Commercial and retail lease solicitors

What is a commercial lease, and how is it different from a residential one?

A commercial lease, sometimes called a business lease, is a legally binding contract that lets a business occupy premises owned by someone else in return for rent. It covers shops and other retail units, offices, warehouses, industrial units and more. Commercial leases are usually far more detailed than residential tenancies, and much more heavily negotiated. There is no standard form, so the terms are tailored to the property and the deal, and business landlords and tenants have far more freedom to agree their own terms. That freedom is exactly why the detail matters, because getting the terms wrong at the start can be expensive and difficult to unpick later. It is wise to take legal advice before you make any commitment, including signing an offer, paying a deposit or moving into the property.

Negotiating the heads of terms

Most leases begin with heads of terms, a summary of the main commercial points agreed between landlord and tenant before the lease is drafted. These usually cover the rent, the length of the term, any rent-free period or incentive, rent review, repairing obligations, the permitted use, and whether the tenant can assign or sublet. Heads of terms are normally ‘subject to contract’, but they set the direction for the whole deal, so it is worth taking advice before they are signed. Many of the terms in a commercial lease are negotiable, including the rent and how it increases, the length of the lease, break rights, the alterations you can make, and what you can do with the property.

Rent, rent reviews and the term

The rent and the length of the term are the heart of the deal. The term is how long the lease lasts, and a longer term gives a tenant more security but less flexibility, while landlords often prefer to lock in a longer commitment. Many leases include rent reviews at set intervals, often every three or five years. There are different ways a review can be calculated, such as an open market review, a fixed increase, or a review linked to an index like RPI, and an ‘upward-only’ review means the rent will not fall even if market rents do. It is important to understand and agree the review method before you commit.

Break clauses and security of tenure

A break clause lets the landlord, the tenant, or both, end the lease early on a set date or dates. Break clauses almost always come with conditions, such as giving notice in a particular form and by a particular time, and paying the rent up to date, and if those conditions are not met exactly the break can fail. Separately, most business tenancies carry ‘security of tenure’ under the Landlord and Tenant Act 1954, which gives the tenant a right to renew at the end of the term. A lease can be granted outside that protection, but only if the correct procedure is followed before the lease is completed, so both sides should be clear from the outset whether the 1954 Act applies.

Repairing obligations, dilapidations and service charge

Repairing obligations decide who keeps the property in good condition, and they are one of the most costly parts of any lease. Many commercial leases are let on ‘full repairing and insuring’ terms, which put most of the responsibility on the tenant. The repairs and alterations section should set out who can make changes, who pays for them, and whether the tenant has to return the property to its original condition at the end, which is where a ‘dilapidations’ claim can arise. Where premises form part of a larger building, a service charge usually covers shared costs such as maintenance of common areas, and the tenant should understand how that charge is calculated and whether it is capped. Business rates, insurance and utilities are worth checking too, so you know the full cost of occupation, not just the rent.

Assignment, subletting and permitted use

‘Alienation’ is the part of the lease that governs whether you can pass the premises on, by assigning the whole lease to someone else or subletting part of it, and on what conditions. Most leases allow this only with the landlord’s consent, which usually cannot be unreasonably withheld. The ‘permitted use’ clause sets out what the premises can be used for, and a use that is too narrow can limit your business or make the lease harder to assign later. It is also worth checking the practical points, such as whether the lease covers all the areas you expect to use, including parking, bathrooms and common areas, and whether there are any restrictions on signage.

Lease renewals and the Landlord and Tenant Act 1954

When a protected business lease comes to an end, the Landlord and Tenant Act 1954 gives the tenant the right to ask for a new lease on similar terms, and sets out the notices and timescales that both sides must follow. A landlord can only oppose renewal on limited statutory grounds, such as wanting to redevelop or occupy the premises. The process is technical and the deadlines matter, so both landlords and tenants benefit from early advice, whether you are looking to renew, to renegotiate the terms, or to bring the lease to an end.

Resolving a dispute with your landlord or tenant

Disputes can arise over rent, rent reviews, repairs, service charge, a break notice or the terms of the lease itself. The sensible first step is to read the lease carefully and be clear about the rights and responsibilities on both sides. From there the options usually include negotiation, mediation, and where necessary court or tribunal proceedings. We advise landlords and tenants on the realistic options, the likely cost and the most efficient way to reach a resolution, and we look to protect the commercial relationship wherever that is possible.