Commercial Lease Red Flags: 8 Things a California Business Attorney Looks for Before You Sign 

Red Flag 1: Vague or Uncapped Rent Escalation Clauses 

The base rent number in a commercial lease is almost never the whole story. Most leases include annual rent escalation provisions, and the language governing those increases varies dramatically from one lease to the next. Some leases tie increases to the Consumer Price Index. Others set a fixed percentage, commonly three percent per year. And some use language that is deliberately vague, giving the landlord broad discretion to raise rent at will or to pass through cost increases with little notice. 

Uncapped escalation language is one of the most financially dangerous provisions in any commercial lease. If your lease does not put a ceiling on how much rent can increase, your monthly occupancy cost can grow well beyond what your business budgeted over a five- or ten-year term. A 3% annual increase may sound modest, but compounded over a decade it represents a 34% cumulative increase on your base rent, before any other cost increases are added. 

An attorney reviewing your lease will examine whether escalation is tied to a verifiable external index, whether there is a cap on annual and cumulative increases, and whether the escalation clause interacts with any CAM or operating expense pass-throughs in ways that compound your exposure. If the lease gives the landlord discretion over rent increases with no defined limit, that clause should be negotiated before you sign.

Red Flag 2: Undefined or Uncapped CAM Charges 

Common Area Maintenance charges, usually called CAM, are the fees tenants pay toward the cost of maintaining shared spaces like parking lots, lobbies, landscaping, and building systems. In a triple-net lease, which is the most common structure for California retail and industrial space, you pay base rent plus your proportionate share of property taxes, insurance, and CAM. The problem is that many leases define CAM so broadly that landlords can include nearly any building expense in the calculation. 

Under a poorly drafted CAM clause, you may find yourself paying a share of the landlord's legal fees from a dispute with another tenant, management fees charged at above-market rates, capital improvements that should be the landlord's responsibility, and costs with no logical connection to the common areas your business actually uses. Without a cap on controllable expenses and a right to audit the landlord's records, CAM charges can increase significantly year over year with no real limit. 

California's Commercial Tenant Protection Act (SB 1103), which took effect January 1, 2025, added operating expense transparency requirements for a narrow category of qualified commercial tenants. These include microenterprises with five or fewer employees, restaurants with fewer than ten employees, and nonprofits with fewer than 20 employees. For those qualifying tenants, landlords must now allocate operating expenses proportionately and provide itemized documentation on request under Civil Code Section 1950.9. However, the law does not apply to most mid-sized businesses. If your company does not fall within the qualified commercial tenant definition, CAM protections must be negotiated directly into your lease. 

An attorney will push for a CAM audit right, a cap on controllable expense increases, an exclusion of management fees above market rates, and a clear definition of what the landlord can and cannot include in CAM calculations. These provisions can save tens of thousands of dollars over a long lease term. 

Red Flag 3: Personal Guarantee Language That Extends Beyond Reasonable Limits 

When a landlord leases space to an LLC or corporation, they are technically dealing with a legal entity that is separate from its owner. If the business defaults, the landlord's remedy is against the company, not the individual behind it. A personal guarantee changes that entirely. By signing a personal guarantee, you agree to be personally responsible for every obligation your company owes under the lease, including months or years of unpaid rent, CAM charges, and restoration costs, even if your business closes. 

Personal guarantees are common in commercial leasing, particularly for newer businesses that have not established a credit history. But the scope and duration of the guarantee matters enormously. A landlord's standard form will often ask for a full, unlimited personal guarantee for the entire lease term. That means if your business fails in year three of a ten-year lease, the landlord can come after your personal assets for the remaining seven years of obligations. 

At LawPLA, we frequently see personal guarantee provisions in commercial leases that business owners did not fully understand at signing. As we discussed in our post on LLC personal liability in California, signing a personal guarantee is one of the most direct ways to waive the liability protection your LLC was designed to provide. Once you sign, the landlord's debt collection options expand from your company's assets to your personal bank accounts, real estate equity, and other holdings. 

An attorney will work to narrow the personal guarantee as much as possible: a burn-off provision that reduces your personal exposure as you build a rent payment history with the landlord, a cap on the total dollars you can owe under the guarantee, or a time limit after which the guarantee expires. These negotiated limits are standard requests in California commercial lease negotiations, and many landlords will accept them. 

Red Flag 4: Use Clause Restrictions That Can Cripple Your Business

Every commercial lease includes a use clause that defines what your business is permitted to do in the leased space. A use clause that is too narrow can prevent you from adapting your business over time. If your lease says you may only operate as a "retail clothing store," adding a coffee service, hosting events, or pivoting to e-commerce fulfillment could technically put you in default. 

At the same time, an overly broad use clause can work against you in a different way. If the lease allows any lawful retail use, a future tenant in the same shopping center could open a competing business directly next door. The absence of an exclusive use provision, which prevents the landlord from leasing adjacent space to a direct competitor, is a significant red flag for any business that draws customers to a physical location. 

