Commercial Lease Review for California Tenants

Most small business owners read the rent, the term, and the address, and sign the rest. The rest is where the money goes. A commercial lease is usually the landlord’s form, written to shift cost and risk to the tenant, and in California the law mostly lets the parties agree to whatever they want.

This guide is the checklist I use when I review a lease for a small California tenant, with the statutes that do apply, the new 2025 rules for the smallest tenants, and a worked example. It’s part of my series on contractors, contracts, and leases. The guaranty that usually comes with the lease has its own guide: personal guarantees on commercial leases.

How is a commercial lease different from a residential lease in California?

The difference is freedom of contract. Civ. Code § 1995.270(a)(1) declares a state policy favoring freedom of contract between the parties to commercial real property leases.

Residential tenants get rent caps, habitability rules, and deposit limits by statute. Commercial tenants mostly get what they negotiate. There’s no statewide rent control for commercial space and no statutory cap on the amount of a commercial security deposit. That’s why the review has to happen before you sign, ideally at the letter of intent stage when the business terms are still open.

What should a commercial lease review cover?

Every clause, but these are the ones I spend the most time on. The table gives the question to ask for each.

Clause	The question to ask
Premises and measurement	Is rent based on usable or rentable square feet, and what load factor applies?
Term and options	Do I have renewal options, and how is option rent set?
Base rent and increases	What are the annual increases, fixed or tied to an index, and is there free rent?
Operating expenses (NNN or CAM)	What’s included, what’s excluded, is there a cap on increases, and can I audit?
Repairs and replacements	Who pays to repair or replace the roof, HVAC, structure, and building systems?
Compliance with laws and accessibility	Who pays to bring the space into compliance, including disability access?
Use and exclusives	Is the permitted use broad enough, and does the landlord promise not to lease to a competitor?
Improvements and work letter	Who builds, who pays, what’s the allowance, and what happens if the space isn’t ready?
Assignment and subletting	Can I sell my business with the lease, and does a change in ownership count as an assignment?
Insurance and indemnity	What coverage do I need, and are the indemnities mutual?
Casualty and condemnation	Can I end the lease if the building burns or is taken, and does rent stop meanwhile?
Default and remedies	How long do I have to cure, and what can the landlord collect after a default?
Late charges and interest	Are they reasonable, and is there a grace period?
Holdover	What rent applies if I stay past the end of the term?
Relocation	Can the landlord move me to other space?
Lender documents	Will I get a non-disturbance agreement if the landlord’s lender forecloses?
Personal guarantee	Is it capped, does it burn off, and does it end if I assign the lease?

Which lease clauses cost small tenants the most?

In the leases I review, the expensive surprises cluster in a few places.

Operating expenses with no limits

In a triple-net lease, you pay base rent plus your share of property taxes, insurance, and common area costs. The fight is over what counts. Look for exclusions for capital improvements, the landlord’s financing and leasing costs, costs paid by insurance, and management fees above a set percentage. Ask for a cap on annual increases in controllable costs and the right to audit the landlord’s books.

Repair and replacement of building systems

Many small-tenant leases make the tenant maintain, repair, and replace the HVAC unit serving the space, and some go further and pass through the roof and structure. A replacement HVAC unit or a share of a roof replacement can cost more than a year of rent. Ask for the landlord to handle replacements and capital items, or for the cost to be amortized over its useful life with only the portion falling inside your term passed through.

Assignment restrictions that block a sale

If you ever want to sell the business, the buyer will need the lease. The next section explains the statutes, but the practical point is simple: a lease that lets the landlord refuse an assignment for any reason gives the landlord a veto over your exit.

Waivers of statutory rights

Landlord forms routinely ask the tenant to waive statutory rights. Civ. Code § 1932 otherwise lets a tenant terminate when the landlord fails, within a reasonable time after request, to make required repairs, or when the greater part of the premises perishes without the tenant’s fault. Civ. Code § 1933 provides that a hiring terminates on the destruction of the thing hired. If you waive those, make sure the lease’s own casualty clause gives you a way out and stops rent while the space is unusable.

Can the landlord refuse to let me assign the lease or sublet?

It depends on what the lease says. California’s rules start at Civ. Code § 1995.010, and under Civ. Code § 1995.010 they apply to leases for other than residential purposes.

• An absolute ban is allowed. Under Civ. Code § 1995.230, a restriction on transfer of a tenant’s interest in a lease may absolutely prohibit transfer.
• Express standards are allowed. Under Civ. Code § 1995.250, the lease may require the landlord’s consent subject to any express standard, such as consent not to be unreasonably withheld or consent subject to stated conditions.
• Silence helps the tenant. Under Civ. Code § 1995.260, if the lease requires the landlord’s consent but gives no standard, the restriction is construed to include an implied standard that consent may not be unreasonably withheld. The tenant carries the burden of proof, and can meet it by showing the landlord failed, within a reasonable time after a written request, to state a reasonable objection in writing.
• Remedies. Under Civ. Code § 1995.310, if the landlord unreasonably withholds consent in violation of the lease, the tenant has contract remedies, including damages, the right to terminate the lease, or both.

