Table of Contents
In Short
- Long-term commercial leases offer stability and potential cost savings, but can limit flexibility.
- Important lease terms include duration, break clauses, rent review provisions, and assignment/subletting rights.
- Carefully negotiate lease terms to align with business needs and plan for future growth or downsizing options.
Tips for Businesses
Evaluate the needs of your business before committing to a long-term lease. Consider flexibility options like break clauses and subletting rights. Ensure the lease terms support your growth plans and consult with a legal professional to understand the obligations and opportunities in the lease agreement.
As a business owner requiring commercial premises, knowing whether to take out a short-term or long-term commercial lease can be tricky. You are unlikely to estimate how long your business will be successful, so you want to ensure you only commit to a commercial lease that is viable for you. A commercial lease agreement is a legally binding contract. As such, you are tied to whatever lease term you select. Accordingly, you are committing to the rental payments for that period and your lease obligations in the lease agreement. Therefore, choosing a lease term that suits your business needs is essential. This article will explain some key differences between short and long-term commercial leases to help you decide which is best for your business.
Understanding Commercial Leases
A commercial lease is an agreement where a landlord grants a tenant exclusive possession of commercial premises for a specific business use over a fixed term in exchange for rent.
If you are moving out of your leased space and assigning the lease to another party, you are required to notify your landlord and obtain their consent. Use this free proforma template for this purpose.
Most commercial leases typically have fixed terms between 1 and 25 years, with 1 to 3 years being the most common. The term is agreed upon between the landlord and tenant before entering into the lease. While this is usually fixed, you may negotiate a break clause (effectively shortening the term when needed), or the term might function on a rolling basis.
Short-Term Leases
Short-term commercial leases, typically lasting 1 to 5 years, have become increasingly popular due to the flexibility they offer businesses. They are common for office spaces and retail units. These offer a lower risk with less commitment – you may also be thinking of future expansion if you have growth plans for your business.
Key features of short-term leases include:
- lower total rent value compared to longer leases;
- potentially lower Stamp Duty Land Tax (SDLT) liability;
- tenants are usually responsible only for the property’s interior, albeit this depends on the type of property being demised; and
- more flexibility for business growth or relocation
Key Features of Long-Term Leases
Long-term commercial leases are still common for industrial or warehousing purposes. These leases typically extend beyond 5 years and can last up to 25 years or more. While these often require more front-end legal work, they offer tenants more certainty.
Key features of long-term leases include:
- higher total rent value;
- generally higher SDLT liability;
- mandatory registration with HM Land Registry for leases over 7 years;
- often preferred by landlords for security of income; and
- may include break clauses to provide flexibility for tenants.
Key Differences
The following table summarises the main differences between short-term and long-term commercial leases in the UK:
| Short-Term Lease | Long-Term Lease |
| Typically used for retail and office space | Often used for industrial and warehouse properties |
| May attract less SDLT | May incur greater SDLT |
| Provides more flexibility for businesses | Offers less flexibility but more stability |
| Generally preferred by tenants | Often preferred by landlords |
| Tenants are usually responsible for the interior only | Tenants are often responsible for both interior and exterior |
| Less likely to require registration with HM Land Registry | Registration is required if the term exceeds 7 years |
Some leases will also fall under the Landlord and Tenant Act 1954 provisions, which grant commercial tenants ‘security of tenure’. This means that some tenants can stay in occupation past the end of their lease term.
Key Takeaways
When you sign a commercial lease agreement for your commercial property, you will negotiate the lease term with your landlord. This term is the duration the lease lasts. There are key differences between short-term and long-term commercial leases, which can determine your choice of lease term. For example, short-term leases are common in commercial office space, and long-term leases are common for warehouse and industrial leases. Further, short-term and long-term leases are different in that a short-term lease may offer your business more flexibility than a long-term lease in terms of your business moving forward.
If you need help understanding key differences between short-term and long-term commercial leases in the UK, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A commercial lease is where a commercial landlord allows a commercial tenant to have the sole occupation of their property for specific business use over a fixed term in return for rent.
A key difference between a short-term and a long-term commercial lease is that the stamp duty you incur is much more than on the former.
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