Key considerations before signing a commercial lease

Entering into a new commercial leases can be exciting, but it’s important to ask the right questions and be aware of the key issues before signing on the dotted line.

Being well-informed before committing to a lease can help you avoid unexpected costs, disputes, or even the need to cancel the lease later. It also ensures that the property meets all your business requirements and that you have the protections in place you may need. Taking the time to review key considerations now can save time, money, and stress down the line.

1. Am I permitted to make alterations to the premises?

Most leases allow internal, non-structural changes, but external or structural alterations are usually prohibited.

2. What am I permitted to use the premises for?

Your lease will specify what the premises can be used for. It’s important to consider this in light of your current and anticipated business operations to ensure the property meets your needs now and in the future. However, just because a use is permitted under the lease does not mean it is automatically authorised under planning law. Most leases include a landlord’s disclaimer to this effect, so it’s essential to check planning permissions separately.

3. Does my lease include all necessary rights for use and enjoyment?

When reviewing your lease, it’s important to ensure that all necessary rights are included and that the landlord has the legal authority to grant them. This is particularly crucial if the premises form part of a larger building or estate. Such rights may include access to and from the premises, the ability to connect to essential services, and use of shared facilities such as bin stores or cycle storage.

4. Do I have to pay a service charge as part of my lease?

Before entering into your lease, you should check whether a service charge will be payable and, if so, how much this is and what this covers. The service charge should then be budgeted into your lease costings, and you should consider the cost-effectiveness of the letting as a whole. Some landlords will agree to cap the service charge so that a tenant can budget without fear of being billed for any abnormal or excessive service costs.

5. What repairs will I be expected to undertake?

Your repairing obligations depend on whether the lease is a full repairing lease. In that case, you may be responsible for keeping the premises in good repair and restoring them if they aren’t at the start. A schedule of condition, photos or a surveyor’s report records the initial state and ensures you only maintain the premises at that level. Repairing obligations are often the most contentious part of lease negotiations, as end-of-lease dilapidation costs can run into thousands of pounds.

6. What is the length of the term of the lease?

Make sure your lease term fits your business needs. Once signed, you’re committed to its terms, so it should be commercially viable. A break clause can add flexibility if circumstances change. Typical terms are three, five, or ten years, with rent reflecting your commitment—for example, a ten-year lease with a break clause usually costs more than one without.

7. When and how will the rent be reviewed?

Make sure your lease clearly sets out how much rent you will pay and when it might be reviewed. Rent reviews can work in different ways. Common approaches include a fixed rent review (where the rent stays the same throughout the lease), an open market review, or a review linked to inflation. Each method has its pros and cons, so it’s important to understand how it could affect your costs over time.

8. Is the premises covered by the landlord’s insurance policy?

Typically, the landlord will insure the premises and pass the cost on to you. It’s important to check that, in the event of any loss or damage during your lease, you’re properly covered under the landlord’s insurance policy.

9. Can I transfer my interest or sublet?

Check whether your lease allows you to transfer (assign) the lease or sublet the premises. Ideally, it should let you do both to give you maximum flexibility. If your business is part of a group of companies, also make sure the lease allows you to share occupation with another group company.

10. Is there a break clause?

A break clause in your lease can give you the flexibility to end your lease early if your business circumstances change. The clause must be drafted correctly so the landlord cannot rely on a technicality to prevent you from using it,  something that catches many tenants out.

11. Do I have security of tenure?

Security of tenure under the Landlord and Tenant Act 1954 can allow you to renew your lease on similar terms. If your lease has been contracted out of the Act, you will not have this right, and the lease will end automatically at expiry. Understanding this is vital for long-term planning and negotiations.

Check and check again!

Ensuring your lease is suitable for your business helps you make the most of the premises while also putting the right protections in place. This can prevent problems during the lease and avoid costly disputes when it comes to an end.