Commercial Lease Checklist for First-Time NYC Tenants

A checklist for small business owners signing their first New York City commercial lease. Updated October 2026.

Your first New York City commercial lease may be the largest contract your business ever signs, and the landlord's draft is written to protect the landlord. This checklist shows what to check and negotiate at each stage, from budgeting and the letter of intent through signing and moving in.

At a glance: 10 things to check before you sign

Your true monthly cost. Base rent is only part of it. Add tax and operating expense increases, electricity, insurance and, in much of Manhattan, the Commercial Rent Tax.
When rent actually starts. Getting the keys and starting to pay rent can be months apart. Get the rent start date and any free rent in writing.
The personal guarantee. Know whether you are guaranteeing the whole lease or only a limited amount, and negotiate a cap or a "good guy" guarantee.
The legal use of the space. Confirm the building's certificate of occupancy and zoning allow your business before you commit.
Who builds out the space, and by when. Spell out the landlord's work, your allowance, the delivery date and what happens if it is late.
The security deposit. Know the amount, whether a letter of credit is allowed, and when it comes down.
Increases and pass-throughs. Understand the base year, your share of building costs, and any caps.
Your exit options. Check your rights to assign, sublet or end the lease early if your business changes.
Renewal. Know whether you have an option to renew, how the new rent is set, and the exact notice deadline.
Repairs and HVAC. Know who fixes, and who replaces, heating and air conditioning and other systems.

Stage 1: Before touring and budgeting

The cheapest mistakes to fix are the ones you catch before you fall in love with a space.

Set up your business entity first. Sign the lease through an LLC or corporation, not in your own name. Expect the landlord to ask for a personal guarantee anyway if the business is new.
Budget the total cost of the space, not just the rent. Include:
- base rent and its yearly increases
- your share of real estate tax and operating cost increases
- electricity, which is often billed on top of rent in NYC offices
- the security deposit, often two months or more (more for new businesses with little financial history)
- build-out, furniture and moving costs
- insurance
- the Commercial Rent Tax, if it applies (below)
Check whether the Commercial Rent Tax applies. It only covers space in Manhattan south of 96th Street, and most small businesses owe nothing. See the table below.
Look up the building's certificate of occupancy (CO). The CO is the city document that says how a building may legally be used. Search the address on the Department of Buildings' BIS system for COs issued before March 1, 2021, or DOB NOW for later ones. If your use doesn't match, you may need a costly change, or you may not be able to open at all.
Flag special permits early. A restaurant, bar, gym or event space that holds 75 or more people indoors needs a Place of Assembly certificate. A liquor license can't be issued within 200 feet of a school or house of worship on the same street, and if three or more licensed places are within 500 feet, the State Liquor Authority must first hold a hearing. Storefront and sign changes in a historic district need Landmarks Preservation Commission approval.
Build your team. A tenant's broker finds space and compares deals. A lawyer reviews the deal and the lease. For restaurants and other build-outs, bring in an architect or contractor before you sign, so you know what the space really needs.
Gather what the landlord will ask for. Expect requests for business and personal financial statements, tax returns, bank references and a business plan.
Know about free help. NYC Small Business Services runs a free Commercial Lease Assistance Program for eligible small businesses. Call 888-SBS-4NYC or visit nyc.gov/commlease.

The Commercial Rent Tax at a glance

The Commercial Rent Tax is a New York City tax that the tenant pays on rent for business space in Manhattan south of the center line of 96th Street. The top effective rate is 3.9% of rent, and credits lower it for some tenants.

Your situation	What it means
Space is north of 96th Street, or outside Manhattan	No Commercial Rent Tax
Annual rent is more than $200,000	You must file returns, even if you owe no tax
Annual rent is under $250,000	No tax owed
Annual rent is $250,000 to $300,000	Partial tax, reduced by a sliding credit
Business income is $5 million or less and annual rent is under $500,000	Fully exempt under the small business credit
Business income up to $10 million and annual rent up to $550,000	Partial small business credit
Above those limits	About 3.9% of rent per year

Returns are due quarterly, with an annual return due June 20. For this tax, "rent" includes most charges you pay the landlord, such as tax and expense increases, not just base rent. Your accountant can confirm the details.

