Commercial Lease Agreements for Nonprofits
Signing a commercial lease agreement is a major commitment for any nonprofit. Unfortunately, many organizations enter into lease agreements without fully understanding the terms, and that can often lead to unexpected costs or legal issues later on.
Whether you’re leasing your first space or renewing an existing agreement, it’s essential to review the lease carefully and have an attorney review it whenever possible. Here are a few key considerations for nonprofits navigating commercial lease agreements.
Understand the financial impact
Before signing a multi-year lease, be sure that you review any scheduled rent increases. Many leases include a “step-up” clause that raises the rent annually. A lease that starts at $1,500 per month with a 10% yearly increase can significantly impact your budget by year five. Carefully evaluate whether these increases will be financially sustainable in the long term.
You should also look for any additional costs beyond the base rent. Common expenses in commercial leases include:
• Common Area Maintenance (CAM) fees
• Prorated property taxes
• Insurance or utility charges
These expenses can increase over time. Additionally, some lease agreements allow landlords to raise the rates without much notice. Review the lease for any clauses related to fee increases and notification requirements, so you are not caught off guard.
Include a strong termination clause
One of the most important things to look for in a lease is the termination language. What happens if your organization loses a major grant or experiences a significant drop in donations?
Some leases do not allow for early termination, even in the event of financial hardship. In those cases, a nonprofit may be required to pay the remaining balance on the lease if they vacate early, an amount that could total tens of thousands of dollars.
Whenever possible, negotiate for a termination clause that allows for early exit due to loss of funding or other financial challenges. Make sure the lease language reflects the reality that your funding may depend on grants, donations, or economic conditions beyond your control.
Clarify maintenance responsibilities
Many commercial lease agreements assign maintenance responsibilities to the tenant, and the costs may be higher than expected. In some leases, the nonprofit is responsible for everything inside the exterior walls, including:
• Replacing broken windows
• Repairing or replacing damaged carpet
• Maintaining the HVAC system, including regular service documentation
These costs can be difficult for many nonprofits to absorb. Before signing, clarify what you are responsible for and confirm whether those responsibilities are reasonable for your organization’s budget.
Avoid personal liability
The lease should clearly state that it is made on behalf of the organization, not a specific individual. In some cases, landlords may write the agreement in a way that makes it appear the executive director is personally liable for the lease, which can lead to serious issues if the organization tries to terminate early or experiences leadership turnover.
Be sure the lease is signed by an appropriate officer, such as the board president, and that it explicitly names the organization as the party entering into the agreement.
Do your due diligence
Before committing to a space, research the landlord or property management company. If possible, speak with current or former tenants to assess their experience. In some cases, properties may sit vacant or have a high turnover due to high rent or difficult lease terms.
If you’re looking for an affordable or flexible space, consider community options like shared nonprofit hubs or spaces leased specifically to nonprofit organizations. In Oklahoma City, the Center for Nonprofits and other locations offer space at reduced rates for mission-driven organizations.
Review leases during leadership transitions
Leadership changes are a good time to revisit any existing leases. New executives and board members should understand all lease terms, including how many years remain, what the organization is responsible for, and any financial risks. Reviewing the lease together can help prevent confusion and ensure transparency across the organization.
Legal support can help you plan ahead
Commercial leases are complex, and many use standard forms not designed for nonprofit organizations. Working with an attorney ensures you understand what you’re agreeing to and can help you negotiate more favorable terms, when needed.
If your organization is preparing to lease space or needs help reviewing an existing agreement, contact the Nonprofit Solutions Law team to learn how we can help.