The Downside of a Lease Is Set Before It’s Signed
CFO Series | Week 5 of 6
By Chris Rohrer & Pete Kostroski | Co-Owners
Why are leases one of the only major financial commitments that don’t get fully modeled before they’re locked in?
It’s not because they’re low risk. It’s because they don’t feel like capital decisions at the moment.
Most long-term financial commitments inside an organization go through structured review. Debt is stress-tested. Capital expenditures are debated. Investment decisions are modeled across scenarios, challenged, and revisited before capital is committed.
Leases often move differently. They’re evaluated through a narrower lens: rent, concessions, what’s “market”. The conversation feels commercial. Operational. Sometimes even tactical.
But the obligation being created is anything but.
The Contract That Gets Set and Then Stays That Way
A lease is one of the few contracts where the downside is largely determined upfront, during negotiation, and then fixed for the duration of the term.
There’s no reset button unless you are very diligent in structuring lease contracts, expansions or defined termination options and most don’t
Unlike other financial obligations, leases typically don’t go through formal stress testing. They aren’t reviewed by credit committees. They rarely get pressure-tested across multiple downside scenarios. And yet, their impact can be substantial as business needs change.
We’ve seen leases outlast leadership teams. We’ve seen them limit strategic pivots that made sense on paper but couldn’t be executed in reality. We’ve seen them slowly erode margins. Not all at once, but over time, in ways that were easy to miss until they weren’t.
The absence of structured review doesn’t eliminate risk. It just delays when you feel it.
Where the Real Risk Actually Lives
Most negotiations center around numbers that are easy to compare: base rent, free rent, tenant improvement allowances.
Those matter, but they’re not where the long-term exposure usually hits. The real risk is in the structure.
It shows up in decisions like:
How long the term assumes stability
Whether exit options are usable or just theoretical
How expansion rights behave when the market shifts
Where operating cost variability is allocated
None of these feel urgent when everything is going according to plan. That’s exactly why they get overlooked. They only become visible when something changes. And something always changes.
The Window Most Teams Don’t Fully Use
There’s a moment in every lease process where the outcome is still flexible. Before execution, tenants have leverage. Terms can be shaped. Risk can be shifted. Flexibility can be negotiated into the document.
After execution, that leverage disappears.
At that point, the lease stops being negotiated and becomes a fixed framework the business has to operate within. That’s why the negotiation window matters more than most teams realize. It’s not just about getting to a deal. It’s about defining the boundaries of future decisions. This is true not only with new leases but when renewing a lease which is when most businesses are most vulnerable because they don’t take the time to find alternative spaces that might have better terms or just be great leverage. Lease renewals are really an altogether different topic but if you are not negotiating this just like you would a new space, you are definitely leaving money and flexibility on the table, and this is just what your landlord hopes for.
A Different Way to Look at It
The most disciplined finance leaders don’t treat leases or renewals as occupancy decisions. They treat them as long-term liabilities. That shift changes the questions.
Not just “Is this rate competitive?” But:
What happens if this doesn’t play out the way we expect?
Where do we have real flexibility and where are we locked in?
How does this obligation interact with everything else we may need capital for?
Those questions don’t always produce the lowest rent. They produce a lease that still works when the original assumptions do not.
A lease is one of the few contracts where downside isn’t imposed later by the market. It’s defined upfront by how the deal is negotiated and how early the right questions are asked. Once it’s signed, flexibility doesn’t fade over time. It’s already gone. And what’s left is whatever structure was put in place when there was still a chance to shape it.
Are you entering a lease negotiation or nearing renewal? Connect with Rokos Advisors to ensure downside risk is defined before it’s fixed, and that your lease structure holds up when assumption changes.
Rokos Advisors is an award-winning Minneapolis - St. Paul based commercial real estate/tenant representation firm specializing in helping businesses find the perfect office or industrial space for their company.