The Five Key Clauses in a Commercial Lease Agreement

You're about to sign a lease agreement for your new office, and the property owner hands you a 15-page contract and says: “It’s standard — just sign here.” Right before you pick up the pen — stop. This decision could determine whether your business succeeds or fails.

In commercial leases, unlike residential leases, tenants have almost no legal protections – everything depends on what’s written in the contract. A single mistake in one clause could cost you hundreds of thousands of shekels — or derail your entire business plan.

Clause One: Permitted Use

It’s not just an “office” or a “store.” This clause defines exactly how you’re allowed to use the property. If it says “offices only”, you won’t be able to open a clinic or hold training courses. A narrow definition can limit or delay the growth of your business and prevent you from adapting to market changes. On the other hand, a definition that’s too broad may give the landlord grounds to claim you’re violating the lease.

Clause Two: Exclusivity (Mix)

There’s nothing more frustrating than finding out your landlord has rented the space next door to your direct competitor. An exclusivity clause prevents the landlord from leasing other units in the complex to a business like yours. Without this protection, you could find yourself in a price war with the neighbor — or worse, losing customers to a competitor who enjoys the same location advantages. The exclusivity clause is especially important in commercial centers or malls where competition is intense.

Tenants: Always insist on this clause. Without exclusivity, you're taking a serious risk.

Landlords: We understand it may limit you, but one successful tenant is worth more than two tenants competing against each other.

Clause Three: Lease Term and Renewal Rights

A business needs stability. If you’re investing ₪200,000 in designing the space, you need to ensure you'll be able to recoup that investment. Also, will the landlord contribute to the cost of adapting the space to your business needs?

As you know, it takes time for customers to discover you and build loyalty to the new location — and that doesn’t happen in just a couple of months. On the other hand, too long a lease term could tie you to a location that isn’t working or a landlord who doesn’t hold up their end of the deal. Striking the right balance between security and flexibility is key to success.

Practical advice: Ask for a three- to five-year lease with an option to extend for another three to five years. That way, if the business is thriving, you won’t lose the space — and if it’s not, you’ll have a way out.

Clause Four: Cost Sharing and Maintenance

Who pays for a broken air conditioner? Who’s responsible for fixing the flooring? Who covers electricity in the shared areas? Without clear terms, you could end up paying tens of thousands of shekels for repairs that weren’t in your budget — and the same goes for landlords. Landlords should also understand that shifting all responsibility onto the tenant can deter quality tenants and lead to poor maintenance of the property.

The simple rule: Anything related to the structure itself (walls, floors, central systems) is the landlord’s responsibility, while anything related to your business operations (equipment, interior design) is yours.

Clause Five: Guarantees and Exit Strategies

In commercial leases, guarantees are significantly higher — sometimes the equivalent of four to six months’ rent. In addition, you need to think ahead about how to exit the lease if the business doesn’t succeed. Statistics show that 20% of small businesses fail in the first year, and 50% within five years. Without planning your exit in advance, you could find yourself stuck with a long-term lease commitment long after the business has shut down. That’s a risky situation that could even lead to personal bankruptcy and make it difficult to start over.

The smart solution: Discuss in advance options like subleasing or transferring the lease to a replacement tenant. That way, if you need to exit the lease, you won’t be left with years of liabilities.

Negotiation Tips

For tenants: Don’t sign a “standard” lease. Every clause is negotiable. Start with a short trial period and include renewal options.

For landlords: A reliable, long-term tenant is worth more than one who pays 10% more but disappears after a year.

Why You Need a Real Estate Attorney

A commercial lease agreement isn’t just a contract — it defines your business’s visibility and location. A real estate attorney will check the things you might not notice: the landlord’s rights to the property, planning and zoning restrictions, and what happens if the landlord fails to meet their obligations.

An experienced commercial attorney will also help draft the lease in a way that protects you in all possible scenarios and guides you toward a commercial lease that balances the need for flexibility with the need for security.

Remember: in commercial leasing, if it’s not in the contract — it doesn’t exist. Saving on legal fees today can cost you far more tomorrow.