Ryan:
Welcome everyone to our webinar on Before You Sign That Lease: What Every Retail Business Must Check. Today, you’ve got me, Ryan Healey, Senior Legal Solutions Consultant, and Practice Leader Paul Loccisano.
Before we begin, a couple of quick housekeeping items. You’ll receive the recording and the slides in your email. Submit any questions in the Q&A box, and we’ll answer them at the end. Please complete the feedback survey after the webinar.
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Today, we’re going to be discussing the introduction, why these five areas are important, what the law requires you to do, what this looks like in practice, consequences of getting it wrong, reducing the risks, key takeaways, and then we’ll move to the Q&A.
I’m going to hand over to Paul.
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Paul:
Great, thanks Ryan. Understanding your lease obligations protects your business from unexpected costs and disputes, allowing you to navigate the complexities of commercial property with confidence.
Today, we’re going to cover five essential areas in that theme:
- The boundaries of your premises and your repairing obligations
- Whether you need a break clause
- How to gain approval for fit-out and alterations
- The costs you’ll be expected to pay
- How rent increases during the term
For each area, we’re going to explore why it matters, what the law says, how it works in practice, the consequences of getting it wrong, and practical steps to reduce your risk.
To make this easier to follow, we’ll address all five areas within each topic before we move on to the next area.
Let’s get started.
Why are these things important to your business?
We’ll start with the boundaries of the premises and your repairing obligations. Understanding the boundaries of your property and your repair obligations is crucial. It protects your business from unexpected costs, as repairing obligations can represent significant ongoing expenditure, and it gives you clarity on boundaries, helping prevent disputes with landlords over responsibility.
The boundary definition in your lease determines your ongoing exposure for repairs, replacements, decoration, and how you hand the property back at the end of the term — in other words, your dilapidations risk.
This is an area tenants often take for granted because most of us are familiar with residential leases. Business tenants typically assume the landlord will be responsible for anything structural or for gas, water, and electrical infrastructure, but that’s often not the case, and this catches tenants out.
The biggest impact is dilapidations risk at the end of the term. This is where the landlord can serve a claim for incomplete end-of-term obligations, which is a mixture of repairs, decoration, and reinstatement requirements contained in the lease or in ancillary documents like a licence to alter. Those claims are lawful, can be sizeable, and can be pursued even after the lease ends.
Why you need a break clause
Most of you have probably heard of break clauses and understand why you need one. Business flexibility is crucial in uncertain economic times, and long lease terms can become a liability if your circumstances change.
A break clause is essentially a right for a party to terminate the lease before the end of the fixed contractual term. We’re going to guide you through how break clauses work, what you’re negotiating before the lease is signed, and what can catch you out if you’re trying to exercise the break.
Consent for fit-out and alterations
Most businesses need to adapt premises to suit their specific requirements, and leases require you to obtain consent to do that. Without consent, you can be required to remove those works.
But consent in leasing isn’t what it sounds like. It’s often more complicated, requires a specific contract, and will cost you money. We’ll run through the key considerations for initial fit-outs to help protect any incentives you’ve negotiated as well.
Costs under a lease
Rent is just one cost you’ll pay under a lease. Even without service charges, there are other costs you need to know about to avoid surprises. That’s separate from costs you might need to pay outside the lease, like business rates, which you’ll need to investigate as part of your due diligence.
Rent review mechanisms
Rent reviews can significantly increase occupancy costs. Understanding the review mechanisms enables accurate forecasting throughout the lease term. We’re going to explore what review provisions typically look like and what considerations you should have for negotiating them.
What does the law require you to do?
Let’s turn to the boundaries and repairs.
First, the lease will contain a definition of the premises — what’s included in your space and what you’re actually taking a lease of. That’s typically defined by a description and a boundary shown on a plan.
The boundary will usually extend to everything, or might extend to more internal parts. For example, you might have a lease that refers to all buildings and structures at a street address with a plan showing a red line around a land parcel. For a definition like that, the premises generally include everything from the foundations to the roof.
Alternatively, you might have a very specific definition that names internal walls or excludes structural parts but includes partial services, a shopfront, doors, and windows. That boundary effectively defines what you’ll be obliged to repair.
Then you have the repairing obligation, which typically reads: to keep the premises in good and substantial repair and condition. Legally, those words have a very specific meaning that differs from their ordinary interpretation.
The obligation to keep something in repair means it first needs to be put in repair. So, if the premises are already damaged, tenants will inherit that damage. It doesn’t stay with the landlord. Many tenants don’t realise that the words and conditions can require tenants to upgrade elements of the premises beyond what was there before, even if nothing is in actual disrepair.
It’s rarer that landlords rely on that wording, but it can happen in practice — for example, repairing a latent defect.
The only exceptions to these repair obligations are typically covered by what the landlord is insured for, but that isn’t always a complete solution because there first needs to be a claimable event under the insurance.
Beyond standard repair obligations, watch out for more specific wording, such as replace or remediate. Those types of language are enforceable in their own right and may go beyond what an ordinary repairing obligation would require.
