most founders spend the least time understanding before they sign it. It's also one of the most negotiable documents you'll ever put your name on, if you know what to ask for and you're willing to slow down long enough to ask.
That second part matters more than most people realize. There is almost always pressure around a commercial lease. The space is perfect. Someone else is looking at it. The landlord needs an answer. That pressure is sometimes real and sometimes manufactured and it's almost always at least a little bit both. Either way, it is not a reason to sign something you don't fully understand. A lease is typically a multi-year commitment with significant financial obligations and limited exit options. The cost of slowing down to understand what you're signing is almost always lower than the cost of being surprised by what you agreed to twelve months in.
I've negotiated a commercial lease as a small business founder, watched it carry through an assignment, and ended up with terms I'm still benefiting from today. I'm a lawyer. I read every word and I negotiated hard, not because I was adversarial about it but because I knew what was possible and I asked for it. Most founders don't know what's possible. That's what this piece is about.
The Template Problem
Most founders approach a commercial lease the way most people approach any contract. They read it, they redline the things that seem wrong or uncomfortable, and they send it back. That's a reasonable starting point and it's better than nothing.
It's also not enough.
Changing what's already in the document is one thing. Adding language that wasn't there at all is another. Most founders never ask for a fully editable version of the lease. They work within the structure they were handed, negotiating the existing terms, and assume that what they see is the full universe of what's available. It isn't.
A commercial lease template is the landlord's starting position. It's written to protect the landlord's interests, which is completely reasonable and exactly what you'd do if you were the landlord. Your job as the tenant is not just to soften the terms that feel unfavorable. It's to ask whether there's anything you want that isn't there at all, and then ask for it. New language. New protections. New provisions that reflect your specific situation and your specific risk tolerance.
You can ask for things that aren't in the template. The landlord can say no. But they might say yes, and you'll never know if you don't ask. The worst thing that happens is you're back where you started.
Delayed Effective Date Versus Rent Abatement
These are two distinct concepts that are often confused and sometimes conflated. They do different things and they're both worth understanding before you negotiate.
A delayed effective date means the official start date of the lease is pushed out. The lease exists, it's executed, you have the space, but the clock on your term doesn't start running until a specified future date. This makes the most sense when you're not planning to actually occupy and operate in the space immediately, typically because you're doing a buildout or renovation. You're in the space, you're building your business, but the term hasn't officially begun. There's a bit more uncertainty during that window but in practice it's usually manageable and the breathing room it creates for a buildout is genuinely valuable.
Rent abatement is different. With rent abatement you are in the lease, you're occupying the space, the term is running, and all of your other obligations, including NNN charges if you have a triple net lease, are in effect. You're just not paying base rent during the abatement period. This is the provision that gives you time to get the business open, start generating revenue, and build toward your largest fixed expense before it actually kicks in.
I negotiated both. Four months of delayed effective date for the buildout and four months of rent abatement to market and grow before the rent obligation started. Combined, that's eight months of runway before I was carrying my full lease obligation. For a bootstrapping founder opening a new business in a new space, that's not a small thing. It's the difference between a launch that's financially survivable and one that isn't.
Both are negotiable. Neither one is in the landlord’s standard agreement. Most tenants don't ask for them.
Tenant Improvement Allowance
Tenant improvement allowance, sometimes called TI allowance, is money the landlord contributes toward the cost of improving the space for your use. It's typically expressed as a dollar amount per square foot. It sounds like a gift and in some ways it is, with an important caveat. The landlord agrees to the TI allowance because the improvements stay in the space when you leave. They're investing in their own asset, using your negotiation as the trigger. That's not a reason to turn it down. It's a reason to understand the dynamic before you negotiate.
I shot high. I was bootstrapping, which meant I had more flexibility in the negotiation than a well-funded founder might have. A well-funded founder might have less appetite for a hard negotiation because they can absorb the construction costs. When you're bootstrapping and every dollar matters, you ask for more because you have more to gain and sometimes less to lose. I got a meaningful contribution toward construction costs as a result, which covered a real portion of what the buildout required.