Stage 2: The letter of intent

The letter of intent (LOI), sometimes called a term sheet, is a short summary of the main business terms. It is generally not a binding contract, but the lease will be drafted from it, and the landlord will resist reopening anything you agreed to here. This is your best moment to negotiate.

One exception: some clauses in an LOI, such as confidentiality or a promise not to negotiate with anyone else for a period, can be binding. Read it before you sign it.

Term	What to ask for, and why
Rent and increases	Starting rent per square foot and a fixed yearly increase you can budget for. Why: increases compound over a 5- or 10-year lease.
Free rent	A rent-free period, often timed to your build-out. Why: without it, you pay rent while you can't open.
Rent start date	A date tied to when the space is delivered ready for your work, not a fixed calendar date. Why: delays by the landlord shouldn't cost you rent.
Landlord's work and allowance	A list of the work the landlord will do, plus any cash allowance for your build-out. Why: build-out is often the largest up-front cost.
Security deposit	The lowest amount you can get, a letter of credit option, and scheduled reductions. Why: deposits tie up cash for years.
Personal guarantee	A "good guy" guarantee or a dollar cap, or none. Why: a full guarantee puts your personal assets behind the whole lease.
Tax and expense increases	The base year, your percentage share, and caps on controllable costs. Why: these pass-throughs can grow faster than rent.
Permitted use	A broad use clause that covers your business as it may grow. Why: a narrow clause can block new products or a future sale.
Assignment and subletting	Consent "not to be unreasonably withheld," and the right to transfer to a buyer of your business. Why: your exit if the business moves, grows or is sold.
Renewal and early exit	A renewal option with a clear rent formula, and an early termination right if possible. Why: flexibility later is hard to win once the lease is signed.
HVAC and repairs	Landlord delivers systems in good working order and replaces them at its cost. Why: replacing a heating or cooling system is one of the costliest surprises a tenant can face.
Contingencies	A right to cancel if you can't get needed permits or licenses. Why: protects you if the space can't legally be used as planned.

Negotiating a letter of intent? That is when a lawyer's review does the most good, because the lease is drafted from it. Call us at (212) 490-0900 or email mail@margolislawfirm.com.

Stage 3: Reviewing the lease

The lease should match the LOI, and it will add many terms the LOI never mentioned. Check each of these.

Rent, increases and pass-throughs

Most NYC leases charge "additional rent" on top of base rent. This is how the landlord passes building costs on to you.

Real estate tax increases. You pay your share of any rise in the building's property taxes above a "base year." A base year set too low means you pay more every year after.
Operating expense increases. Offices often pass through increases in cleaning, security and other building costs. Retail leases often charge common area maintenance (CAM) charges.
Porter's wage escalations. Some older NYC office leases raise rent by a cent per square foot for every cent the building workers' union wage goes up.
Your share. Your percentage is usually your square footage divided by the building's. Check the math.
Ask for: a cap on increases in costs the landlord controls, exclusions for capital improvements and leasing costs, and a right to audit the landlord's statements. Audit windows are often short, so note the deadline.
New city energy rules. Under Local Law 97, larger NYC buildings face fines if they exceed carbon limits, and landlords may try to pass upgrade costs or fines on to tenants. Ask whether the building complies and limit what you can be charged.

Possession, rent start and free rent

The "possession date" is when you get the keys. The "rent commencement date" is when rent starts. These should be different dates if you need time to build out.
Tie free rent and the rent start date to when the landlord actually delivers the space ready for your work.
Check whether free rent covers only base rent or also pass-throughs and electricity.
Watch for clauses that make you repay free rent or allowances if you ever default.

Build-out and the landlord's work

"As is" means as is. If the lease says the space is delivered "as is," the landlord owes you nothing beyond the keys.
Put the landlord's work in a detailed "work letter." List each item, the standard it must meet, and a delivery date.
Add remedies for late delivery. Examples: extra free rent for each day of delay, and a right to cancel after an outside date.
Get your allowance paid on time. Know when and how the landlord pays your improvement allowance, and what paperwork it requires.
Don't start work or pay anyone before the lease is signed. Your contractor's work will also need the landlord's approval and, often, DOB permits.

