What Tenants Should Know Before Signing A Long-Term Commercial Lease

Signing a long-term commercial lease is one of the most important decisions a business can make. While securing a stable location for an extended period provides consistency and growth opportunities, it also introduces significant financial and legal obligations.

A poorly negotiated lease can lead to unexpected rent increases, restrictive use clauses, or costly penalties if the business needs to relocate or terminate the agreement early.

For businesses in Edmonton, understanding the terms and legal implications of a long-term lease is essential for protecting financial interests and operational flexibility. Lease terms such as rent escalation, maintenance obligations, and renewal options can directly impact the business’s profitability and long-term success.

This guide explains the key terms and legal considerations tenants should review before signing a long-term commercial lease.

From understanding lease duration and termination rights to navigating complex rent structures and tenant obligations, this article will help businesses secure a fair and legally sound lease agreement.

Working with a commercial real estate lawyer ensures that the lease protects your business’s interests and minimizes future risks.

What Defines a Long-Term Lease?

A long-term commercial lease is typically defined as a lease agreement that extends for three years or more. Unlike short-term leases, which offer greater flexibility but less stability, long-term leases provide tenants with predictable costs and the ability to secure a permanent location for their business.

For many businesses, long-term leases are essential for establishing a consistent customer base and improving operational efficiency.

Long-term leases can be highly beneficial, but they also introduce unique financial and legal risks. Businesses must carefully evaluate the terms and structure of the lease before signing to avoid potential conflicts or unexpected costs.

Consulting a commercial lease lawyer ensures that the lease terms are clear, fair, and aligned with the business’s long-term objectives.

Advantages of a Long-Term Commercial Lease

A well-negotiated long-term lease can offer several benefits to tenants:

• Stability in Rental Costs and Location – Fixed rent terms and a long-term commitment provide financial predictability and allow businesses to establish a steady presence.
• Stronger Negotiating Power with Landlords – Landlords are often more willing to offer tenant improvements, favourable terms, or rent concessions for long-term tenants.
• Greater Flexibility in Customizing the Property – Long-term tenants may have more freedom to modify the space to suit their business needs, such as installing custom equipment or adjusting the floor plan.

Risks of a Long-Term Commercial Lease

While long-term leases offer stability, they also come with potential downsides:

• Long-Term Financial Commitment – Even if the business needs a change, the tenant is still responsible for the lease payments unless termination options are included.
• Difficulty in Relocating – If the business outgrows the space or the location becomes less desirable, terminating or transferring the lease can be challenging.
• Exposure to Market Fluctuations and Rent Increases – Although initial rent terms may be favourable, increases tied to inflation or operating costs can create financial strain over time. However, this effect can be mitigated through negotiation at the outset of the transaction. We often are involved at the early stages of a transaction to negotiate or draft terms of the commercial lease.

Common Lease Types

Understanding the type of lease structure is critical for negotiating favourable terms:

• Gross Lease

  In a gross lease, the tenant pays a fixed rental amount that covers all operating costs, including utilities, property taxes, insurance, and maintenance. This type of lease offers financial predictability but may come with higher base rent.

• Net Lease

  Under a net lease, the tenant is responsible for paying rent plus some or all of the property’s operating expenses (e.g., maintenance, property taxes, and insurance). Net leases are usually divided into:

• Single Net Lease – Tenant pays rent plus property taxes.
• Double Net Lease – Tenant pays rent plus property taxes and insurance.
• Triple Net Lease – Tenant pays rent plus property taxes, insurance, and maintenance costs.
• Percentage Lease

  In a percentage lease, the tenant pays a base rent plus a percentage of the business’s gross revenue. This type of lease is common for retail spaces where the landlord benefits from increased business activity.

Key Lease Terms to Review Carefully

A commercial lease contract is a legally binding agreement, so tenants should thoroughly review the following terms before signing:

Renewal Clauses and Rent Escalations

Renewal clauses define the terms under which a tenant can extend their lease at the end of the contract period. While renewal clauses provide an opportunity to maintain the same location, the terms of renewal are often structured to favour the landlord unless negotiated properly.

