A new commercial lease is usually decided before anyone sees the lease. The terms that matter most — rent, the improvement allowance, when rent starts, who fixes the roof — get settled in a two- or three-page letter of intent, often in a week, often between brokers. By the time the landlord’s 60-page form arrives, the business points are treated as closed, and every change you ask for is “re-trading the deal.” California law gives a commercial tenant very little to fall back on. It assumes both sides are businesses that can look after themselves, so what protects you is what you negotiated. One recent exception: for leases signed or renewed on or after January 1, 2025, Civil Code section 1950.9 may give a “qualified commercial tenant,” such as a microenterprise or a restaurant with fewer than 10 employees, protections that cannot be waived, including limits on the building operating costs a landlord may pass through. Whether they apply depends on meeting the statute’s definition and giving the landlord the written notice it requires. Everything else on this page is something you have to ask for, and the best time to ask is before you sign the letter of intent.
The letter of intent is where the lease is negotiated
Most letters of intent say they are non-binding, and as to the lease itself they usually are. But they are not harmless. The landlord’s attorney drafts the lease from the letter, and anything the letter leaves out — an exclusive use, a cap on operating-cost increases, a limit on the personal guaranty — starts out as a concession you are asking for late. Some provisions in a letter of intent may also be binding even when the rest is not: a confidentiality clause, a period in which the landlord agrees not to negotiate with anyone else, or a promise to negotiate in good faith. California courts have held that a contract to negotiate in good faith can be enforced, with damages measured by what the other side lost relying on it, not by the deal that was never signed (Copeland v. Baskin Robbins U.S.A. Co. (2002) 96 Cal.App.4th 1251). Read the paragraph that says what is and is not binding as carefully as the rent.
Confirm the use is allowed before you commit
A lease that assumes you can run a restaurant, a clinic, a gym or a school in the space does not make it true. Zoning may permit the use outright, require a conditional use permit, or not permit it at all. A change in how the space is occupied can also trigger building-code upgrades — fire sprinklers, exits, restrooms, accessibility — and a landlord form will usually make those your cost. Before you sign, confirm the use with the city’s planning department at that address. If permits are still uncertain, negotiate a permit contingency: a date by which you must have them, and a right to terminate and recover your deposit if you do not.
Delivery condition: what “as-is” means for the roof and the HVAC
Most landlord forms deliver the premises “as-is” and then make the tenant responsible for maintaining, and sometimes replacing, the building systems that serve the space. In a net lease that can include the HVAC units on the roof. If a 20-year-old rooftop unit fails in your second summer, the lease decides whether that five-figure replacement is your problem or the landlord’s. Ask for a warranty that the roof, HVAC, electrical and plumbing will be in good working order on delivery and for a stated period after, an inspection of the HVAC before you sign, and a cap on what you pay toward any replacement during your term.
The work letter and the improvement allowance
If the space needs to be built out, the work letter is the most important exhibit in the lease. It decides who designs and builds the improvements, what the allowance covers (construction only, or also architecture, permits and cabling), who pays for overruns, and when the money is actually paid. Many allowances are reimbursements: you pay the contractor first, then submit invoices and lien releases and wait. A tenant who has not planned for that can run out of cash before the doors open. The work letter should also say what happens if the landlord’s own work is late.
Rent commencement is not the same day as the lease start
Free rent is common in a new lease, but it is worth only as much as the date it runs from. If the abatement period starts when the lease is signed, and permits and construction take five months, a four-month free-rent period has been used up before you open. Tie rent commencement to the later of a fixed period after delivery or the date you open for business, with an outside date, and make sure the landlord’s delays extend it.
Rentable versus usable square feet
Rent and your share of operating costs are usually calculated on rentable square feet, which adds a share of the building’s common areas to the space you actually occupy. The difference, called the load factor, can add a significant percentage to what you pay. Ask how the space was measured, under what standard, and whether the number can be remeasured later. A stipulated square footage in the lease prevents a surprise increase in year three.
The clauses you will want later
Three provisions matter little on signing day and a great deal when the business changes. The personal guaranty can be limited in amount or time, or set to burn off after a period of on-time rent, but only if that is negotiated now. The assignment clause decides whether you can ever sell the business with the lease. If a lease requires the landlord’s consent to a transfer but states no standard, California implies that consent may not be unreasonably withheld (Civil Code § 1995.260), but a lease can set a stricter standard, and landlord forms often do. The use and exclusivity clauses decide what you can pivot to, and whether a competitor can open next door. The same terms come up again at renewal; Commercial Lease Renewal in California: 5 Terms to Renegotiate Before You Sign covers them along with operating-cost pass-throughs, the commercial deposit rules and holdover rent.
The accessibility statement
Under Civil Code section 1938, a landlord leasing space for a business open to the public must state in the lease whether the premises have been inspected by a Certified Access Specialist (CASp). Correcting violations noted in a CASp report is presumed to be the landlord’s responsibility unless the lease says otherwise, and many landlord forms say otherwise. Because a non-compliant entrance, restroom or parking stall can draw a claim against both the landlord and the business, read that allocation before you sign, not after a demand letter arrives.
Who your broker works for
The broker whose name is on the sign represents the landlord. Their job is to lease the space on the landlord’s terms. A tenant can have a broker of their own, and in many leasing markets the tenant’s broker is paid out of the leasing commission the landlord has already agreed to, so representation does not necessarily cost the tenant anything extra. Whatever the arrangement, ask each broker in writing whom they represent before you share your budget or your timeline.
A short checklist before you sign
- Before the letter of intent: confirm the use with the city, tour with a contractor, and decide which terms (allowance, free rent, guaranty limits, exclusivity) must be in the letter.
- In the letter of intent: read the binding-provisions paragraph, and put every business point you care about in writing.
- In the lease draft: compare it line by line against the letter, then read the work letter, the delivery-condition clause, the repair and replacement allocation, the CASp statement and the guaranty.
- Before signing: confirm the rent-commencement mechanics, the measured square footage and the outside dates. Get every agreed change into the signed document; an email from the leasing agent is not the lease.
How Jimmy can help
Jimmy Nguyen is a real estate attorney and a licensed California broker, and he represents tenants on new commercial leases in both roles. Some clients want a review of the letter of intent or the lease draft and a plain-English read on what they are about to sign. Others want him negotiating the terms with the landlord or the landlord’s broker from the start. Either way, the person negotiating your lease is an attorney who reads it line by line and litigates it if the landlord does not perform.
His page on commercial lease and real estate representation in San Jose covers lease review, buying a business, and what happens when a commercial deal goes wrong. Fees are quoted in writing for the specific work agreed on before anything begins.
Email jimmy@lawjn.com with the letter of intent or lease draft and the address of the space, or use the form below.