If you're negotiating a lease for a space that needs work, ask for a TI allowance. State a number. The landlord will counter or they won't, but the ask itself is normal and expected and not at all unusual.
The Unilateral Option to Extend
This is the provision I'm probably most proud of negotiating because it's the one that protects both futures simultaneously.
A unilateral option to extend means that as the lease approaches its end, I can choose to stay for an additional term at a predetermined rate without requiring the landlord's agreement. Unilateral is the operative word. The landlord cannot trap me in the space by refusing to renew or by making the renewal terms unreasonable. But if things are going well and I'm happy, I can exercise the option and stay on terms I already know and agreed to.
The rent increase tied to the option is based on the change in market value of the space, not attributable to my improvements. This matters because if I've spent years building out a beautiful, functional space that has increased the value of the property, that increase doesn't get used against me when it's time to renew. The market rate is the market rate for comparable space, not for the specific space I've improved at my own expense.
For a small business founder, this provision is about optionality. It means you're not trapped if you want to leave and you're not at the mercy of a landlord who decides the building is more valuable to someone else when your lease expires. You keep your choices open in both directions.
On Personal Guarantees
Sometimes you just have to go for it. That's the honest answer. A landlord requiring a personal guarantee on a commercial lease is not unusual, especially for a new or early-stage business without significant financial history. It's a real ask and sometimes the space is worth it.
What's not okay is signing a personal guarantee without understanding exactly what you're agreeing to. A personal guarantee collapses the separation between you and your business. If your business can't meet its lease obligations, you can personally. Run the scenarios before you sign. What does the worst case actually look like? What would it cost you personally if the business failed in year one, year two, year three? Is the space worth that exposure given what you know about your financial position and your risk tolerance?
It's also completely okay to walk away from a negotiation at any point if you realize you can't move forward on terms that work for you. That's exactly what good faith looks like. Knowing your limits and honoring them is how you protect yourself and, frankly, how you protect the landlord from a tenant who signs something they can't sustain.
Nobody gets through business ownership without a few lessons learned the interesting way. My lease referenced a Guaranty Rider that was never properly incorporated into the signing package and that I never signed. It worked out in my favor, which makes it a happy accident rather than a cautionary tale, but happy accidents are not a legal strategy.
A Guaranty Rider is a document that sometimes gets referenced in a lease but doesn't always make it into the signing package. If your lease references one, you need to see it before you sign. A reference to a document that wasn't included is a gap worth closing before you execute anything. Check what's referenced. Ask for what's missing. Don't rely on the gap working out the way mine did.
Know Who You're Dealing With
Before you sign a commercial lease, run a Secretary of State search on the landlord entity. It takes ninety seconds and it tells you whether the entity you're contracting with is in good standing, when it was formed, and who the registered agent is. It also sometimes reveals things that are worth knowing about the ownership structure before you commit to a multi-year relationship.
Common ownership through different LLCs is not unusual in commercial real estate. The entity named in your lease and the entity that owns the building next door and the entity that manages the property may all share common owners while being legally distinct. That's legal and it's common. It's also useful context for understanding who you're actually dealing with and whether the relationship has any relevant history.
What to Ask Yourself Before You Sign
After you've read the lease, after you've negotiated the terms that were already there, stop and ask yourself one more question. Is there anything not in this document that I want?
Not just what can I soften. What's missing entirely. What language would protect my interests that nobody put in because nobody was thinking about my interests when they drafted this. A provision about what happens if the building sells. Language about your signage rights. A restriction on the landlord's ability to lease adjacent space to a direct competitor. A cure period before default is declared. Whatever matters to your specific situation and your specific business.
The template is the landlord's starting position. It's not the ceiling of what's available. Ask for what you want. The worst outcome is that you negotiate something into the document that genuinely protects you. The second worst outcome is that you ask and they say no and you're back where you started.
You were going to sign a lease anyway. You might as well sign one that has everything in it you needed.
- m
If you've ever signed a commercial lease without fully understanding what you agreed to, or you're about to sign one, this piece is for you. Subscribe below and I'll keep sending things worth knowing before you need them.