These obligations are continuous. You have a positive duty to repair damage when it arises, not just at the end of the lease. Most leases require you to return the property in good repair at the end of the term. If you haven’t kept up with maintenance and the landlord hasn’t challenged you, that won’t automatically absolve you of liability.
Decoration and reinstatement
Let’s turn to two related obligations that sit alongside repairs: decoration and reinstatement
Decoration obligations are often separate requirements to redecorate the property. They’re usually time-based, either at fixed intervals or whenever reasonably required. There’s also typically a separate obligation to redecorate at the end of the term.
Decoration obligations are not normally limited. An obligation to repaint the premises means painting all previously painted parts, even if you think they still look acceptable.
Turning to reinstatement, this typically applies to any works you’ve carried out. Leases vary in what level they require. At its simplest, most leases require alterations to be reversed and made good. You could also be required to return the premises to a white-box standard or a basic shell. Those are all things you see in lease reinstatement obligations.
That presents a significant risk in dilapidations claims because tenants often misjudge what reinstatement means in practice or do the bare minimum.
Break clauses: legal requirements
Let’s turn to whether you need a break clause and what the law requires.
There’s no automatic right to terminate a commercial lease early, which is why you need a break clause if you want to voluntarily terminate as a tenant.
There are a few different types:
- Point-in-time exercisable on a specific date (most common)
- Rolling breaks exercisable on notice at any time
- Mutual breaks exercisable by both landlord and tenant
Each has pros and cons. Rolling breaks are hardest to negotiate because they give landlords little security. Mutual breaks are the ones tenants need to watch out for.
A break clause has two key components:
- Notice how and when it must be served
- Conditions requirements that must be satisfied for the break to be effective
Strict compliance with both is essential. The notice must be served in the exact form and timeframe specified in the lease, or it won’t be effective. Similarly, if you don’t comply with the conditions, the break can be undone and the lease remains in force.
Importantly, service by email is usually not valid for formal notices. If you serve a break notice by email alone, the landlord may legitimately refuse to accept it.
Consent for fit-out or alterations
Let’s turn to gaining approval for your fit-out or alterations.
The market standard clause is that internal non-structural alterations are permitted with the landlord’s consent, which cannot be unreasonably withheld or delayed.
That consent must be requested formally, usually in writing, and then formalised through a deed known as a licence to alter. Sometimes landlords allow informal requests initially, but consent still needs to be formalised by deed.
If it isn’t formalised by deed, most leases say consent hasn’t been validly given.
Most landlords permit internal non-structural changes, but you still need formal consent. Approval over the phone or by email is usually not enough.
If you’re planning your fit-out before signing the lease, don’t rely on what the agent says will be fine. You need consent through the proper channels, usually aligned with completion of the lease so you can start fit-out from day one.
Repairs vs alterations
It’s useful to distinguish repairs and alterations.
An alteration is a change to the premises that isn’t required because of disrepair.
A repair addresses disrepair or defect.
You’re obliged to repair the premises, so you typically don’t need consent to repair or replace something that’s damaged. The same generally applies to decoration, although decoration clauses often require the landlord to approve colours, which creates an informal consent process.
Clients often ask: if I need consent for alterations, do I need consent to repair something? The answer is usually no, because that would frustrate your ability to comply with the lease.
Signage and planning consent
A related area is signage. This is similar to alterations, but most leases have a separate regime for signage approval. Consent is usually required, though often less formal than alteration consent. Shopping centres tend to have strict processes, whereas some high-street premises may not require consent for standard trade signage.
You also need to consider council consent. There are usually two pathways:
- landlord consent under the lease
- planning or local authority consent
Both must be investigated. Leases often make tenants liable if required planning consent hasn’t been obtained.
Costs beyond rent
Let’s turn to costs you’ll be expected to pay.
The law allows landlords to charge more than rent. Service charge and insurance are obvious examples, but there are other costs.
Consent fees: leases usually allow landlords to charge their costs for processing consent requests, such as alterations, assignments, or underletting. This includes legal and professional fees.
Rates and taxes: usually payable to authorities rather than the landlord, but the lease makes them your obligation. Non-payment can be a breach. This includes business rates and sometimes infrastructure levies or similar property-related charges.
Utilities: often paid directly to suppliers, but in some estates or shopping centres you may pay via the landlord.
Rent review mechanisms
Legally, rent won’t increase unless the lease provides for it. Most leases over five years include a review mechanism.
Common types:
- open market review
- RPI/CPI indexation
- fixed increases
Open market review is most common. This may be agreed between landlord and tenant or determined by a surveyor using hypothetical lease assumptions set out in the lease.
The key point is that rent reviews usually operate upwards only. If you want cost certainty, you need to negotiate a cap.
What this looks like in practice: repairs
In practice, first check the boundary definition and lease plans carefully. Do they include parking, storage, external walls? The goal is to understand and mitigate risk.
Some leases — especially warehouses — cover entire buildings, meaning repair liability extends to everything. In those cases, obtaining a building survey is essential.
