Two years ago, the hardest question about your business was which market to book on Saturday. A year from now, if you sign a lease, it will be whether you can make rent in February. Between those two questions sits a landlord, and the landlord has questions of their own.
It's easy to walk into a first leasing conversation thinking the landlord wants to know whether they'll like the shop. The landlord wants to know four other things: can you pay, what exactly will you do in the space, who pays to make it legal, and what happens if you leave early. Every document they ask for answers one of those. In practice that usually means two years of tax returns or financial statements plus a year-to-date profit and loss statement; a credit check and often a personal guaranty; your entity documents; a description of exactly how you will use the space; a security deposit; and a certificate of insurance naming the landlord.
The three makers below are composites, built from the situations commercial leases are written to handle rather than from any real tenant. Each runs into a different version of the same four questions. The checklist at the end is what all three should have had ready before they signed.
June, the candle maker: financials, true rent and the personal guaranty
June has sold candles at markets for two and a half years. She formed an LLC eight months ago, because a friend said she should before signing anything. She finds an 800-square-foot storefront on a walkable street, and the listing says $24 a foot.
The landlord's broker sends an application that reads a lot like a loan file:
- Business financial statements or tax returns, usually for the last two years. A profit and loss statement for the current year to date.
- Personal financial information on the owner, including a credit check. On a small lease, the landlord is underwriting you, not the LLC.
- A short business plan or description, mostly to answer "what will you do here and how will you pay for it."
- Proof of the entity: articles of organization, the EIN, sometimes a certificate of good standing.
June's first problem is that her LLC is eight months old. Her market sales from before it existed live in a Schedule C on her personal return. That is fine, and normal, but she has to be able to show the line from those returns to the business she is now. A landlord who sees an eight-month-old company with no history asks for more security. A landlord who sees two and a half years of steady sales under one name, with a recent change of wrapper, is less likely to.
Her second problem is the profit and loss statement. If her sales are split across a payment app, a shoebox of market tallies and an Etsy dashboard, producing a clean year-to-date statement is a weekend of work done under deadline. If her sales and expenses already live in one place, like Ardent Seller's income and expense tracking, it's a report she can print. The landlord is reading the same numbers a lender would, and what a bank looks for in a small business loan application is a good preview of how they will read them.
What "$24 a foot" actually costs
Retail rent in the US is usually quoted per square foot per year, though some markets quote it monthly, so confirm which before you do the math. The listing also rarely says whether the lease is gross, with the building's costs folded into one rent number, or triple net (NNN), where you pay base rent plus a share of the building's property taxes, insurance and common area maintenance (CAM): the parking lot, the snow removal, the landscaping. Assuming it's triple net, at $24 a square foot a year, June's listing means:
| Line | Math | Monthly |
|---|---|---|
| Base rent | 800 sq ft × $24 ÷ 12 | $1,600 |
| Pass-through charges (triple net) | 800 sq ft × $8 ÷ 12 | $533 |
| Total occupancy, before utilities | $2,133 |
The $8 figure is a placeholder; the real one depends on the building. Ask whether the lease is gross or triple net, and if it's triple net, ask for the last two years of actual pass-through charges. Estimated CAM is a budget, and the year-end reconciliation against what the building actually spent can bring a bill.
The personal guaranty
Then the lease draft arrives with a personal guaranty. June formed the LLC so that a business debt would stay a business debt. The guaranty undoes that for the lease: if the business stops paying, the landlord can come after her personally for what the lease says is owed.
On a young business, a landlord will very often insist on one. The negotiation is usually not whether, but how much and how long. Tenants commonly ask to cap the guaranty at a fixed number of months of rent, or to have it fall away after a period of on-time payments. Before June agrees to any number, she divides her savings by $2,133. That's the most months of rent she could cover if the shop had a bad first winter, and it's fewer once her own living costs come out of the same savings. A guaranty capped beyond that number is a promise she couldn't keep. The Maker Runway Calculator runs the fuller version: add the shop's $2,133 to her household expenses, and it weighs the business's profit too.
The way out: renewal, early exit and assignment
The guaranty matters most if the shop doesn't work, so June reads the exits next. Does the lease give her an option to renew, at a stated rent or a stated formula? Can she end it early, and what does that cost? Can she assign the lease (hand it to a buyer of the business) or sublet, and does the lease say the landlord's consent can't be unreasonably withheld? A five-year lease with no exit and an unlimited guaranty is five years of rent she has promised personally, whether or not the shop is open.
