In Short
- Review how rent is calculated and reviewed — it may increase over time through fixed, index-linked, or market reviews.
- Check your repair and maintenance obligations carefully, as these can lead to large, unexpected costs.
- Understand your rights and restrictions, including permitted use, break clauses, and lease renewal options.
Tips for Businesses
Before signing a commercial office lease, carefully review the rent structure, repair obligations, and termination rights. Make sure you understand which costs and responsibilities fall to you, and seek legal advice to clarify any unclear terms or conditions before committing to a long-term lease.
When entering into a commercial office lease, you should ensure that you are familiar with the main provisions of the lease. This is because any breach of the lease could expose you to significant liability, either as the tenant or as the guarantor. To protect your business’ interests and avoid costly disputes, you should understand your obligations and follow the appropriate practices. This article outlines a few key provisions in a commercial office lease.
This cheatsheet includes practical tips to understand key clauses and avoid disputes in leasing agreements.
Payments and Rent Reviews
Rent payments are usually structured as monthly or quarterly, which can definitely impact your budget. Additionally, you should consider whether service charges or insurance rent are payable.
More importantly, your rent amount may not be fixed – there can be a rent review, or even multiple reviews throughout the term. There can be different mechanisms for this, for example:
- fixed percentage increases at specified intervals;
- index-linked reviews tied to RPI or CPI;
- market rent reviews conducted every 3-5 years; and
- turnover-based rent calculated as a percentage of gross revenues.
These factors will influence the potential for your rent to change; note that most leases allow only upward-only rent reviews.
Break Clauses and other Termination Rights
You may have negotiated a break clause into your lease, which allows you to terminate it early. This is common when the tenant wants more flexibility, including the option to move to different premises.
Key considerations include:
- timing of break rights and required notice periods;
- conditions for exercising break clauses – such as rent payments and property condition; and
- associated costs or penalties.
Repair and Maintenance of the Property
Understanding repair responsibilities is crucial, as these obligations can lead to substantial, unexpected costs. Most commonly, you would be responsible for either:
- all repairs, maintenance, and insurance obligations under, typically for industrial sites or whole building leases; or
- internal repairs only, while the landlord maintains structural elements (usually in leases of part of a building, like a ground floor shop).
Permitted Use and Other Restrictions
Your lease will usually include a Permitted Use clause, which sets out restrictions on what you can do at the property. While this will sometimes be limited to certain use classes, it can also refer to specific wording describing authorised activities.
Additionally, you may see restrictions on:
- subletting or assignment;
- alteration and improvement rights; or
- compliance with planning permissions and regulatory requirements.
Insurance Requirements
In most leases, insurance responsibilities are split between the landlord and the tenant. As in, the landlord would usually be responsible for insuring the whole building or estate, and the tenant would insure their own belongings.
The lease should set out the landlord’s obligations to restore the property to its condition at the commencement of the lease, as well as the tenant’s liability for any damage they cause.
Term of the Lease
The lease will always run for a defined term, commonly between 5-10 years.
Additionally, the lease may benefit from ‘security of tenure’ under the Landlord and Tenant 1954 Act. This allows tenants to hold over past the end of the term and request a renewal lease without having to go through the standard negotiation process. However, there is a set procedure to follow, as set out in the Act.
Key Takeaways
A commercial office lease can be a significant expense and a longer-term commitment. As such, you should consider all the terms of the lease, and particularly the key terms set out above. Understanding these may allow you to limit your liability in terms of costs or your exposure to disputes down the line. You should always obtain legal advice before entering into a commercial office lease to avoid any common pitfalls.
If you need assistance in navigating the key terms of your office lease, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Check how rent is calculated and reviewed during the lease. It might increase at fixed intervals, follow CPI or market rates, or be based on turnover. Also confirm any extra costs like service charges or insurance rent, as these can significantly affect your total payments.
Your lease should clearly state whether you are responsible for all repairs or only internal areas. Whole-building tenants usually handle all maintenance and insurance, while tenants leasing part of a property often manage only internal repairs, with the landlord covering structural elements.
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