Disrepair existing before the lease transfers to the tenant. This is important even at heads-of-terms stage, where agents may simply say “full repairing and insuring”. That phrase only has meaning once you see how the boundary is defined in the lease.
In retail premises with service charge structures, repairing obligations are usually internal, but may still include shopfronts, doors, windows, plant, and equipment — sometimes called pseudo-structural items.
Mitigating repair obligations
The main mitigation is a schedule of condition.
This records the state of repair at lease commencement and caps your obligation to that level. However:
- it’s only as good as the evidence recorded
- it doesn’t require the landlord to repair
- it doesn’t limit decoration or reinstatement unless expressly stated
You should still obtain one, especially for whole-building leases, but understand its limits.
Tenants are also typically responsible for compliance areas such as electrical safety, fire management, asbestos, and health and safety within the demised premises. This differs from residential tenancies.
Break clauses in practice
A typical tenant break might allow termination at year 3 or 5 with six months’ notice, subject to conditions such as:
- all sums paid
- no breaches
- vacant possession
- no subleases
Key considerations:
- serve notice exactly as required
- meet all conditions
- pay full rent instalments due before the break
Exercising a break doesn’t remove end-of-term obligations. Repairs and reinstatement still apply at the break date.
For mutual breaks, ask why the landlord needs one. If redevelopment is cited, consider making that a condition of their exercise.
Fit-out consent in practice
Landlords usually require detailed drawings and specifications. Hand-drawn sketches rarely suffice unless works are minor.
Most tenants fall foul of planning consent requirements or contractor compliance. As tenant, you’re responsible for contractors and compliance with construction regulations.
Cost risks in practice
Non-payment of sums like insurance rent or service charge can trigger forfeiture — allowing the landlord to terminate the lease and re-enter.
Rent review in practice
Key points:
- negotiate cap and collar where possible
- watch for compounding indexation
- exclude goodwill and tenant fit-out from open market assumptions
- ensure expert costs are shared
If aligning a break with rent review, obtain your own rental appraisal early.
Consequences of getting it wrong
For repairs, dilapidations claims at lease end can exceed £100,000. Landlords may also claim surveyor fees, lost rent, and professional costs.
Example: a tenant assumes the landlord repairs the roof, but the lease boundary includes it. A £75,000 liability arises at lease end.
For break clauses, missing notice by one day may leave you liable for years of rent.
For alterations, lack of consent can block assignment or require removal works.
For costs and rent review, failure to budget leads to financial strain.
Reducing the risks
Repairs:
- obtain building survey
- negotiate schedule of condition
- maintain during term
- keep photographic records
Break clauses:
- negotiate at outset
- diarise dates
- use solicitors if unsure
- satisfy all conditions
Fit-out:
- check lease before works
- allow approval time
- align consent with lease start
Costs:
- review historic service charge
- check rates and insurance
- negotiate caps or exclusions
- budget for increases
Rent review:
- negotiate cap/collar
- diarise review dates
- obtain valuation advice
- budget for increases
Key takeaways
Know your property and obligations.
Survey and document condition.
Negotiate a break clause.
Comply with notice and conditions.
Obtain consent for works.
Budget for all lease costs.
Negotiate rent review protections where possible.
Ryan:
Amazing, thank you very much. You’ll see there’s a QR code on screen for a related publication. That concludes the main part of the webinar. I’ll leave the QR code up briefly for anyone who’d like to scan it.
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I’ll now hand over to Paul to answer questions. While we do that, you’ll see a short poll appear. We’d appreciate if you could complete it.
Q&A
Paul:
Great, thanks Ryan.
We’ve got a few questions here. If the first person is still on the webinar, feel free to clarify the question. It reads: “Lease agreement check documents — collaboration is prohibited. What does that mean?” I’m not entirely sure what type of collaboration is being referred to, so if you’re still here, please clarify and I’ll answer that one.
The next question asks about exit options, which I assume is if you’re already a tenant. Ultimately, someone would need to review your specific lease to give a definitive answer, but generally exit options work as follows.
Unless you have a break clause, there’s usually no voluntary right for a tenant to terminate a commercial lease early. You can’t simply give notice and leave.
If you do have a break right, the first question is whether you can exercise it.
If you don’t have a break right, there are typically three possible options:
- Assignment — transferring the lease to another tenant
- Underletting — subleasing the premises (you remain liable)
- Surrender — agreeing with the landlord to terminate
Assignment and underletting both require landlord consent. Most leases state that consent cannot be unreasonably withheld, but it must be a genuine transaction.
Surrender is entirely at the landlord’s discretion and often involves a payment to them.
The final question was whether a photographic schedule of condition is good protection against a large dilapidations claim.
As discussed earlier, a schedule of condition is very useful but not a complete solution. It caps repair obligations to the recorded condition, but dilapidations also include decoration and reinstatement. If those obligations aren’t limited, you can still face significant liability at lease end.
So it’s important protection, but not a silver bullet.
It looks like those were all the questions.
Closing
Ryan:
All right, thanks Paul.
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