2026-04-27

What to look for in a commercial lease agreement

Why Commercial Leases Are Nothing Like Residential Ones

If you've only ever signed a residential tenancy, a commercial lease will feel like a different species of document. There are no standard consumer protections baked in. Almost everything is negotiable, but only if you know what to ask for before you sign. Once the ink dries, you're typically bound for years — sometimes a decade or more — to terms that can make or break a business.

This guide walks through every clause that deserves careful attention, what red flags look like in practice, and where tenants most often get burned.

The Lease Term and Break Clauses

The first number you'll see is the lease length. Five or ten years is common in commercial property. That's a long commitment, and the landlord's solicitor has structured it to protect the landlord.

What to check:

• Break clauses — A break clause lets either party (or just one party) end the lease early, typically after a set period. Tenant-only break clauses are what you actually want. Check the exact conditions: many break clauses have strict notice periods (six to twelve months) and pre-conditions like having paid all rent and performed all repairs. Miss a single condition and the break is void.
• Renewal rights — In England and Wales, leases over six months covered by the Landlord and Tenant Act 1954 give tenants a statutory right to renew. Landlords sometimes ask you to "contract out" of this protection. Understand what you're giving up if you agree.
• Rent review dates — These are separate from the term. Most leases include upward-only rent reviews every three to five years, meaning rent can go up but never down, regardless of market conditions.

Rent, Rent-Free Periods, and Hidden Costs

The headline rent figure is rarely what you'll actually pay.

Rent-free periods are common in negotiations — landlords offer them as an incentive, especially in slow markets or when fitting out a shell space. Three to six months is typical; push for more on a long lease or a property that needs substantial work.

Service charges are the bigger trap. In a multi-occupancy building, you'll likely contribute to shared costs: maintenance, insurance, common area cleaning, building management fees. These aren't always capped, and they can rise sharply. Ask for the last three years of service charge accounts. If they're not available or the landlord won't share them, treat that as a warning sign.

Other costs to identify upfront:

• Building insurance (often landlord-arranged but tenant-paid as a recharge)
• Business rates (your responsibility; check what rateable value currently applies)
• Utilities and meters — are they sub-metered, or is there a landlord recharge?
• VAT — landlords can opt to charge VAT on commercial rents, adding 20% to your bill

The Repairing Obligations

This section causes more disputes than almost anything else. Commercial leases frequently impose a full repairing and insuring (FRI) liability on tenants, even on a lease for just part of a building.

Under a full repairing obligation, you could be responsible for returning the property in the same — or better — condition than you received it. If the building has latent defects or existing wear and tear, that becomes your problem.

Practical steps:

• Commission a Schedule of Condition before signing. This is a detailed photographic and written record of the property's state at the point of lease commencement. Attach it to the lease and add a clause limiting your repair obligation to keeping the premises in no better condition than shown in the schedule. Without this, you're exposed.
• Understand whether your FRI obligation covers just your demised unit or extends to structural elements and the exterior.
• Check whether there's a dilapidations clause and what process applies at lease end. Landlords are entitled to claim the cost of restoring the property; your Schedule of Condition is the document that limits this.

Permitted Use

Commercial leases specify exactly what the premises can be used for: retail, office, light industrial, restaurant, and so on. This matters in two ways.

First, planning use classes and lease use clauses don't always align neatly. You might have planning permission for something the lease prohibits, or vice versa.

Second, if you want to change your business model — add a service, sublease a portion, run events — a restrictive use clause may prevent it without the landlord's consent.

What to look for: a use clause that reflects not just your current business but realistic future uses. Ask the landlord to broaden it if it's too narrow. "Use as offices for any purpose within Class E" is more flexible than "use as offices for software development only."

Assignment and Subletting

At some point you may want to move out, bring in a business partner, or take on a subtenant. The lease controls whether you can.

Most commercial leases allow assignment (transferring the whole lease to a new tenant) or subletting (granting a sublease) with landlord consent, not to be unreasonably withheld. That sounds fine, but "reasonably" gets litigated constantly.

