In Short
- A commercial lease is a long-term, legally binding commitment that can significantly affect your costs and flexibility.
- Key risks include repairing obligations, rent increases, service charges, and limits on how you use or exit the premises.
- Reviewing the lease carefully before signing helps identify risks and negotiate better terms.
Tips for Businesses
Before committing to a commercial lease, review the permitted use, repair obligations, rent review terms, and exit options carefully. Make sure the lease supports your business plans and allows flexibility if circumstances change. Taking legal advice early can help you understand complex clauses, avoid hidden costs, and negotiate protections before you are locked in.
Taking on a commercial lease can be one of the most significant commitments your business makes. When you agree to rent a commercial premises, you may find yourself committing to long-term obligations that will affect costs and operations for years. Without a careful review of the lease before signing, you could overlook key issues and risks (such as unexpected repair bills, restrictive terms that limit your potential growth, or difficulty exiting the lease if your circumstances change). This article explores the importance of a thorough lease review and key issues your business should consider as a tenant before entering a commercial lease.
Why Your Business Should Carefully Review Your Lease
A lease is a crucial document that creates a legally binding contract – with the potential for long-term financial and operational implications. Under it, you may be required to accept obligations for repairs, rent reviews and insurance that could directly impact cash flow and daily operations. Without key safeguards in place, your business could also remain locked into premises that no longer suit its needs.
Checklist of Key Considerations
Here are some of the key issues your business should review in your proposed lease before proceeding:
Use, Premises and Physical Obligations
- Permitted Use: Your business should confirm that the lease expressly permits your current and intended activities and should also check whether planning permission or other licences may be required for your business purposes.
- Alterations and Fit-Out Rights: Your business should check the clauses on alterations and fit-out. Many landlords require written consent for internal changes. The lease should allow your business to install any necessary signage, fit specialist equipment and adapt layouts as needed.
- Repairing Obligations: Your business should understand the full extent of repairing obligations. Many leases require tenants to maintain the premises in good repair and fix any pre-existing disrepair.
Financial Terms and Lease Flexibility
- Rent and Financial Terms: You should carefully check not only the base rent but also every additional charge. It should be clear how and when the landlord can increase rent over time. Your business should also review what the service charge covers, how the landlord calculates and recovers costs and whether any management or estate fees apply. When budgeting, you will need a clear understanding of the total financial commitment over the lease’s life (e.g., for rent reviews, service charges, repairs, business rates, and insurance premiums).
- Lease Term, Break Clauses and Renewal Rights: Your business should ensure the lease length supports your business plans and carefully check the term and renewal rights. Where flexibility matters, your business should negotiate a break clause. You should also check whether the lease is protected by the Landlord and Tenant Act 1954 or has been contracted out, as only protected leases carry a statutory right to renewal.
- Assignment and Subletting: If your business might need to transfer the lease or share space with another company, it should ensure the lease permits assignment or subletting on workable terms.
- Compliance with Statutory Requirements: Your business should confirm that the lease and property comply with applicable legal rules (including fire safety, health and safety, accessibility and minimum energy-efficiency standards).
These are a few examples of key clauses to review with care. However, your lease may include many other provisions, depending on the property and sector.
Continue reading this article below the formWhy Your Business Should Take Legal Advice Before Signing a Lease
Even if your business has negotiated commercial contracts before, you should not underestimate the complexity of a commercial lease. These documents will often contain technical wording that can be difficult to interpret without legal expertise.
A commercial property solicitor can guide you on the lease and your rights and obligations, identify and explain complex clauses and seek to negotiate key terms on your behalf. If your business operates in a specialised sector (for example, hospitality, healthcare or manufacturing) or has niche operational requirements, a property solicitor can help address any additional sector-specific issues. They can also advise on which lease structure best matches operational needs and financial strategy. The cost of investing in legal review is likely to be far less than the potential expense and stress of disputes or being locked into unsuitable premises.
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.
Key Takeaways
A commercial lease is a legally binding contract that can significantly impact your business costs, flexibility and growth for years. Without a detailed review before signing, your business faces the risk of unexpected potential expenses and liabilities, onerous obligations and a lack of flexibility. Thoroughly reviewing your lease in detail can ensure that you understand the terms of your lease and have the opportunity to negotiate key terms to protect your business where possible. A commercial property solicitor can help you with this review.
If your business needs support with understanding or negotiating lease terms, LegalVision provides ongoing legal support for all businesses through our fixed-fee legal membership. Our experienced lawyers help businesses across industries manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A lease can bind a business for many years and impose significant and onerous duties. Your business should review the lease to identify risks, negotiate terms where possible and ensure that it supports future growth and flexibility plans.
A commercial property solicitor can explain the terms to you in plain English, warn you of any potential risks and help negotiate key terms on your behalf. They can also advise which lease structure best suits your operations and plans.
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