California zoning law adds another layer of complexity. In Los Angeles County, commercial zones are classified as Commercial (C), Manufacturing (M), and Residential (R) with numerous subcategories. A lease may describe a use that the landlord believes is permitted but that local zoning does not actually authorize. Signing a lease for space you cannot legally use for your intended purpose does not protect you from the financial obligations of that lease. Always verify that the property is appropriately zoned for your business before signing. 

An attorney reviewing your lease will push for a use clause that is specific enough to protect your exclusive use but flexible enough to accommodate your business as it evolves. We will also flag any zoning or conditional use permit issues that could restrict your operations from day one. 

Red Flag 5: Maintenance and Repair Provisions That Shift Costs to You 

In a well-drafted commercial lease, the division of maintenance and repair responsibility between landlord and tenant is clear. The landlord maintains the structure, roof, foundation, and building systems. The tenant maintains the interior of the leased space and any fixtures the tenant installs. Many standard commercial lease forms, however, blur this line in ways that transfer significant financial risk to the tenant. 

One common pattern is a lease that assigns HVAC maintenance to the tenant but then holds the tenant responsible for replacement costs if the system fails. A business that moves into space with aging mechanical systems could find itself facing a $20,000 to $40,000 HVAC replacement obligation with no recourse against the landlord. Similarly, leases that require tenants to return the space to its original condition at lease expiration, sometimes called "surrender" or "restoration" provisions, can result in removal costs that dwarf the security deposit. 

Other provisions to watch for include clauses that hold the tenant responsible for ADA compliance improvements triggered by their occupancy, structural repairs that result from ordinary wear and tear, and pest control obligations that extend to infestations the tenant did not cause. Each of these represents a financial exposure that should be either eliminated or capped before you sign. 

Red Flag 6: Assignment and Subletting Restrictions 

Your business circumstances can change dramatically over a multi-year lease term. You may want to sell your business. You may need to downsize and sublet part of your space. You may restructure your ownership. All of these scenarios require the ability to assign or sublease your space, and most commercial leases require the landlord's consent before you can do either. 

The issue is how the lease defines that consent requirement. A lease that says the landlord may withhold consent "in their sole and absolute discretion" gives them total control over your ability to exit or transfer the lease, with no obligation to be reasonable. If a landlord refuses to approve a legitimate sublease or assignment, you can be stuck paying rent on space you cannot use while also bearing the cost of a business dispute. 

California law under Civil Code Section 1995.310 provides that if a lease is silent on the standard for withholding consent, a landlord may not unreasonably withhold consent to an assignment. However, most commercial leases are not silent on this point. They explicitly grant discretionary authority to the landlord. An attorney will push to replace "sole and absolute discretion" language with a "reasonable consent" standard, and to clearly define what qualifies as a basis for withholding approval. 

Red Flag 7: One-Sided Default and Remedy Provisions 

Default provisions define what happens when a party fails to meet its obligations under the lease. In most landlord-drafted leases, the default provisions are written almost entirely to benefit the landlord, with aggressive remedies available after very short cure periods and broad definitions of what constitutes a default. Some leases treat any technical violation, including late delivery of a notice or a temporary failure to carry the required insurance, as a default triggering termination rights. 

Equally important is the attorney fees clause. California Civil Code Section 1717 provides that attorney fee provisions in contracts must be treated as mutual, meaning that even if the lease only expressly grants attorney fees to the landlord, a tenant who wins a dispute may also recover fees. However, many commercial leases now include mandatory mediation clauses stating that a party who fails to demand mediation before filing suit waives their right to attorney fees. Understanding the sequence of dispute resolution steps in your lease can determine whether you can recover legal costs if you prevail. 

An attorney will also look for self-help remedy provisions, clauses that purport to give the landlord the right to lock you out or remove your property without a court order. California law significantly restricts self-help eviction remedies for commercial tenants, but leases drafted in other states or based on outdated forms sometimes include provisions that conflict with California Code of Civil Procedure requirements. Understanding your rights before a default occurs is far better than discovering them after the landlord has changed the locks. 

Red Flag 8: Missing or Vague Tenant Improvement Provisions 

Most businesses need to modify leased space before moving in, whether that means installing equipment, upgrading electrical service, building out offices, or making the space ADA compliant. Tenant improvement allowances (TI allowances) are landlord contributions toward buildout costs, and the terms governing them can be as financially significant as the rent itself. 

A lease that is vague on tenant improvements can create serious problems. Who holds the permits? Who contracts with the general contractor? What happens if the buildout costs more than the TI allowance? What restrictions does the landlord place on the work? When must the work be completed, and what are the consequences of delay? Each of these questions should be answered clearly in the lease before construction begins, because disputes over tenant improvements are among the most common sources of commercial lease litigation in California. 

An attorney reviewing this section will also examine what improvements, if any, must be removed at the end of the lease term. Restoration obligations for tenant improvements can turn a well-negotiated TI allowance into a net cost if removal and repair expenses exceed the value of the work originally performed.