Permitted use and the certificate of occupancy

The use clause should describe your business broadly enough to cover how it may grow.
The lease should not make you responsible for changing the certificate of occupancy for a use the landlord has already approved.
NYC's 2024 "City of Yes for Economic Opportunity" zoning changes widened where many kinds of businesses can operate. Zoning is only half the question: the building's CO still has to allow your use.

Security deposit or letter of credit

Deposits are commonly two months' rent and can be much higher for new businesses with little financial history.
A letter of credit from your bank can replace cash. The bank charges a yearly fee and may require collateral.
Ask for the deposit to "burn down," meaning it drops on a schedule if you pay on time.
New York law treats a cash deposit as your money, held in trust. The landlord may not mix it with its own funds. If it goes in a bank, the landlord must tell you in writing which bank and how much.

Personal guarantee

A personal guarantee makes you, the owner, personally responsible if your company doesn't pay. It is common for new businesses in NYC. It is not a formality.

Full guarantee. You are on the hook for everything the company owes for the whole lease term. Avoid this if you can.
Limited guarantee. Your exposure is capped, for example at a set number of months of rent, or it shrinks after a period of on-time payment.
"Good guy" guarantee. Common in NYC. Your personal liability ends once the business gives the advance notice the guarantee requires (often three to six months), pays rent through the move-out date, and hands back the keys with the space empty and clean. In October 2025, New York's highest court held that, under the guarantee it reviewed, the guarantor's liability ended when the tenant moved out and returned the keys, even without the landlord's written acceptance. The exact wording of your guarantee still controls. See our good guy guarantee guide.
Watch for extras. Avoid guarantees that make you repay free rent, allowances or broker commissions, or that speed up all future rent.

Assignment and subletting

New York gives commercial tenants no automatic right to sublet or assign. The right to sublet under state law applies only to apartments. Your rights are whatever the lease says.
Ask for consent "not to be unreasonably withheld" and a deadline for the landlord to respond.
Ask for the right to transfer the lease to a buyer of your business, or to a related company, without consent.
Watch for "recapture" (the landlord can take the space back instead of approving your sublet) and profit-sharing on sublet rent.
Transferring the lease usually does not release you or your guarantor. Ask for a release when a qualified buyer takes over.

Renewal and early termination

NYC commercial landlords are not required to renew your lease, and there is no rent regulation for commercial space. If you want to stay, you need a renewal option in the lease.
Check how the renewal rent is set, for example a fixed increase or "fair market value," and how disputes about value are resolved.
Renewal notices must be sent exactly as the lease requires. Courts excuse a late notice only in narrow cases, so don't count on it. Put the window in your calendar the day you sign.
An early termination right lets you leave before the end of the term, usually for a fee. Without one, you generally owe rent for the rest of the term if you leave.

Repairs, HVAC and compliance with laws

Spell out who repairs and who replaces the heating and air conditioning system. The difference between "repair" and "replace" is where many disputes start.
The landlord should be responsible for the structure, roof, building systems and common areas.
Watch for broad "compliance with laws" clauses that make you pay for building-wide code upgrades.
Ask for air conditioning hours that fit your business, and the charge for after-hours service.

Insurance and indemnity

Expect to carry commercial general liability insurance (commonly $2 million per occurrence and $3 million total per year), property insurance for your own equipment, and to name the landlord as an additional insured.
Consider business interruption insurance to cover lost income if you have to close for a while.
Ask for a "mutual" indemnity: you cover claims from what happens inside your space, and the landlord covers what it controls.
Send the lease's insurance section to your insurance broker before you sign, not after.

Accessibility (ADA)

Under the federal Americans with Disabilities Act, both the landlord and the tenant of a business open to the public can be responsible for accessibility. A lease can divide the cost between you, but it doesn't protect either of you from a customer's lawsuit.
New York City's Human Rights Law is broader than the ADA.
New York is one of the busiest states for accessibility lawsuits. Before you sign, ask who pays to fix barriers at the entrance and restrooms.

