- High vacancy rates give tenants more negotiating power — but also expose them to risky landlords and unsafe buildings.
- Many red flags are hidden in the fine print of the lease contract, not in the physical space itself.
- One wrong decision can delay your permits, inflate your rent, or even shut down your business.
The Philippine commercial real estate market is a “tenant’s market.” Vacancy rates in secondary districts remain high, and many landlords are eager to fill empty spaces. But this doesn’t mean every available unit is a good deal. Some spaces hide legal, structural, and financial traps that can cripple your business before it even opens.
Whether you’re opening a café, a salon, a mini-grocery, or a small office, here are the 10 critical red flags you must watch out for before signing a commercial lease.
Missing permit to lease or building documents
Every landlord must secure a Permit to Lease from the LGU and a valid Certificate of Occupancy.
Red flag: The landlord cannot show:
- Certificate of Occupancy
- Business Permit
- Permit to Lease
Risk: You cannot get your own Mayor’s Permit. You may spend hundreds of thousands on renovations only to be barred from operating.
Real-life example: A small café in Cavite spent ₱450,000 on interiors, only to discover the building had no occupancy permit. The LGU refused to issue their business permit.
Vague common area maintenance (CAM) fees
Many tenants focus only on base rent, forgetting that CAM fees can be just as expensive.
Red flag: The contract states CAM fees are “subject to change based on actual expenses” with no ceiling.
Risk: CAM fees can increase by 20–30% without warning — especially with rising electricity and security costs.
Tip: Ask for a CAM fee cap or a historical breakdown of the last 12 months.
The self-help eviction clause
Some landlords insert aggressive clauses allowing them to evict tenants without due process.
Red flag: Wording like:
- “Landlord may padlock the premises…”
- “Landlord may disconnect utilities…”
- “Landlord may seize inventory…”
Risk: These actions are illegal without a court order — but abusive landlords still attempt them.
Tip: Any clause allowing eviction without court intervention is a major warning sign.
“As-is, where-is” with no warranty of habitability
Many landlords use this phrase to avoid responsibility for hidden defects.
Red flag: The contract waives the landlord’s duty to repair structural issues.
Risk: You may end up paying for:
- Faulty electrical wiring
- Leaking roofs
- Broken AC systems
- Plumbing defects
Real-life example: A salon owner in Quezon City had to replace a 10-year-old centralized AC unit costing ₱180,000 because the lease said “tenant assumes all defects.”
Prohibitive restoration clauses
Most leases require you to return the space to its original condition — but some landlords take this too far.
Red flag: The contract requires a “Bare Shell” return even if your improvements add value.
Risk: You may spend ₱200,000–₱500,000 demolishing your own renovations.
Tip: Negotiate a “Leave As Is” clause for permanent improvements.
No exclusivity or non-compete clause
If you’re opening a food business, salon, or specialty shop, competition inside the same building can kill your sales.
Red flag: The landlord refuses to guarantee that they won’t lease to a direct competitor.
Risk: A competing café or salon may open next door, splitting your customer base.
Example: A milk tea shop in Laguna saw sales drop 40% when the landlord leased the adjacent unit to another milk tea brand.
Hair-trigger default provisions
Some contracts define “default” too broadly.
Red flag: You can be declared in default for:
- Being 3 days late on rent
- A minor signage violation
- Temporary utility delays
Risk: The landlord can terminate your lease immediately.
Tip: Look for a “Notice and Cure” period of at least 15 days.
The invisible escalation clause
Rent increases are normal — but they must be predictable.
Red flag: Rent increases tied to the Consumer Price Index (CPI).
Risk: CPI-based increases can spike unpredictably. In high-inflation years, rent may jump 8–10% instead of the usual 5% cap.
Tip: Negotiate a fixed annual escalation (e.g., 5%).
Lack of sublease or assignment rights
Business needs change. You may expand, downsize, or sell your brand.
Red flag: The lease strictly prohibits:
- Subleasing
- Assigning the lease
- Transferring rights to a buyer
Risk: You remain stuck paying rent even if you no longer use the space.
Example: A small gym owner in Cebu sold his business but had to continue paying rent for 8 months because the lease prohibited assignment.
Under-the-radar tax handling
Some landlords try to avoid taxes by shifting the burden to tenants.
Red flag: The landlord asks you to pay “net of taxes” and refuses to issue a BIR Official Receipt.
Risk:
- You cannot claim rent as a deductible expense.
- You may be liable for unremitted VAT or withholding tax.
- The BIR may audit you for dealing with a non-compliant landlord.
Tip: Never pay rent without a valid BIR invoice.
Conclusion and action plan
Renting a commercial space is one of the biggest financial decisions you will make as a business owner. A good location can help your business thrive — but a bad lease can drain your cash flow, delay your permits, or even shut down your operations.
Action steps before signing any lease:
- Ask for the landlord’s building permits and occupancy documents.
- Request a full breakdown of CAM fees.
- Negotiate restoration, escalation, and exclusivity clauses.
- Have a lawyer or experienced broker review the contract.
- Walk away if the landlord refuses transparency.
In a tenant’s market, you have leverage. Use it wisely — and protect your business from hidden risks.