Teo, the home baker: the use clause, zoning and build-out
Teo bakes under his state's cottage food law and wants a small shop with a counter and a back room. The landlord's first question is not about money. It's "what's the use?"
The use clause is the line in the lease that says what the tenant may do in the space. Teo's draft says "retail bakery." That sounds right until he reads it the way a landlord's lawyer will. Does "retail bakery" cover baking on site, or only selling? Does it cover the Saturday decorating classes he plans to teach? Online orders that he packs and ships from the back room? Catering pickups? If the clause is narrow and Teo's business grows sideways, he is in breach of his own lease for doing the thing that made the shop work.
So he writes the clause to cover everything he plans to do for the length of the lease: "production and retail sale of baked goods, related classes and events, and fulfillment of online and wholesale orders."
The landlord's clause is only half the question. As the SBA puts it (opens in new tab), "Zoning ordinances can restrict or entirely ban specific kinds of businesses from operating in an area." A lease that permits a bakery in a space the city won't permit a bakery in is a lease for a shop that can't open.
That's also where Teo meets the certificate of occupancy. Rules are local, and they can catch a first-time tenant off guard. Castle Hills, Texas, for instance, says certificates of occupancy are required (opens in new tab) "prior to the opening of a new business or if an existing business has a change in ownership, a name change, a change in use, or a change in location". A former clothing store becoming a commercial bakery is very likely a change in use. A boutique becoming a studio with a kiln probably is too, though the city's own definitions decide. Teo calls the building department with his exact use before he signs, not after.
Build-out: who pays to turn a shell into a bakery
The space is a former phone store: carpet, a slat wall, one bathroom. A commercial bakery typically needs a handwashing sink, a three-compartment sink (sometimes alongside a dishwasher), an oven circuit and, depending on the equipment, a hood and a grease interceptor, all approved through the health department's plan review.
His cottage food registration was written for his home kitchen; a shop kitchen needs its own food license, from whichever agency his state and county assign, and that license is a bigger step than the lease.
Leases handle the build-out cost in one of a few ways. The space comes as is, and the tenant pays for everything. The landlord offers a tenant improvement (TI) allowance, a dollar amount toward the build-out, often reimbursed after the work is done and inspected. Or the landlord agrees to free rent for the build-out months instead. Teo's question for each: does it cover what a bakery needs, or only what a shop needs? An allowance sized for paint and lighting does not buy a grease interceptor.
If the build-out needs financing, the SBA's 7(a) program lists "acquiring, refinancing, or improving real estate and buildings" (opens in new tab) among its permitted uses, along with the purchase and installation of equipment. But a lender will usually want to see the lease before closing, and the landlord may want proof of the money first. Teo should ask both sides early which document each needs to see.
Teo should also ask about an exclusive. If the landlord leases the next unit to a café that sells pastries, Teo's foot traffic and his margin go next door. An exclusive clause bars the landlord from leasing other space in the property for a defined use, such as the primary sale of baked goods. Landlords rarely volunteer one, so ask, and read how "primary" and "incidental" sales are defined: a café whose pastries are incidental to its coffee may still be allowed.
Marisol, the potter: ADA, power and insurance
Marisol wants a studio with a retail front: wheels and a kiln in back, finished work on shelves in front. Her landlord loves the idea. Customers walking in to watch a potter throw is the kind of tenant a street wants.
Her questions are about the building.
Power and ventilation. An electric kiln of production size can need more electrical service than a typical small retail unit has, and electric kilns are commonly vented, which local mechanical code may also require. Who pays for the panel upgrade, and does the landlord allow the penetration through the wall or roof for the vent? Is the landlord's consent to alterations in writing, and does the lease make her rip it all out and restore the space when she leaves? (Equipment fit is its own decision. The kiln buyer's guide covers the 208-volt trap that catches people in commercial buildings.)
Accessibility. A shop open to the public is a "place of public accommodation" (opens in new tab) under Title III of the Americans with Disabilities Act, and the federal rule is direct about who is responsible:
Both the landlord who owns the building that houses a place of public accommodation and the tenant who owns or operates the place of public accommodation are public accommodations subject to the requirements of this part. As between the parties, allocation of responsibility for complying with the obligations of this part may be determined by lease or other contract.
— 28 CFR 36.201(b) (opens in new tab)
The Department of Justice's Title III Technical Assistance Manual (opens in new tab) spells out what that second sentence does not do: an allocation in a lease "is only effective as between the parties, and both landlord and tenant remain fully liable for compliance with all provisions of the ADA relating to that place of public accommodation."