Read the definition of “transfer” carefully. Many leases treat a sale of a controlling interest in the tenant LLC or corporation as an assignment, so selling your company’s stock or membership interests can require the landlord’s consent the same way an assignment does. Negotiate a permitted-transfer clause for sales of the business, transfers to an affiliate, and transfers to a family member or trust for estate planning. My guides on selling a California business and buy-sell agreements explain why that matters.

What is the CASp disclosure?

It’s an accessibility disclosure every commercial lease form must include. Under Civ. Code § 1938(a), a commercial property owner or lessor must state on every lease form executed on or after January 1, 2017, whether the premises have undergone a CASp inspection, meaning an inspection by a state-certified access inspector.

If there’s a CASp report, the landlord has to share it. Under Civ. Code § 1938(c), repairs needed to correct accessibility violations noted in a CASp report are presumed to be the landlord’s responsibility unless the parties agree otherwise, and if the report isn’t provided at least 48 hours before execution, the tenant may rescind the lease within 72 hours after execution.

If there’s no inspection certificate, Civ. Code § 1938(e) requires a statement in the lease that a CASp can inspect the premises, that the landlord may not prohibit the tenant from obtaining an inspection, and that the parties shall mutually agree on the arrangements, the fee, and the cost of repairs. The section applies to property offered to businesses that operate a place of public accommodation. For a restaurant, retail store, or office that serves customers, accessibility lawsuits are a real cost, so decide in the lease who pays to fix problems.

What protections do small tenants get under the 2025 law?

A 2024 bill, SB 1103, gave “qualified commercial tenants” several residential-style protections for leases executed or renewed on or after January 1, 2025. You qualify only if you meet the size test and give the landlord a written notice.

Under Civ. Code § 1950.9(h)(5), a qualified commercial tenant is a microenterprise, a restaurant with fewer than 10 employees, or a nonprofit with fewer than 20 employees, that has given the landlord written notice that it’s a qualified commercial tenant along with a self-attestation of its employee count. For a lease that isn’t month to month, the notice must be given before or upon execution of the lease and annually after that. Under Bus. & Prof. Code § 18000(a), a microenterprise has five or fewer employees, including the owner, and generally lacks sufficient access to loans, equity, or other financial capital.

If you qualify, the protections are these:

• Operating cost documentation. Under Civ. Code § 1950.9(a), the landlord may not charge a qualified commercial tenant a fee to recover building operating costs unless the costs are allocated proportionately, were incurred in the previous 18 months or are reasonably expected within the next 12 months, the landlord gave notice before the lease was signed that the tenant may inspect supporting documentation, and the landlord provides that documentation within 30 days of a written request.
• No waiver. Under Civ. Code § 1950.9(g), any waiver of these rights by a qualified commercial tenant is void.
• Rent increase notice on month-to-month tenancies. Under Civ. Code § 827(b), a landlord must give at least 30 days’ notice of a rent increase of 10 percent or less, and at least 90 days’ notice of an increase of more than 10 percent.
• Termination notice on month-to-month tenancies. Under Civ. Code § 1946.1(b), the landlord must give at least 60 days’ notice to terminate, or 30 days under Civ. Code § 1946.1(c) if the tenant has occupied the property for less than one year.
• Translation. Under Civ. Code § 1632(b), a business that negotiates primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean must deliver a translation of the lease before execution, and the rule covers leases with qualified commercial tenants on or after January 1, 2025.

The notice is the step most small tenants miss. If your business qualifies, deliver the written notice and self-attestation with the signed lease, keep proof of delivery, and calendar the annual renewal.

What are the rules on commercial security deposits and fees?

A commercial deposit can be used for three things and must come back on a schedule. Under Civ. Code § 1950.7(c), the landlord may claim only amounts reasonably necessary to remedy rent defaults, repair damage caused by the tenant, or clean the premises. When the claim includes repairs or cleaning, Civ. Code § 1950.7(c)(3) requires the rest to be returned no later than 30 days after the landlord receives possession.

Upfront fees have to be in writing. Under Civ. Code § 1950.8(b), it’s unlawful to require any payment, including key money or the landlord’s attorney’s fees for preparing the lease, as a condition of initiating, continuing, or renewing a commercial lease unless the amount is stated in the written lease. Civ. Code § 1950.8(f) allows rent increases to recover building operating costs only if the lease states the right, the method of calculation, and the period covered.

Late charges are usually reviewed as liquidated damages. Under Civ. Code § 1671(b), a liquidated damages provision in a commercial contract is valid unless the party challenging it shows it was unreasonable under the circumstances when the contract was made. Negotiate a grace period and a reasonable charge up front, because arguing about it later is expensive.

