A commercial lease commits the business to premises for a term. It is usually the largest fixed cost it carries and the hardest to reverse — see fixed and variable costs.
The rent is not the cost
What matters is which expenses fall to the tenant.
Gross lease — the rent covers most costs. The landlord carries taxes, insurance and maintenance. Predictable, and priced accordingly.
Triple net — the tenant pays the rent plus property taxes, building insurance and maintenance. The quoted rent looks lower and the total is frequently not.
Modified gross — somewhere between, with the split specified. The detail of that split is the whole negotiation.
A triple net rate cannot be compared with a gross rate directly. Comparing them requires occupancy cost.
Terms that decide the real exposure
Length, and whether there is a break. A long lease at a good rate is only good while the business wants the space.
Escalation — how the rent rises: a fixed percentage, an index, or a review to market. Compounded over a long term this matters more than the opening figure — see compound growth.
Renewal, and on what basis.
Assignment and subletting — whether the space can be passed on. Without it, leaving early means paying to the end of the term regardless.
Personal guarantee, which landlords commonly require — see personal guarantees.
Repair obligations, particularly any duty to return the premises in better condition than they were received.
Improvements — who pays for fitting out, and whether any allowance is offered. Improvements paid for by the tenant generally stay with the building.
Why it belongs in the cash plan
Rent is due whether or not the work is. In a seasonal business the quiet months carry the same commitment as the busy ones, which is what a cash flow forecast exists to make visible.
Before signing
A commercial lease is a long, negotiable, one-sided document. It is worth an attorney reading it, and the terms above are usually more negotiable than the rent.
Alterations to the space, who pays for them and who keeps them, are leasehold improvements.