• Fixed Rent Renewals – The rent is pre-determined at a fixed rate, providing cost certainty and protection from market fluctuations.
• Market Rate Renewals – The rent is adjusted to reflect the current market rate at the time of renewal. This can lead to significant rent increases in competitive markets.
• Auto-Renewal – Some leases automatically renew unless the tenant provides notice to terminate. Auto-renewal terms should be clearly defined to prevent unintentional extensions.

Rent Escalation Clauses

Most long-term commercial leases include escalation clauses that increase the rent periodically. The type of escalation clause determines how and when rent increases:

• Annual Increases
  Many leases include an annual increase tied to a fixed percentage (e.g., 2% to 5%). This provides predictable cost adjustments for both the landlord and tenant.
• Index-Based Increases
  Some leases tie rent increases to inflation or a financial index such as the Consumer Price Index (CPI). While this reflects economic conditions, it can lead to unpredictable increases during periods of high inflation.
• Operating Cost Pass-Through
  If the property’s operating expenses increase, the landlord may pass these costs onto the tenant. This can include increases in property taxes, maintenance fees, or insurance premiums.

How a Commercial Lease Lawyer Helps

A business lease lawyer in Edmonton can help tenants negotiate more favourable renewal and escalation terms by:

• Ensuring renewal terms are transparent and reasonable.
• Limiting rent increases to a fixed percentage rather than market rates.
• Clarifying what operating expenses are included in rent increases and how they are calculated.
• Identifying any hidden or ambiguous escalation clauses that could lead to unexpected costs.

Without proper legal guidance, tenants may unknowingly agree to unfavourable terms that result in higher long-term costs or reduced business flexibility. Consulting an Edmonton commercial lease lawyer ensures that the lease protects the tenant’s interests and aligns with business goals.

Termination Rights and Exit Strategies

Early Termination Provisions

Flexibility is essential for businesses, especially when market conditions or business needs change unexpectedly. A long-term commercial lease should include clear termination options to prevent the tenant from being locked into an unfavourable agreement.

Well-structured termination rights help protect the tenant from financial and operational risks.

• Break Clauses
  A break clause allows the tenant to terminate the lease after a specified period without facing significant penalties. For example, a five-year lease might include a break clause after two years, giving the tenant an option to exit early if business performance declines or market conditions shift.
• Force Majeure
  Force majeure clauses protect the tenant if unforeseen events — such as natural disasters, government-imposed restrictions, or health emergencies — make it impossible to operate the business. Without this protection, the tenant could still be liable for rent payments even if they are legally prevented from using the space.
• Tenant Default Protections
  A lease should specify that minor breaches, such as late rent payments or maintenance delays, do not automatically trigger lease termination or penalties. A commercial lease lawyer can help define reasonable notice periods and dispute resolution processes to protect the tenant’s rights.

Assignment and Subletting

Business needs can change over time, and tenants may need to transfer the lease to another party or lease part of the space to cover costs.

• Assignment
  An assignment transfers the lease to a new tenant, relieving the original tenant of future obligations. However, many landlords require prior approval and may charge an assignment fee. Some leases also hold the original tenant liable if the new tenant defaults. We often deal with assignments of commercial leases for our clients when they are buying businesses.
• Subletting
  Subletting allows the tenant to rent out part or all of the leased space while remaining responsible for the lease terms. For example, a business leasing a large office may choose to sublet part of the space to reduce operating costs. Another example of subletting would be if the businesses needs change, the original tenant may, with landlord approval, sublease part or all of the space to a third party.

Many landlords impose restrictions on assignment and subletting, such as:

• Requiring landlord approval.
• Charging a transfer or subletting fee.
• Maintaining the tenant’s liability even after assigning the lease. This is especially the case when personal guarantees were given by the principals of the tenant corporation.

A commercial lease lawyer can help negotiate more favourable terms by ensuring that assignment and subletting conditions are flexible and reasonable.

Tenant Responsibilities for Maintenance and Repairs

Who Covers What?

Maintenance responsibilities can have a significant financial impact on tenants. Commercial leases typically divide repair and maintenance responsibilities between the landlord and tenant:

• Structural Repairs
  Landlords are usually responsible for major repairs to the building’s structure, including the foundation, roof, and exterior walls.
• Interior Maintenance
  Tenants are generally responsible for interior repairs and maintenance, including flooring, lighting, plumbing, and HVAC systems within the leased space.
• HVAC and Utilities
  Responsibility for heating, ventilation, air conditioning, and utility maintenance varies by lease type. In some cases, tenants must maintain and repair these systems at their own expense. This is dependent on the type of lease.

