NNN, CAM, TI allowance, personal guarantees, rent escalation — the terms landlords use that most founders don't understand. Click any card to see real examples, red flags, and exactly how to negotiate.
In a NNN lease, the tenant pays three "nets" on top of base rent: property taxes, building insurance, and maintenance/repairs. Your quoted rent is never your real rent in a NNN — the actual monthly cost is often 20–40% higher than the base rate.
You sign a NNN lease at $3,000/mo base rent. Property taxes add $400/mo. Building insurance adds $180/mo. CAM charges add $320/mo. Your real monthly cost: $3,900/mo — 30% more than quoted.
CAM charges are your proportionate share of the costs to maintain shared areas — parking lots, lobbies, hallways, landscaping, lighting. They're billed monthly as an estimate, then reconciled annually against actual expenses. Many tenants are shocked by the annual "true-up" bill.
Most CAM is estimated monthly. At year end, the landlord calculates actual expenses and bills you the difference. If CAM was underestimated, you get an unexpected bill. A tenant paying $300/mo in estimated CAM might face a $2,400 true-up at year end.
A TI allowance is a credit the landlord provides to help you build out the space to your specifications. It's one of the most negotiable items in any commercial lease — and most tenants leave significant money on the table by accepting the first offer.
A personal guarantee means that if your business can't pay rent, the landlord can sue you personally — bypassing the limited liability protection your LLC normally provides. It's the single most dangerous clause in most commercial leases.
A founder signs a 5-year lease at $4,000/mo with a full personal guarantee. The business closes in year 2. Remaining lease: 3 years. The landlord can pursue $144,000 from the founder personally — bank accounts, personal assets, everything.
Almost every commercial lease includes annual rent increases — typically 3–5% per year. The compounding effect over a 5-year lease is significant. Most founders only look at year 1 rent when evaluating a space, not the total cost of the full term.
| Year | At 3%/yr | At 5%/yr | At CPI (variable) |
|---|---|---|---|
| Year 1 | $3,000 | $3,000 | $3,000 |
| Year 2 | $3,090 | $3,150 | $3,120 |
| Year 3 | $3,183 | $3,308 | $3,307 |
| Year 4 | $3,278 | $3,473 | $3,440 |
| Year 5 | $3,376 | $3,828 | $3,600+ |
| Total 5 yrs | $193,836 | $213,060 | $208,000+ |
In a gross lease, you pay one fixed monthly amount and the landlord covers all operating expenses — property taxes, insurance, maintenance, and repairs. It's the simplest, most predictable lease structure for a founder.
A modified gross lease looks like a gross lease but passes through some expenses — often utilities, janitorial, or increases above a "base year." Always ask: "Is this a full gross or modified gross? What exactly am I responsible for?"
An exclusivity clause prohibits the landlord from renting to a business that directly competes with yours in the same property or development. Without it, the landlord can rent the space next door to your exact competitor.
A coffee shop opens in a strip mall without an exclusivity clause. 18 months later, the landlord rents the adjacent unit to a competing café. The original tenant has no legal recourse — and watch 30% of their revenue walk next door.
Assignment rights give you the ability to transfer your lease to a new tenant — most importantly, to the buyer of your business. Without this, the landlord can block a business sale or demand a new lease at market rate, potentially killing your exit.
There are four main types of commercial leases. Understanding which type you're signing is the first step — everything else flows from there.
You pay base rent + property taxes + building insurance + maintenance. Most unpredictable — costs can vary significantly year to year.
You pay base rent + property taxes + building insurance. Landlord covers maintenance. Slightly more predictable than NNN.
Base rent is fixed but you pay some operating expenses (usually utilities, janitorial). More predictable than NNN with some landlord cost-sharing.
One flat monthly payment covers everything — rent, taxes, insurance, maintenance. Completely predictable. Landlord absorbs all operating cost increases.
Every item in a commercial lease is negotiable. Here's what to ask for, what to push back on, and what you absolutely must not skip.
The non-negotiables — fight for these every time| Clause | What to ask for | Why it matters |
|---|---|---|
| Personal guarantee | Burn-off over 3 years, or cap at 6–12 months rent | Protects your personal assets if the business closes |
| TI allowance | Always counter — ask for 20–40% more than offered | One conversation can save $10,000–$50,000 |
| CAM cap | Max 3–5% annual increase on CAM expenses | Prevents surprise CAM reconciliation bills |
| Assignment rights | Right to assign with consent "not unreasonably withheld" | Lets you sell the business without landlord blocking it |
| Exclusivity | No competitor in the same property (define specifically) | Protects your revenue from landlord renting to competitors |
| Termination option | Early termination right after Year 2–3 with 6 months notice | Exit ramp if business circumstances change significantly |
| Item | Ask for |
|---|---|
| Free rent period | 1–3 months free rent at start (very common in slower markets) |
| Renewal option | Right to renew at a capped rate (e.g., no more than 5% above current rent) |
| Audit rights | Right to audit NNN/CAM expenses once per year at your own cost |
| Signage rights | Exterior signage rights — size, placement, and approval process |
| Parking | Dedicated or reserved parking spaces at no extra charge |
| HVAC responsibility | Landlord responsible for HVAC replacement (not just maintenance) |
| Permitted use | Broad permitted use clause — don't let landlord restrict your business type too narrowly |
The terms you'll see in a commercial lease — explained in plain English.