Leasing Commercial Property in California

Last updated: October 2026

A commercial lease gives you almost none of the protections a residential tenant has. There is no deposit cap, no implied warranty of habitability, no rent cap, and no right to stay at the end of the term. What you get is what the document says, which makes the negotiation the whole of the protection. Bay Legal, P.C. reviews and negotiates commercial leases for California businesses and property owners.

How is the rent actually calculated?

The headline rate is rarely the number you pay. What matters is which operating costs sit on top of it.

Two figures decide whether a triple net deal is what it appears. First, what is included in common area maintenance — administrative fees, management fees, and capital improvements are frequently swept in, and a cap on annual CAM increases is the usual protection. Second, whether the base year for pass-throughs is stated clearly, because an unstated or badly drafted base year shifts cost onto the tenant from the first renewal.

Will you have to sign a personal guarantee?

Usually, for a small business, and it is the term most worth negotiating. A personal guarantee makes the individual liable for the lease regardless of the entity that signed it — so forming an LLC and then guaranteeing the lease personally leaves the owner exposed for the full term, which on a five-year lease can exceed the value of the business.

Three alternatives are commonly achievable. A capped guarantee limits exposure to a fixed sum or a number of months’ rent. A burn-off guarantee falls away after a defined period of compliant payment. And a good-guy guarantee limits liability to the period before the tenant vacates and hands back possession properly, which protects the landlord against a tenant who stops paying and stays.

A landlord asking for an unlimited personal guarantee is asking for the most valuable term in the lease. It is rarely offered as negotiable and frequently is.

What happens at the end, and can you leave early?

Nothing automatic. A commercial tenant has no statutory right to renew and no right to remain at the end of the term. Holding over without agreement typically triggers a holdover rent provision at a substantial premium, often 150 to 200 percent of the last rent, so the renewal conversation belongs well before the term expires.

• Renewal options should state the rent mechanism, not just the right — an option to renew “at market rate” without a determination method is an agreement to negotiate.
• Assignment and subletting are the practical exit. Most leases require landlord consent; whether that consent may be unreasonably withheld is the term to negotiate, along with whether the original tenant stays liable after assignment.
• Early termination rights are unusual but obtainable, typically with a termination fee and notice period.
• Relocation clauses let a landlord move a tenant within a building or centre. They are common in multi-tenant properties and worth limiting.

Which other clauses decide the deal?

• Use and exclusivity. What you may operate, and whether the landlord may lease to a competitor in the same centre. Both matter more than tenants expect.
• Tenant improvements. Who builds, who pays, who owns them at the end, and whether the allowance is paid or credited.
• Repair and maintenance. There is no habitability warranty here. Roof, structure, and HVAC responsibility are allocated by the document, and HVAC on a triple net lease is a common surprise.
• Compliance and ADA. Who bears the cost of bringing premises into compliance. California accessibility litigation is active, and the allocation clause is what determines who pays.
• Default and cure. What counts as default, how long you have to fix it, and what notice is required first.
• Dispute resolution. Arbitration or court, venue, and whether fees shift. There is no general right to attorney fees in California, so this clause decides the economics of any later dispute.

What protections do commercial tenants actually have?

Fewer than residential tenants, and it is worth being specific about which.

The last two rows are the ones commercial landlords misjudge. Recovering possession requires an unlawful detainer action under Code of Civil Procedure section 1161 and following, and a landlord who changes the locks on a defaulting commercial tenant faces the same exposure as a residential one.

Who advises on commercial leases at Bay Legal?

Clarence Olson practises in real estate and landlord-tenant law. Managing attorney Jayson R. Elliott advises on lease terms as part of the firm’s business practice, including the entity and guarantee questions that arise on signature. Lead litigation attorney Evan Livingstone heads the litigation group where a lease is disputed.

Bay Legal, P.C. serves businesses and property owners statewide from offices in Palo Alto and Los Angeles, including across San Francisco, Oakland, and the wider Bay Area.

Frequently Asked Questions

What is the difference between a gross lease and a triple net lease?

A gross lease includes taxes, insurance, and maintenance in the rent, so the landlord bears cost increases and the rate reflects that. A triple net lease excludes all three, so the tenant pays them separately and they move independently of the base rent. The headline rate on a triple net deal is not the cost of occupancy.

Do I have to sign a personal guarantee?

Landlords usually ask small business tenants for one, and it makes you personally liable regardless of the entity that signed. It is negotiable more often than tenants assume — a capped guarantee, a burn-off after a period of compliant payment, or a good-guy guarantee limiting liability to the period before you hand back possession.

What are CAM charges and can they be capped?

Common area maintenance charges cover shared costs in a multi-tenant property. What counts is defined by the lease, and administrative fees, management fees, and capital improvements are frequently swept in. A cap on annual increases is the standard protection and is usually available if asked for.

Do commercial tenants have a right to renew?

No statutory right. Any renewal comes from an option in the lease, and an option to renew at market rate without a determination method is little more than an agreement to negotiate. Holding over without agreement usually triggers a holdover premium, often 150 to 200 percent of the last rent.

Is there a security deposit limit for commercial leases?

No. The one-month cap that applies to most residential tenancies has no commercial equivalent, and the amount and the conditions for its return are whatever the lease says. That makes the return mechanics worth drafting rather than assuming.

Can a commercial landlord lock out a tenant who stops paying?

No. Self-help eviction is unlawful for commercial tenancies as well as residential ones. The landlord must serve the correct notice and bring an unlawful detainer action, and only the sheriff may remove a tenant. Locking out a commercial tenant exposes the landlord to damages.

Related Questions

Who pays for HVAC on a triple net lease?

Usually the tenant, and it is a common surprise. Where the unit is near the end of its life, negotiate a cap on the tenant’s share or an express carve-out for replacement as opposed to repair.

Can my landlord lease to a competitor next door?

Unless the lease contains an exclusivity clause, generally yes. Exclusivity is easier to obtain before signature than to argue about afterwards.

What is a base year?

The reference year for calculating operating expense pass-throughs. A poorly defined base year quietly shifts cost onto the tenant from the first adjustment.

Do I need an entity to sign a commercial lease?

It is advisable, but it protects you only if you do not then guarantee the lease personally. The guarantee, not the entity, usually determines the exposure.

Talk to a California commercial lease attorney

Commercial lease terms are negotiable before signature and fixed for the term afterwards, and the guarantee is usually the most valuable one. To have a lease reviewed before you sign, call the office nearest you or email intake.

Bay Legal, P.C. — serving California statewide

Northern California office

667 Lytton Ave Ste 3, Palo Alto, CA 94301

(650) 668-8000

Southern California office

3211 Cahuenga Blvd W Ste 212, Los Angeles, CA 90068

(213) 668-8000

Intake: intake@baylegal.com

Fax: (650) 963-0041

Website: https://baylegal.com

This page is general information about California law and does not constitute legal advice or create an attorney-client relationship. For advice on your specific situation, contact a licensed California attorney.