Utilities and electricity

Find out how electricity is charged: a flat add-on to rent ("rent inclusion," common in smaller NYC offices), a submeter, or direct billing by the utility.
Submeter charges may include an administrative markup. Ask what it is.
Restaurants should confirm gas service, venting and grease trap requirements before signing.

Default and your right to go to court

Look for reasonable notice and "cure periods" before the landlord can declare a default. Short cure periods, such as five or ten days, leave little time to react.
In New York, a tenant facing a lease-ending default notice can ask a court for a "Yellowstone injunction," an order that pauses the cure period while the dispute is decided. It must be requested before the cure period runs out. A lease can't take this right away: New York law voids commercial lease clauses that stop a tenant from asking a court to rule on the lease.
If you move out early, a New York commercial landlord generally has no duty to re-rent the space to reduce what you owe.
To remove you, a landlord must go through a court proceeding. Read the default section carefully so you know which notices and deadlines apply.
New York's rule that makes a landlord's attorney fee clause work both ways applies only to apartments. Ask for a mutual attorneys' fees clause.

Broker commissions

In NYC commercial leasing, the landlord usually pays the brokers' commissions, often including your broker's. Some tenant representatives charge you a flat fee instead. Confirm who pays in writing. Check whether a guarantee or early termination fee would make you repay any commission.

Stage 4: Before signing

Compare the final lease to the LOI, term by term. Business terms sometimes shift in drafting.
Check the names. The tenant should be your company, exactly as registered, and the guarantor should be only the person who agreed to guarantee.
Read every exhibit: the floor plan, the work letter, the rules and regulations, and the guarantee.
Confirm your permits and licenses path. If the lease isn't contingent on them, be confident you can get them.
Line up insurance. Your insurance certificates are usually due before you get the keys.
Arrange the deposit or letter of credit, and confirm the landlord's bank and wording requirements with your bank.
Ask for the SNDA if the building has a mortgage.
Get the lease in writing and signed by both sides. In New York, a lease longer than one year must be in writing to be enforceable.
Hold off on paying contractors or starting work until the lease is fully signed and delivered.

Stage 5: After signing

Calendar every deadline in the lease. Include:
- rent start date and when free rent ends
- yearly rent increases
- deadlines to dispute tax and expense statements
- renewal and early termination notice windows
- letter of credit renewal and deposit reduction dates
- insurance renewals
Commercial Rent Tax filings. If you are in the tax zone and your annual rent is over $200,000, file quarterly and annual returns with the NYC Department of Finance.
Get written notice of where your cash deposit is held. If it is placed in a bank, New York law requires the landlord to tell you which bank and how much.
Get your permits before work starts: DOB work permits, a Place of Assembly certificate if needed, Landmarks approval for storefronts in historic districts, and any sidewalk café or liquor license.
Keep records of every notice, payment and repair request. If you ever need to enforce your rights, the paper trail matters.
Know your protections. NYC's commercial tenant harassment law bars landlords from trying to force you out through conduct such as repeatedly cutting off essential services, repeatedly filing baseless lawsuits, or changing the locks without giving you a key. Courts can impose penalties of $10,000 to $50,000 and award damages.

Common misconceptions

"The landlord's standard lease isn't negotiable." Most terms are negotiable, especially at the letter of intent stage. The "standard form" is the landlord's opening position.

"A personal guarantee is just a formality." A full guarantee puts your personal savings and assets behind every dollar the business owes for the whole term. Negotiate a cap or a good guy guarantee.

"Rent starts when I get the keys." The possession date and the rent start date are separate terms. If you need months to build out, negotiate a later rent start or free rent.

"The rent in the lease is what I'll pay." Most NYC leases add tax and expense increases, electricity and other charges on top of base rent. In much of Manhattan, larger tenants also owe the Commercial Rent Tax.

"Once we sign the letter of intent, the deal is done." An LOI is generally not binding. Either side can walk away until the lease is signed, so don't give notice on your current space or start work early.

