What Every Startup Should Know Before Signing Its First Office Lease

For many early stage companies, signing that first office lease feels like a milestone—tangible proof that the idea is becoming a real business. But commercial leases are not like apartment leases. They’re dense, heavily negotiated contracts drafted to favor the landlord, and mistakes made at this stage can follow your company for years. It is important to consider a few key lease provisions before making a decision that can influence the success of your business. 

1. Don’t Let the Space Outgrow You Before You Outgrow I

Startups scale fast—sometimes faster than anticipated. It is important to consider the possibility of outgrowing your space or even scaling down.

What to consider:

• Expansion rights. Some leases offer a right of first offer or right of first refusal on neighboring suites. A right of first offer allows tenants to make the first offer on neighboring suites before the landlord can market them to third parties. A right of first refusal, on the other hand, gives tenants the right to match any offer from a third party for a neighboring suite. If you plan to grow, negotiate these early, preferably at the Letter of Intent (“LOI”) stage.
• Shorter terms with renewal options. Instead of locking into a 5 or 7 year lease, consider a 2 or 3 year term with multiple renewal options. You may also consider early termination options. However, keep in mind that this option may be associated with a fee. It is important to negotiate these rights and options during the LOI stage. 
• Subleasing flexibility. Having the right to sublease the space can be important. Negotiate this right early to prepare for any scale down in business. A well-structured lease should include assignment and subletting rights with reasonable landlord approval.

A lease that can shrink or grow with you provides insurance against both success and setbacks.

2. Understand Personal Guarantees

Uncertain economic conditions heighten the importance of carefully evaluating the type and amount of lease security required from tenants. Additionally, startups may be perceived as riskier in the eyes of a landlord, prompting them to seek more than the typical cash security deposit. The most common types of lease security include security deposits, letters of credit and guaranties.

Key considerations: 

• Letters of credit are one of the strongest forms of lease security a landlord can require from a tenant. 
• Guarantees are a common form of lease security requested by landlords. As an alternative, a tenant may negotiate for a burn-off guarantee which is a form of personal or corporate guarantee where the guarantor’s liability is reduced or eliminated after a set period of time or upon meeting certain milestones (e.g., time based or performance based burn off). Landlords often require certain guarantees to reduce exposure associated with startup leasing. Burn-off guarantees may be easier to negotiate than complete removal of a guarantee.

3. TI Allowances: Free Construction Money Isn’t Always Free

A Tenant Improvement Allowance (“TI Allowance”) is a sum provided by a landlord to cover part or all of the commercial space’s build-out costs. It is typically expressed as a dollar amount per square foot and is used to customize the leased space to meet the tenant’s needs. 

TI Allowances sound like free money, but they’re usually priced into your lease rate.

Questions to ask:

• Is the allowance enough to build out what you actually need?
• Who controls the work—your contractor or the landlord’s?
• Are unused TI dollars refundable, or do they disappear?

4. Operating Expenses

Commercial buildings come with shared expenses—insurance, maintenance, taxes—and your lease will push a portion of these costs onto you.

Watch for:

• Base year vs. triple net (NNN). A base year lease caps your exposure to the first year’s expenses. NNN does not.
• Administrative fees. Some landlords charge 10–15% admin fees on top of reimbursable expenses.

Ask for a detailed breakdown, not just a one-line estimate.

The Bottom Line

Signing your first office lease is exciting—but treat it like the major legal and financial commitment that it is. The best time to negotiate flexibility is before you sign, not after your team is already unpacking boxes. With careful attention to expansion rights, guarantees, operating expenses, and exit strategies, you can lock in space that supports your company without constraining it.