Industrial Lease Guide

The industrial lease, clause by clause.

37 plain-English explanations of the clauses in a typical Southern California industrial lease: what each one does, where it goes wrong, and what tenants and owners should negotiate. Written by Justin Smith, SIOR, and drawn from his books Industrial Intelligence and Industrial Income.

Before you sign

Parties, Authority and Signing the LeaseThe names on the lease decide who owes the rent and who can enforce it, so get the entity, the signer and the signing sequence right.Agency Disclosure: Who Your Broker RepresentsBefore you share your budget or move date, know whether the broker across the table works for you, the landlord, or both.Personal and Corporate GuarantiesA guaranty decides whose assets stand behind the lease if the business cannot pay, so negotiate its scope as hard as the rent.

The premises

The Premises: What You Are Actually LeasingThe premises description sets the building, yard and rights you pay for, and square footage drives your rent, expense share and racking plan.Premises Condition, Warranties and ComplianceThis clause decides who pays when the roof leaks, an HVAC unit fails or the city flags a code problem in your first months in the building.

Term

Lease Term and Early PossessionClear start, rent and end dates keep you from paying for space you cannot use, or holding over in space you meant to leave.Delay in Possession: When the Space Is Not ReadyIf your building is late, this clause decides whether you get rent relief, a way out, or nothing while you pay holdover at your old site.Options: Renewal, Expansion and First RightsOptions give you the right to stay or grow, but the fine print on rent, timing and default decides whether they are worth anything.Holdover: What Happens If You Stay Past ExpirationStaying in your building a few weeks past expiration can double your rent and make you answerable for the landlord's next deal.

Rent and money

Base Rent, Escalations and Money Due at SigningYour rent schedule, annual increases and payment mechanics decide what the building really costs over the full term, not just in month one.Security DepositsThe deposit you post at signing protects the owner, but its size, its uses and how it comes back to you are all negotiable.Operating Expenses, CAM and Association FeesOperating expenses can add a large share on top of base rent, and the definitions in this clause decide what you pay and what you can challenge.Real Property Taxes and ReassessmentIn a net lease the property tax bill is yours, and a sale or a large improvement can reset it mid-term without warning.Late Charges, Interest and Free Rent RecaptureA slow payment cycle can cost you a late charge, and a default can bring back every month of free rent you negotiated.Rent Abatement After DamageIf a fire, earthquake or roof failure shuts down part of your operation, this clause decides whether your rent stops too.

Use and compliance

Agreed Use: Protecting How You OperateA few words describing your use can decide whether you can grow, change your operation or sublease the building later.Hazardous Substances, Remediation and IndemnityEnvironmental liability can outlast your lease and dwarf your rent. This clause decides whose problem contamination becomes.Applicable Requirements: Codes, Permits and Who PaysFire codes, high-pile rules and zoning decide whether your operation can run in a building. This clause decides who pays to comply.ADA Compliance in Industrial BuildingsAccessibility upgrades are usually triggered by construction and use. Knowing the trigger tells you who is likely to pay.

The building

Maintenance and Repairs: Roof, HVAC, StructureUnder most industrial leases you run the building like an owner. This clause decides which repairs and replacements land on you.Alterations, Utility Installations and Trade FixturesRacking, power, mezzanines and office build-outs: what you can install, who approves it, and whether you keep it or must remove it.Surrender and Restoration at Move-OutRacking bolts, cabling, signs and worn asphalt add up. What you agree to at signing sets the size of your move-out bill.Utilities and ServicesPower capacity, not just the power bill, decides whether a building can run your operation. This clause covers cost and outages.Landlord Access, Showings and SignageAccess and sign rules touch your security, confidentiality and brand. Negotiate notice, escorts and timing before the landlord needs them.

Insurance and risk

Insurance: Who Carries WhatYour lease decides who insures the building, your inventory and the people on site. Gaps show up after a loss, when they cost the most to fix.Waiver of Subrogation and IndemnityThese clauses decide whether a warehouse fire or a slip in the truck court becomes an insurance claim or a lawsuit between you and your landlord.Damage and DestructionIf fire, earthquake or a roof collapse hits your building, this clause decides whether it gets rebuilt, how long you wait and whether your lease survives.CondemnationA road widening or public project can take part of your yard, docks or parking. This clause decides whether your lease survives and who gets paid.

Transfers and financing

Assignment and SublettingBusiness plans change faster than lease terms. This clause decides whether you can hand off your warehouse, and what it costs you when you do.Subordination, Attornment and Non-Disturbance (SNDA)If your landlord's lender forecloses, this clause decides whether you keep your building or face losing it with years left on your lease.Estoppel CertificatesA short form your landlord sends during a sale or refinance can lock you into facts about your lease. Sign it carelessly and you may give up real claims.Quiet Possession, Multiple Buildings and SecurityThese clauses decide whether you can operate without interference, how park rules bind you, and who is responsible for protecting your site.

Defaults and disputes

Default, Breach and RemediesThe default clause decides how quickly a late payment or a missed obligation turns into lost concessions, eviction and a lawsuit.Termination, Consents and OffersThree short clauses decide what happens to subtenants when a lease ends, how approvals get handled, and when a deal is actually a deal.Performance Under ProtestPay the disputed bill and keep your right to fight it: this clause stops a billing dispute from turning into a lease default.Attorneys' Fees, Jury Waiver and ArbitrationWho pays the lawyers and who decides the case are set the day you sign, long before anyone imagines a dispute.The Boilerplate That Matters: Notices, Time of Essence, AmendmentsThe fine print at the back of the lease controls deadlines, notice delivery and who you can actually collect from, so it deserves a real read.
By Justin Smith, SIORIndustrial IntelligenceThe executive's guide for tenants and occupiers →By Justin Smith, SIORIndustrial IncomeThe investor's guide for landlords and owners →

General information about how industrial leases commonly work, not legal advice. Every lease is different: have a California real estate attorney review yours before you sign.