Understanding Commercial Leases in New York

Commercial leases in New York are complex legal documents that can significantly impact your business's success. Unlike residential leases, commercial leases are largely unregulated, meaning nearly everything is negotiable. Understanding the key terms and provisions is essential before signing.

Types of Commercial Leases

Key Lease Terms to Understand

Rent and Escalations

Beyond base rent, understand how rent increases are calculated. Common escalation methods include fixed annual increases, Consumer Price Index (CPI) adjustments, or operating expense pass-throughs. Negotiate caps on escalations when possible.

Lease Term and Renewal Options

Consider your business's long-term plans. A longer lease provides stability but less flexibility. Renewal options should specify the rent calculation method and notice requirements. Include expansion rights if growth is anticipated.

Use Clause

This defines what business activities are permitted in the space. Negotiate for broad use language to accommodate business evolution. Be aware of exclusive use provisions that may restrict competitors in the same building.

Build-Out and Tenant Improvements

Understand who pays for initial improvements and ongoing alterations. Tenant improvement allowances (TI) are often negotiable. Clarify ownership of improvements and restoration requirements at lease end.

Assignment and Subletting

These provisions affect your ability to transfer the lease or sublet space. Negotiate for reasonable consent standards and recapture limitations to maintain flexibility.

Personal Guarantee

Landlords often require business owners to personally guarantee the lease. Negotiate for a "burning" guarantee that reduces over time or caps on personal liability.

Important Protections for Tenants

• Co-tenancy clauses: Protect retail tenants if anchor stores leave
• Kick-out clauses: Allow termination if sales targets aren't met
• Subordination, Non-Disturbance, and Attornment (SNDA): Protects your lease if the property is sold or foreclosed
• Audit rights: Ability to review landlord's expense calculations
• Cap on CAM charges: Limits common area maintenance increases

Important Protections for Landlords

• Security deposits: Adequate protection against default
• Late fees and default interest: Incentives for timely payment
• Clear default and cure provisions: Defined remedies for tenant breaches
• Insurance requirements: Adequate coverage protecting the property
• Indemnification provisions: Protection from tenant-caused liabilities

Negotiation Tips

1. Start negotiations early—rushing leads to unfavorable terms
2. Research comparable rents and terms in the area
3. Get everything in writing, including verbal promises
4. Consider hiring a tenant representative broker
5. Always have an attorney review before signing
6. Don't focus solely on rent—total occupancy cost matters

Common Mistakes to Avoid

• Not reading the entire lease carefully
• Failing to negotiate (most terms are negotiable)
• Ignoring hidden costs and pass-through expenses
• Overlooking renewal terms and rent calculations
• Not considering exit strategies and assignment rights
• Signing without legal review

Legal Review Is Essential

Commercial leases are binding contracts with long-term financial implications. Unlike residential leases, there are few statutory protections for commercial tenants. Having an experienced attorney review your lease can identify unfavorable terms, suggest modifications, and potentially save significant costs over the lease term.