What happens if my business has to close before the lease ends?

You can owe a great deal of rent. Under Civ. Code § 1951.2(a), after a tenant breaches and abandons, the landlord may recover unpaid rent, plus future rent that exceeds the rental loss the tenant proves could be reasonably avoided, plus other damages caused by the breach. Under Civ. Code § 1951.4(b), if the lease includes that remedy and allows reasonable subletting or assignment, the landlord may instead keep the lease in effect and collect rent as it comes due.

Commercial evictions also have their own rule on estimates. Under Code Civ. Proc. § 1161.1(a), a commercial landlord’s notice to pay rent may state an amount identified as an estimate, and under Code Civ. Proc. § 1161.1(e), an estimate within 20 percent of the amount the court finds due is presumed reasonable. If you’re behind, get advice before the notice period runs out.

The protection is negotiated in advance: a reasonable cure period, the right to assign or sublet to a replacement tenant, an early termination option with a set fee, and a capped personal guarantee.

A worked example

A boutique leases 1,800 square feet in Ventura for five years. Base rent is $2.75 per square foot per month, or $4,950 a month, with 3 percent annual increases. The landlord estimates triple-net charges at $0.85 per square foot, or $1,530 a month. The tenant’s first-year cost is about $6,480 a month, and by year five base rent alone is about $5,571.

The lease form passes through the tenant’s 30 percent share of “all costs of maintaining, repairing, and replacing the building,” with no exclusion for capital items. In year two the landlord replaces the roof for $120,000. Under the form, the tenant’s share is $36,000, billed as additional rent. With a capital exclusion, or a clause amortizing capital costs over their useful life, the tenant would pay a small fraction of that each year of its term.

The same lease requires the landlord’s consent to any assignment “in its sole discretion” and treats a sale of the tenant’s membership interests as an assignment. When the owner wants to sell in year four, the landlord can say no. A permitted-transfer clause for a sale of the business to a buyer with comparable financial strength would have kept that door open.

When should I have a lease reviewed?

Before you sign the letter of intent, if you can. The letter of intent sets the business terms, and landlords resist reopening them once the lease draft arrives. I recommend this order:

1. Send me the letter of intent draft and your plans for the space and the business.
2. Negotiate the key business terms there: rent, increases, operating expense caps, improvements, options, assignment rights, and the guarantee cap.
3. Review the full lease draft against the letter of intent and the checklist above.
4. Confirm the CASp statement, and, if you qualify, deliver the qualified commercial tenant notice with the signed lease.
5. Calendar the option deadlines, the guarantee burn-off date, and any annual notices.

If you’re forming a new entity to sign the lease, form it first and sign the lease in the entity’s name. My entity formation service covers that, and the LLC bank account guide covers the account the rent should come from.

Where I fit

I review and negotiate commercial leases and lease guaranties for small tenants, at $500 per hour, as part of my business law practice. A typical review includes a marked-up lease, a short memo on the business terms worth pushing, and a list of dates to calendar.

I don’t handle lease disputes or evictions. If you’ve received a three-day notice, an unlawful detainer complaint, or a demand from a landlord, you need litigation counsel, and I can refer you.

Frequently asked questions

Do I need a lawyer to review a commercial lease?

California doesn’t require one, but a commercial lease is often the largest contract a small business signs, and the law gives commercial tenants few default protections. A review before the letter of intent or before signing is the cheapest point to fix the terms that matter.

How much does a commercial lease review cost?

I bill lease review at $500 per hour. The time depends on the length of the lease, whether there’s a work letter and guaranty, and how much negotiation follows. I’ll give you an estimate after I see the documents.

What does triple net mean in a California lease?

Triple net means the tenant pays base rent plus its share of the property’s taxes, insurance, and maintenance costs. The details depend entirely on the lease’s definitions, so read the exclusions and ask for a cap on increases and audit rights.

Can my landlord raise the rent during the lease?

Only as the lease allows, usually through scheduled increases and operating expense pass-throughs. On a month-to-month tenancy with a qualified commercial tenant, the landlord must give 30 days’ notice of an increase of 10 percent or less and 90 days’ notice of a larger one under Civ. Code § 827.

Is there a limit on commercial security deposits in California?

No statute caps the amount. Civ. Code § 1950.7 controls how the landlord may use the deposit and when it must be returned. Negotiate the amount, and consider offering a larger deposit in exchange for a smaller personal guarantee.

Can I break a commercial lease in California?

Not without consequences unless the lease gives you a right to terminate. If you leave early, the landlord can recover damages under Civ. Code § 1951.2 or, if the lease provides, keep collecting rent under § 1951.4. An early termination option, the right to assign or sublet, and a capped guarantee are the tools that reduce that exposure.