Signing a Commercial Lease: What to Check Before You Commit

For a business taking premises, the lease is typically the biggest financial commitment it will make and the hardest to escape. Unlike most contracts, the obligations continue whether or not the business is trading, which is why the detail deserves proper attention.

Length and Break Clauses

A longer term gives security and reduces flexibility. A break clause allows either party to end the lease early on specified dates, and its conditions matter enormously — breaks are frequently drafted so that any breach, including a minor repair obligation or a late payment, invalidates the right to break.

If a break clause is important to you, have a solicitor check that it is actually exercisable rather than theoretically present.

Rent Reviews

Most leases beyond a short term include reviews. Upward-only reviews mean rent can rise and never fall, which is standard in the UK and worth understanding before signing. Check the frequency, the basis of review, and what happens if the parties disagree.

Repairing Obligations Are the Hidden Cost

A full repairing and insuring lease makes the tenant responsible for the condition of the property, potentially including elements that were already deteriorating when you took it. A schedule of condition, agreed and attached at the start, limits your liability to the state the building was in — and it is far cheaper than the dilapidations claim it prevents.

Dilapidations at the End

When the lease ends, the landlord can claim for putting the property back into the required condition. This lands at the worst moment, when you are moving or closing, and it is routinely larger than tenants expect. Budget for it from the start rather than treating it as a problem for later.

Service Charges

In shared buildings, service charges cover common areas and can rise unpredictably. Ask for historic figures for the last three years, check whether there is a cap, and establish whether major works — a new roof, a lift replacement — can be passed on to tenants.

Permitted Use and Alterations

The lease specifies what the premises may be used for. If your plans change, or you want to sublet, or you need to alter the layout, you will usually need landlord consent. Check whether consent cannot be unreasonably withheld, because an absolute prohibition leaves you without recourse.

Security of Tenure

Business tenants in England and Wales may have a statutory right to renew at the end of the term, unless the lease has been formally excluded from those provisions. Many are excluded, and the exclusion requires a specific procedure before signing. Know which position you are in, because it determines whether you can be required to leave.

Personal Guarantees and Deposits

Landlords frequently require a rent deposit or a personal guarantee from directors, particularly from a new company. A guarantee makes you personally liable for the rent for the guaranteed period, which can outlast the business. Negotiate the scope and duration rather than accepting it as standard.

Ask What Happened to the Previous Tenant

A property that has changed hands repeatedly, or has stood empty for a long period, is telling you something about the location, the landlord or the terms. It is a reasonable question to ask an agent, and the quality of the answer is informative in itself.

Model the Total Occupancy Cost

Rent, business rates, service charge, insurance, utilities and repairs together are the real cost of premises. Put the full figure into a cash flow forecasting forecast across the lease term, including the quiet months, and check the business still works. If the answer depends on growth that has not happened yet, that is worth knowing before signing. Reviewing your pricing your product or service may be the more immediate lever.

Heads of Terms Come First

Before the lease is drafted, the parties usually agree heads of terms setting out rent, length, break dates and who pays what. These are normally not binding but they shape everything that follows, and reopening a point later is considerably harder. Negotiate seriously at this stage rather than treating it as a formality.

Rent-Free Periods and Incentives

Landlords frequently offer an initial rent-free period, a contribution to fit-out, or a stepped rent. These are genuine value and they are negotiable, particularly where the property has been vacant. Ask — incentives are rarely volunteered to a tenant who has not raised them.

Check the Physical Condition Properly

Commission a survey before signing, particularly on an older building or a full repairing lease. Heating, electrics, roof and drainage problems become your responsibility under many leases, and discovering them after completion is expensive.

Confirm Planning Use Is Right

The premises must be permitted for what you intend to do there. Planning use classes restrict this, and changing use may require permission that is not guaranteed. Verify with the local planning authority rather than relying on what the previous occupier did.

Understand Assignment and Subletting

If the business outgrows the space or closes, your exit is usually to assign the lease or sublet. Both normally require landlord consent, and you may remain liable if the incoming tenant defaults. Knowing the position before signing tells you how trapped you actually are.

Guarantors and Deposits Are Negotiable

Where a landlord requires security, the amount, the form and how long it lasts are all open to negotiation. A deposit that reduces after a period of reliable payment, or a guarantee limited in time and amount, is considerably better than an open-ended commitment. Ask.

Insurance Is Usually Recharged

Most commercial leases have the landlord insure the building and recover the premium from the tenant, which means you pay for cover you did not arrange. Check what is insured, what the excess is, and whether you are separately required to hold your own contents and liability cover.

Use a Solicitor

Rates Are Separate From Rent

The rent is not the whole occupancy cost. Business rates are billed separately by the local authority, and relief schemes mean the amount is frequently not what the rateable value first suggests.

This is not a document to take on trust or to handle from a template. The cost of a property solicitor reviewing a lease is small against the value of what you are committing to, and they will identify the clauses that matter for your specific situation.