So a lease line saying "tenant is responsible for ADA compliance in the premises" doesn't move the legal duty. It moves the bill. Marisol's step entrance and narrow restroom door remain her legal responsibility too, whatever the lease says, though how much a given barrier requires of her depends on the regulation's own terms, not on the lease. Before signing, she asks which of those barriers the landlord will fix, writes the answer into the lease, and budgets for the rest.
Insurance. Before she gets the keys, the landlord will want a certificate showing commercial general liability coverage at a stated limit, with the landlord named as an additional insured. That's a different thing from a certificate that only proves the policy exists. The shared kitchen agreement walkthrough explains why the difference matters. A permanent lease will usually also require property coverage for her own equipment and improvements, since the landlord's policy covers the building and not her kiln.
The checklist: what to have ready before you sign
June, Teo and Marisol were asked different questions. The folder that answers all of them is the same one.
What the landlord will ask you for
- Two years of business tax returns or financial statements, plus a current year-to-date profit and loss statement.
- Personal financial information and consent to a credit check, as the person who will likely guarantee the lease.
- Entity documents: articles of organization, EIN letter, and a certificate of good standing if the landlord asks.
- A one-page description of the business and exactly how you will use the space. A one-page business plan does this job.
- Funds for a security deposit. Expect a larger one, or more months of it, if the business is young.
- An insurance quote now, and a certificate naming the landlord as additional insured before you take possession.
What you should get answered before you sign
- Gross or net? If net, the last two years of actual tax, insurance and common area maintenance (CAM) pass-throughs, and whether annual CAM increases are capped.
- A use clause that covers every activity you plan for the whole term: making, selling, classes, events, shipping.
- Zoning and certificate of occupancy confirmed with the city for that use, at that address.
- Build-out: as is, a tenant improvement (TI) allowance, or free rent, and whether it covers your trade's requirements, not just a generic shop's.
- ADA: which barriers the landlord will fix, in writing, and a budget for the rest. Remember the lease divides the bill, not the liability.
- Personal guaranty limits: a cap in dollars or months, and a date or payment record after which it falls away.
- An exclusive clause covering your primary use, if a direct competitor in the same property would hurt you.
- Term and exits: renewal options, what it costs to leave early, and the right to assign the lease if you sell the business, with consent not unreasonably withheld.
A commercial lease is not a residential lease with a bigger number. It's a negotiated contract, and much of what a renter takes for granted is whatever the document says. The SBA's location guidance (opens in new tab) gives zoning its own section for a reason. Have a commercial real estate attorney read the lease before you sign it. On a five-year lease, that review is cheap insurance against a clause you will be living with in year four.
Before the lease, after the pop-up
If you haven't run a short-term space yet, a month-long pop-up shop is one of the cheapest rehearsals for a lease. It tests the street, the foot traffic and your stock depth before you're signed to a five-year term.
And if the honest answer to item 1 is "I don't have a clean year-to-date P&L," you've found your first task. A landlord will believe numbers you can print. They won't believe numbers you have to explain. Get sales, expenses and cost of goods into one place in Ardent Seller now, and the year-to-date P&L is ready when the broker asks. You walk into the first showing with that half of item 1 already done, and once the shop opens, its stock can sit beside your workshop's as a second location.
Related reading
- What Banks Want in a Small Business Loan Application — If the build-out needs a loan, this is how the lender will read the same tax returns and P&L the landlord just did.
- How to Run a Pop-Up Shop for Makers — Test a street for a month before you sign for five years, with the stock-depth math for a first retail space.
- Shared Commercial Kitchen Rental Agreement — For a food maker not ready for a full build-out, the clause-by-clause read of the agreement that comes before a lease.
- One-Page Business Plan Template for Makers — The one-page description item 4 asks for, with a filled-in example.
Free resources
Free companion downloads for the folder before you sign:
- "Should I Quit My Day Job?" Maker Runway Calculator — Add the shop's rent to your household expenses and see how long your savings last against both, net of the business's profit, before you agree to a personal guaranty sized in months of rent.
- Craft Seller Startup Checklist — Its legal and tax section (entity, EIN, licenses, zoning, insurance) is the paperwork behind items 3, 6 and 9, gathered before a broker asks for it.
- End-of-Month Closeout Checklist — The monthly habit that turns "I'll pull together a P&L" into a statement you can hand over the same day.
This article is provided for educational purposes only and does not constitute legal, tax, or financial advice. Commercial lease terms, zoning, certificate-of-occupancy rules, accessibility obligations, and insurance requirements vary by jurisdiction and property, and change over time. Have a qualified commercial real estate attorney review any lease, and consult your local building and zoning department, before signing.