Commercial lease terms explained, in plain English

Commercial leases have their own vocabulary, and the words carry money. A tenant who reads “$32 per square foot NNN” and hears “$32 all-in” is off by the entire operating cost of the building. This guide defines the terms you will meet in a U.S. retail or commercial lease negotiation, in the order they usually come up.

How the rent is quoted

Base rent, per square foot, per year

U.S. commercial rent is usually quoted in dollars per square foot per year. A 2,000 sq ft unit at $30 per sq ft costs $60,000 a year, or $5,000 a month, before anything else. Always confirm whether a quote is monthly or annual; both conventions exist and the difference is twelvefold.

NNN, gross, and modified gross

A triple net lease (NNN) means the tenant pays base rent plus their proportional share of the three “nets”: property taxes, building insurance, and common area maintenance. A gross lease rolls those into one higher rent the landlord manages. Modified gross sits between, with the split negotiated line by line. Retail is most often NNN, which is why a $30 NNN space can cost more in practice than a $38 gross one.

CAM charges

Common area maintenance covers the parts of the property everyone uses: parking lot, lighting, landscaping, snow removal, shared restrooms. Tenants pay a pro-rata share, and the lease defines what counts, how it is reconciled yearly, and whether increases are capped. Uncapped CAM is a common source of disputes, so tenants often negotiate a ceiling on annual growth of the controllable portion.

Percentage rent

Mostly a mall and shopping-center concept: the tenant pays base rent plus a percentage of gross sales above an agreed threshold, called the breakpoint. It lets a landlord share in a strong store’s upside and gives a weak location a lower fixed cost.

Escalations

The schedule by which rent rises over the term: a fixed percentage per year, fixed dollar steps, or an index such as CPI. Over a ten-year term the escalation clause moves more money than most of the headline negotiation, so model the full-term cost, never just year one.

Getting to a signed lease

Letter of intent

The LOI is a short document, often two or three pages, that fixes the business terms before lawyers draft the lease: the space, the rent, the term, free-rent periods, the TI allowance, and the timeline. It is usually non-binding on those terms and exists so nobody pays for a 60-page draft while still arguing about the rent. Our 30-day playbook covers when to push for one: as soon as the tour goes well.

Tenant improvement allowance

The TI allowance is the landlord’s contribution to building the space out, quoted per square foot. It trades against everything else: a bigger allowance supports a longer term or higher rent, and a tenant taking the space as-is can push rent down instead. Who controls the construction and what happens to unspent allowance are the details worth reading twice.

Free rent and delivery condition

A rent abatement period covers the build-out months when the tenant cannot trade. Delivery condition defines what the landlord hands over: a raw shell, a “vanilla box” with basic systems, or a second-generation space with a previous tenant’s infrastructure. A restaurant taking over another restaurant’s space, with hood and grease trap in place, is a different project from converting an apparel unit, and the rent should know it.

Personal guarantee

For a small or new business, landlords often ask the owner to personally guarantee the lease, so the obligation survives if the company fails. Common middle grounds include a “good guy” guarantee, which releases the guarantor if the tenant leaves cleanly, and burn-off provisions that shrink the guarantee as the tenant builds payment history.

Use clause and exclusivity

The use clause says what the tenant may do in the space; an exclusive says nobody else in the property may do it. Exclusives protect the tenant and constrain the landlord’s future leasing, which is why they are negotiated narrowly, by product line rather than by broad category.

Where the leverage comes from

Every term above prices risk. A national credit tenant on a ten-year term gets a bigger TI allowance and a lower rate than a first-time operator on three years, because the landlord prices the chance of an empty unit. This cuts both ways: in a market as tight as 2026 retail, per NAR’s market insights, landlords with a well located unit can be selective, and tenants with strong sales history should show it. The negotiation goes best for whoever brings the most concrete picture of the alternatives, which is what a real tenant search gives a landlord: not one applicant, but a list.

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