Entering Into a Commercial Lease: What to Know when Leasing Commercial Property

For business owners seeking a physical space and property owners looking to lease their commercial assets in Colorado, entering into a commercial lease agreement marks a significant milestone. A commercial lease is a customized and negotiated contract that will impact the financial health and operational flexibility of both parties.

The consequences of poorly drafted or misinterpreted commercial leases are significant, resulting in unforeseen expenses, operational constraints, or protracted disputes over rent structures, operating costs, tenant improvements, and regulatory compliance. GLO is dedicated to analyzing the crucial aspects of commercial leases in Colorado, offering the necessary legal expertise to secure a favorable and enduring agreement that safeguards your financial interests and facilitates the success of your business or property venture.

Commercial leases are not "one-size-fits-all" documents. Their highly negotiable nature, combined with unique business needs and legal considerations, creates the need for legal guidance to ensure your needs are met.

Deconstructing Rent Structures and Expense Allocation

In commercial lease negotiations, a crucial aspect is the allocation of costs beyond the base rent. Unlike residential leases where utilities and property taxes are usually included in a single monthly payment or handled separately by the tenant, commercial leases often involve intricate structures for additional expenses. The most common of these is the “Triple Net” or “NNN” lease, where the tenant is responsible for a pro-rata share of the property’s real estate taxes, building insurance, and common area maintenance (CAM) fees. While NNN leases are widely used, the precise definition of CAM, its calculation, and the included operating expenses can vary significantly from property to property and even seasonally within the same property. This encompasses various services like landscaping, snow removal, shared utility costs, and management fees.

The risk for both parties lies in the potential for unpredictable or escalating costs. For tenants, an uncapped or poorly defined CAM clause can lead to substantial and unexpected increases in their total occupancy costs, potentially eroding their profitability. Conversely, landlords may face financial shortfalls if they fail to adequately capture all necessary operating expenses. Other lease structures, such as percentage leases (where a business pays a lower base rent plus a percentage of its gross income) or full-service leases (where the landlord covers most operating expenses but charges a higher base rent), introduce their own complexities related to transparency, reporting, and cost recovery. Both landlords and tenants must comprehend these clauses, define terms, and incorporate stability and security mechanisms to prevent future disputes. A skilled lawyer can guide both parties through these processes to ensure a commercial lease contract that aligns with their specific needs.

The Importance Of Legal Guidance

Beyond financial considerations, a commercial lease encompasses the physical space and ensures its suitability for a specific business’s operations, introducing potential liabilities. Businesses have unique requirements far beyond those of residential tenants. For instance, any business open to the public must adhere to the Americans with Disabilities Act (ADA), which may necessitate costly structural modifications. Depending on the industry, businesses may also require specific environmental inspections, permits, and potentially mitigation measures for hazardous materials or waste disposal. Legal advice can ensure your commercial lease is successful and effectively addresses these liabilities.

Another negotiation point is the allocation of responsibility for property improvements, commonly known as “tenant improvements” or “TIs.” It’s crucial to clearly define who pays for these renovations, who oversees the construction, and, most importantly, who retains ownership of these improvements once the lease term ends. A tenant might invest significantly in specialized fixtures only to find out they cannot remove them, while a landlord might inadvertently inherit a property with unauthorized or non-compliant modifications. For property owners, particular attention to environmental compliance is paramount, as landlords can face substantial liability for environmental contamination caused by a commercial tenant, even after the tenant vacates the premises. Additionally, external factors such as lender requirements or limitations can further complicate matters. For instance, some lenders on commercial properties have strict prohibitions against leasing to businesses involved in marijuana, considering its federal illegality. Violating these restrictions could result in the lender calling the entire mortgage due.

How GLO Can Help

Entering into a commercial lease in Colorado involves significant legal and financial stakes. At GLO, our real estate attorneys provide strategic guidance to ensure your lease is tailored, compliant, and aligned with your long-term goals.

We draft and review leases for both landlords and tenants, breaking down complex rent structures like NNN, percentage, and full-service leases. We clarify responsibilities for CAM fees, taxes, insurance, and tenant improvements—including ownership, funding, and rent abatement during build-outs. GLO also advises on ADA compliance, environmental risks, and lender-imposed restrictions that could affect lease validity or trigger defaults. Read our specific practice areas, Commercial Leases: A Tenant's Guide To Review And Negotiation In Colorado and Commercial Contract Drafting And Review to learn more about how GLO can help you.

Whether negotiating terms or mitigating future disputes, GLO ensures your lease protects your interests and supports a stable, successful tenancy.

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GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO engages clients only through specific signed fee agreements. GLO does not guarantee any results.

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