How to Read a Commercial Lease Before Signing (Buildout Checklist)
Commercial leases contain clauses that directly control your buildout budget, timeline, and flexibility. Here's what to review before you sign — and what can cost you if you miss it.
A commercial lease is not a residential lease. It's a complex legal document where the standard is 'as negotiated' — meaning the first draft almost always favors the landlord, and everything is negotiable before signing. The clauses that affect your buildout are among the most important in the entire lease.
This checklist is not a substitute for a real estate attorney's review, but it gives you a working knowledge of the provisions that most directly affect your buildout budget and timeline.
1. Permitted Use Clause
The permitted use clause defines exactly what business activities are allowed in the space. A restaurant lease that says 'casual dining restaurant' may prohibit you from adding delivery, catering, or a bar without landlord consent. Review this carefully and make sure your intended operations — now and in the future — are explicitly covered.
2. As-Is vs. Delivered Condition
Most commercial leases include language about what condition the space will be delivered in. 'As-is' means you take it however it is — including any deferred maintenance. 'Warm vanilla shell' typically means the landlord delivers the space with HVAC, electrical panel, and restrooms, but no interior finishes. Know exactly what you're getting before you estimate your buildout cost.
- Cold/dark shell: Just the exterior walls and roof — no HVAC, no electrical, no plumbing
- Warm/vanilla shell: HVAC, basic electrical panel, restrooms, ready for finish-out
- Second-generation: Previously improved space — some finishes and MEP may already exist
- As-is: You take it exactly as it sits — could be anything
3. Tenant Improvement Allowance Clause
The TIA clause should specify: the dollar amount per square foot, what it can be used for (construction only, or equipment and FF&E too?), how it's disbursed (reimbursement vs. direct pay), required documentation (permits, lien waivers, contractor invoices), and the deadline by which you must complete improvements to receive the full TIA.
Watch for: TIA disbursement tied to a certificate of occupancy — if you can't get your CO (common with health department delays), you may not get paid. Negotiate milestone-based disbursements instead.
4. Landlord Approval Rights
Most leases require landlord approval for any improvements above a certain dollar threshold (often $5,000–$10,000). Some leases require landlord approval of every contractor you hire. These approval rights can slow your buildout significantly — a landlord who takes 2 weeks to approve a contractor selection can push your opening date back by a month.
Negotiate a 5–10 business day approval deadline with deemed-approval language (if the landlord doesn't respond in time, approval is granted). This is a reasonable ask and most institutional landlords will agree to it.
5. Restoration Obligations
Some leases require you to restore the space to its original condition at the end of the lease term — meaning you'd have to remove everything you built. For a restaurant tenant, this could mean ripping out the kitchen, removing the hood, and patching floors. Restoration obligations can cost $30,000–$100,000+.
Negotiate a waiver of restoration obligations for improvements that add value to the space (as opposed to specialty items like a walk-in cooler or custom espresso bar). Get any agreed-upon restoration waiver in writing, attached to the lease.
6. Assignment and Subletting
If you ever need to sell your business, the buyer will need to assume your lease. Most leases require landlord consent for assignment. Some require the landlord to approve the new tenant's creditworthiness. A lease that's hard to assign is hard to sell with. Negotiate reasonable assignment rights upfront — not after you're already trying to sell.
7. Exclusivity Clause
If you're in a multi-tenant retail center, an exclusivity clause prevents the landlord from leasing to a direct competitor. This is critical if your concept depends on a unique offering within the center. It's also negotiable upfront and nearly impossible to add after you've signed.
Buildout-Specific Questions to Ask Before Signing
- What is the exact existing electrical panel capacity? (200A, 400A, 600A?)
- Is there an existing grease trap or grease interceptor on the property?
- What HVAC units serve this space, and how old are they?
- Are there any deed restrictions, CC&Rs, or easements that limit construction?
- Has the space ever had a hood system? (Affects duct routing significantly)
- What is the ceiling height at the lowest point?
- Is the floor slab thick enough for floor sinks and floor drains?
The Bottom Line
The most expensive time to negotiate a commercial lease is after you've signed it. Every buildout restriction, approval right, and restoration obligation that didn't get fixed during negotiation becomes a fixed cost or timeline constraint. Build a preliminary cost estimate before you tour spaces, have a real estate attorney review the lease before signing, and come to every negotiation with real numbers.