CAM (Common Area Maintenance) Fees

These are also often referred to as Operating Costs. In multi-tenant buildings, tenants may be required to contribute to the maintenance of common areas such as:

• Parking lots
• Lobbies
• Elevators
• Restrooms

These costs are paid in proportion to the tenants space in the building. CAM fees can increase over time if not properly defined in the lease. Tenants should clarify:

• How CAM fees are calculated.
• Whether they are subject to annual increases.
• Whether the tenant has the right to audit or dispute increases.

A commercial lease lawyer can ensure that CAM fees are capped and that tenants receive detailed breakdowns of how the fees are allocated.

Insurance and Liability Requirements

Property and Liability Insurance

Most commercial leases require tenants to carry multiple forms of insurance to protect both the tenant and the landlord from financial loss:

• General Liability Insurance
  Protects the tenant from legal claims related to injuries, property damage, or accidents that occur within the leased premises.
• Business Interruption Insurance
  Covers lost revenue if the business is forced to close due to fire, flood, or other covered events.
• Property Insurance
  Protects the tenant’s business assets, including equipment, furniture, and inventory, against damage or theft.

Indemnification Clauses

Many leases include indemnification clauses that shift responsibility for certain risks onto the tenant. For example, the tenant may be required to cover damages resulting from business operations, even if the landlord is partially responsible.

Tenants should ensure that they are not held liable for:

• Damages caused by the landlord’s negligence.
• Structural failures or building code violations.
• Third-party actions (e.g., damage caused by other tenants or contractors).

A commercial lease contract lawyer can identify unfair indemnification clauses and negotiate more balanced terms.

Personal Guarantees and Financial Commitments

What Is a Personal Guarantee?

Some commercial leases require a personal guarantee from the business owner, making them personally liable for rent payments and damages if the business defaults.

This means that if the business closes or fails to meet its financial obligations, the landlord can pursue the owner’s assets to recover losses.

It is always helpful to consult with one of our lawyers regarding personal liability on a commercial lease.

Negotiating Financial Terms

A personal guarantee increases the tenant’s financial exposure, but the following strategies can help reduce the risk:

• Limit the Guarantee to a Specific Time Frame
  For example, the personal guarantee could apply only during the first two years of the lease or until a specific financial threshold is met.
• Include a Release Clause
  A release clause removes the personal guarantee after the business meets certain financial targets, such as paying rent on time for two consecutive years.
• Cap the Amount of Liability
  Set a maximum liability limit, such as six months’ rent, to avoid excessive financial exposure.

An experienced commercial lease contract lawyer can help negotiate more favourable terms, reducing the financial risks associated with personal guarantees.

How a Commercial Lease Lawyer Helps

Signing a long-term commercial lease without proper legal guidance can expose tenants to unnecessary risks and financial obligations. A commercial lease lawyer at Nexus Legal in Edmonton can protect the tenant’s interests by:

• Reviewing Lease Terms – Ensuring the lease is balanced and does not include hidden fees or unfavourable clauses.
• Negotiating Rent and Renewal Terms – Securing predictable rent increases and fair renewal terms.
• Clarifying Maintenance and Repair Responsibilities – Defining who is responsible for maintenance costs and how CAM fees (often referred to as Operating Costs) are calculated.
• Protecting the Tenant from Financial Liability – Reducing personal guarantee exposure and ensuring indemnification clauses are reasonable.
• Handling Assignment and Subletting Terms – Securing the tenant’s right to transfer or sublet the lease if business conditions change.

An experienced lease lawyer helps tenants avoid costly mistakes and secure more favourable lease terms.

Nexus Legal – Protect Your Business with a Strong Lease Agreement

Signing a long-term commercial lease is a significant commitment that can shape the future of your business. While long-term leases offer stability and growth potential, they also introduce financial and legal risks.

Understanding lease terms, renewal clauses, maintenance obligations, and termination rights is essential for securing a favourable agreement. Working with a commercial lease lawyer ensures that all terms are clearly defined and that the lease protects your business interests.

Need help reviewing a long-term commercial lease in Edmonton? Contact Nexus Legal for expert tenant legal advice and lease contract review today.