Look for:

• Whether the clause allows subletting of part of the premises (subletting the whole unit is more commonly permitted than subletting a portion)
• Whether former tenants remain liable after assignment — under older leases, original tenants could remain on the hook indefinitely; reforms have reduced this but it can still appear via Authorised Guarantee Agreements (AGAs)
• The specific grounds on which a landlord can refuse (creditworthiness of the proposed assignee, change in use, and so on)

Alterations and Fit-Out

If you're taking a shell-and-core unit, or even a fitted-out space you want to adapt, the alterations clause governs what you can do without asking permission first.

Most leases split alterations into:

• Non-structural internal alterations — usually permitted with written consent (not to be unreasonably withheld)
• Structural alterations — typically prohibited outright, or only with consent and reinstatement obligations
• Signage and external changes — often tightly controlled and linked to planning consent too

The critical detail is the reinstatement obligation. If you install a mezzanine, partition walls, or specialist fit-out, you may be required to remove it all at lease end and return the space to its original state. This can cost tens of thousands of pounds. Negotiate upfront to have the landlord waive reinstatement for specific items, and get that agreement in writing as a licence to alter.

Keep-Open Clauses and Hours of Operation

Retail and hospitality leases in particular sometimes include keep-open clauses, requiring you to trade during specified hours. Breach of a keep-open clause — say, you want to close on Mondays — can be a significant contractual issue.

Similarly, check whether there are restrictions on trading hours, noise, delivery times, or outdoor seating that would affect your operations.

Security and Guarantees

Landlords regularly ask commercial tenants for a rent deposit (typically three to six months' rent) or a personal guarantee from directors of a limited company.

Rent deposits are held in a separate account and returned (with or without interest, depending on the deed) at lease end if obligations are met. Check the specific release conditions — some deeds make it harder than you'd expect to get your deposit back.

Personal guarantees expose directors personally if the company defaults. This effectively removes the limited liability protection that many people incorporate to achieve. Negotiate the duration and cap on any guarantee. A guarantee that expires after year three, or is capped at twelve months' rent, is much better than an open-ended one for the full lease term.

Common Pitfalls Worth Highlighting

• Signing heads of terms without legal advice. Heads of terms are usually described as "non-binding" but they set expectations and are difficult to resile from. Get a solicitor involved before you agree them.
• Relying on verbal assurances. If a landlord or agent tells you something is permitted or will be sorted out, it counts for nothing unless it's written into the lease.
• Ignoring the landlord's superior lease. If your landlord is itself a leaseholder, their lease may contain restrictions that flow down to you. Ask to see it.
• Missing notice deadlines. Commercial leases are full of time-critical notices — for exercising break clauses, challenging rent reviews, or claiming renewal rights. Diarise everything.

Frequently Asked Questions

Do I need a solicitor for a commercial lease? Yes, unless the lease is for a very short term (say, a simple licence to occupy for a few months). The costs of getting it wrong far outweigh legal fees, and solicitors experienced in commercial property will often identify issues you'd never think to look for.

Can I negotiate rent reviews to be market-based rather than upward-only? Yes, and it's worth trying. Open market rent reviews (indexed against actual market rents) exist, as do index-linked reviews tied to CPI or RPI. Upward-only is the landlord's preference, not a legal requirement.

What happens if the building is sold while I'm in occupation? Your lease transfers with the property. The new owner becomes your landlord and is bound by the existing lease terms. Your rights don't change, though it's worth checking any landlord break clauses carefully.

How long does it take to complete a commercial lease? Four to twelve weeks is typical once heads of terms are agreed, depending on the complexity of the lease, how quickly both solicitors work, and whether any landlord consent is required (from a superior landlord or a lender).

What is a schedule of condition and do I always need one? It's a record of the property's existing state before you take occupation. You need one whenever you're taking on repairing obligations — which is almost every commercial tenancy. Without it, you're agreeing to bring the property up to a standard that may be better than its current condition.

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