Navigating Commercial Lease Agreements: What Business Owners Need to Know

Signing a commercial lease is one of the most significant commitments a business owner can make. Whether you’re opening a retail shop, leasing office space, or securing a warehouse, your lease agreement will directly impact your bottom line and your flexibility to grow. Understanding the fine print isn’t just important—it’s essential.

At KLH Advisors, we specialize in business law and help Montana business owners navigate the complexities of commercial leases with confidence. Here’s what you need to know before putting pen to paper.

What Is a Commercial Lease Agreement?

A commercial lease is a legally binding contract between a landlord and a business tenant. Unlike residential leases, which are typically short-term and standardized, these agreements are often more complex, span multiple years, are heavily negotiated, and are tailored to the nature of the business and property involved. with customized terms designed around the type of business and property involved, and usually span many years. .

Commercial leases cover a wide range of uses, including:

• Retail storefronts - like stores, boutiques, and restaurants

• Office spaces - ranging from small suites to entire professional buildings

• Industrial facilities and warehouses facilities - for manufacturing, storage, or logistics

Because these agreements Commercial leases can last years, with multiple renewal options, and involve significant financial commitments; it’s critical for business owners to fully understand every clause before signing.

Key Elements and Clauses to Watch For

Commercial leases often contain terms that can make or break a business deal. Pay special attention to:Even seemingly minor lease provisions can have a significant impact on your operations. Oftentimes, commercial leases contain terms that can make or break a business deal. Here’s a breakdown of common clauses and why they matter: 

• Lease Term & Renewal Options – How long is the lease, and what are your options to renew or exit? Can you terminate early if your business outgrows the space? Be sure to look for early termination rights and renewal negotiation windows.

• Rent Structure & Escalations – Beyond base rent, know what you are responsible for. Wwatch for CAM (common area maintenance) charges and annual increases.

• Use of Premises – Defines what activities are allowed, and whether zoning or exclusivity clauses could limit your business. Look out for clauses that may prevent you from expanding your services or limit foot traffic due to competition.

• Maintenance & Repairs – Clarifies which party is responsible for upkeep and unexpected repairs. Ambiguous language could leave you footing major bills.

• Improvements & Build-outs – Can you renovate the space to suit your business? And who owns those improvements at the end of the lease? Be sure to clarify who pays for build-outs, who manages construction, and if the space must be returned to its original condition at the end. Determines who pays for and owns upgrades or customizations.

• Alterations & Signage – Covers approvals and costs for changes or branding. Can you install exterior signage or make aesthetic changes to the space? Is any approval needed to do this? The aesthetic and signage can be key to your business, so be aware of your limitations and the process required.

• Assignment & Subleasing – Can you sublease or transfer the lease if your business changes? Ensure you’re protected in case you need to pivot or sell your business Can the landlord withhold consent? Specifies if you can transfer or sublease the space.

• Insurance & Indemnity – What kind of insurance must you carry? What are you liable for? Ensure your insurance meets requirements to avoid exposure to risk.  Outlines liability, property insurance, and indemnification requirements.

• Default & Remedies – Details what constitutes default and the penalties involved. Ensure you understand the consequences to avoid putting your business at risk.

Why Use an Attorney to Review and Negotiate Your Lease? 

If you’re looking to enter into a commercial lease, you should know that these agreements are business contracts, not just formalities. Hiring an experienced attorney to draft, review, or negotiate your lease will mitigate risks, save you money in the long run, and lay a foundation for your business success. 

An attorney will ensure your lease aligns with your long-term business strategy, identify hidden risks and problematic terms, and be a staunch advocate for your best interests.

Negotiation Best Practices for Tenants

Remember, a lease is negotiable. Follow these best practices to secure terms that will protect your business for years to come. A lease is negotiable—and the terms you secure now can protect your business for years to come. Follow these best practices to streConsider these tips:

• Engage legal counsel early, especially for long-term or customized leases.

• Compare multiple offers to strengthen your position.

• Negotiate favorable terms—such as caps on rent escalations or co-tenancy protections.

• Put all changes in writing within a lease addendum.

• Allow enough time for review, negotiation, and signing.

• Plan for growth by considering expansion rights or termination options.

Red Flags to Avoid in Lease Agreements

Some provisions may seem harmless or routine at first glance, but can create costly problems later. Watch out for: Take caution if you see: 

• Vague, broad, or undefined charges

• Excessive maintenance obligations without landlord cost-sharing

• Automatic renewal clauses without tenant opt-out or notification periods

• Harsh default terms and penalties

• Restrictive use clauses that limit future business flexibility

• Verbal agreements that are not reflected in the leasewriting

How KLH Advisors Can Help

At KLH Advisors, we provide personalized legal support to protect your business interests at every stage of the lease process. Our team assists with:

• Drafting commercial leases 

• Careful lease review and issue spotting

• Crafting a commercial lease to fit your business needs

• Skilled negotiation for Montana and Colorado business owners

• Drafting amendments or addenda as needed

• Interpreting lease provisions

Whether you’re negotiating your first lease or reevaluating your current space, we’re here to ensure your agreement supports—not hinders—your success.

Before you sign your next commercial lease, let’s talk. Schedule a consultation with KLH Advisors in Bozeman today to discuss your commercial lease needs.