"If the zoning allows my business, I can open." The building's certificate of occupancy must also allow your use, and some businesses need extra permits, such as a Place of Assembly certificate or a liquor license.

"I can always sublet if things don't work out." The state law right to sublet covers apartments only. A commercial tenant can sublet or assign only as the lease allows.

"If I move out, the landlord has to find a new tenant." In New York, a commercial landlord generally has no duty to re-rent your space. You may owe rent for the rest of the term.

"Accessibility is the landlord's problem." Under the ADA, both landlord and tenant can be liable to the public. The lease only decides who pays between the two of you.

"Commercial rents are regulated like apartments." There is no rent regulation for commercial space in New York City. The landlord can set any rent at renewal unless your lease says otherwise.

Frequently asked questions

Is a commercial lease negotiable?

Yes. Rent, free rent, the deposit, the guarantee, the build-out and most other terms are open to negotiation. How much you can win depends on the market, the space and your business's finances. Negotiate the main terms in the letter of intent, before the lease is drafted.

Is it normal to personally guarantee a commercial lease?

For a new or small business in NYC, yes, landlords usually ask for one. You can often limit it with a dollar cap, a time limit, or a good guy guarantee instead of a full guarantee.

What is a good guy guarantee in a commercial lease?

It is a limited personal guarantee common in New York City. The owner's personal liability ends if the business gives advance notice, pays rent through the day it moves out, and returns the space empty and clean with the keys. The details depend on the exact wording. See our good guy guarantee guide.

Who pays the NYC Commercial Rent Tax, and how much is it?

The tenant pays it, and only for space in Manhattan south of 96th Street. Tenants with annual rent under $250,000 owe nothing, and a small business credit fully exempts businesses with income of $5 million or less and rent under $500,000. Above those levels, the tax works out to about 3.9% of rent.

Do you pay sales tax on commercial rent in New York?

No. New York State and New York City do not charge sales tax on rent for commercial space. The Commercial Rent Tax is a separate city tax.

Who pays the broker's commission on a New York commercial lease?

The landlord usually pays, often including the commission for the tenant's broker. Some tenant representatives charge a flat fee instead, so confirm who pays in writing before you engage a broker.

What documents do I need to lease commercial space?

Landlords usually ask for your company's formation documents, business and personal financial statements, recent tax returns, bank references and, for a new business, a business plan. The guarantor may need to share personal financial information too.

What rights do commercial tenants have in New York?

Fewer than residential tenants. There is no commercial rent regulation, and most of your rights come from the lease. The law does give you some protections: your cash deposit must be held in trust, NYC bars landlord harassment of commercial tenants, and you can ask a court to pause a default deadline while a dispute is decided.

What are red flags in a commercial lease?

Common ones: an unlimited personal guarantee, a vague rent start date, "as is" delivery of space that needs major work, a narrow use clause, a landlord right to relocate you, repair clauses that make you replace building systems, very short cure periods, and no way to assign or sublet.

Does a commercial lease have to be in writing?

In New York, a lease for more than one year must be in writing and signed to be enforceable. Get every promise, including any made by a broker or the landlord in person, into the signed lease.

Can I get out of a commercial lease early?

Only if the lease gives you a way out, such as an early termination option or the right to assign or sublet. Otherwise you generally owe rent for the rest of the term, and a New York landlord generally doesn't have to re-rent the space to reduce what you owe.

Working with The Margolis Law Firm

The Margolis Law Firm has advised New York businesses from Manhattan for more than four decades. Principal Attorney Jeffrey A. Margolis has negotiated hundreds of office, retail and industrial leases and teaches commercial leasing at Brooklyn Law School.

We review letters of intent and leases for first-time tenants, negotiate with landlords and their lawyers, and explain in plain terms what you are signing. The best time to call is before you sign the letter of intent. Learn more about our commercial real estate practice.

The Margolis Law Firm · 420 Lexington Avenue, Suite 2059, New York, NY 10170 · (212) 490-0900 · mail@margolislawfirm.com

This guide is general information about New York City commercial leasing as of the date above and is not legal advice. Laws, tax thresholds and market terms change. Please consult an attorney about your specific lease before signing.

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