Signing a commercial lease is a major commitment and, for many businesses, one of the most significant financial risks they will take on. Once a lease is signed, it can be difficult and expensive to get out of. Many tenants only realise the extent of their obligations when problems arise later.
If you are about to sign a commercial lease in England and Wales, taking time to understand what you are agreeing to can protect your business, your cash flow, and in some cases your personal finances. This guide explains the key issues you should check before committing.
The length of the lease and your ability to exit
One of the first things to check is how long the lease lasts and whether you have any right to end it early. Commercial leases often run for many years, and you will usually be responsible for rent and other costs for the entire term.
You should check whether there is a break clause and, if so, exactly how it works. Break clauses are often strictly worded and may only be effective if certain conditions are met, such as giving notice by a specific date or paying all rent and charges in full. Missing a condition can mean the break fails and the lease continues.
It is also important to check whether you have security of tenure under the Landlord and Tenant Act 1954. This affects whether you have a right to renew the lease at the end of the term. Some leases exclude these rights, which may leave you with no automatic right to stay once the lease expires.
Rent, rent reviews, and hidden costs
The headline rent is only part of the cost of occupying commercial premises. You should check how often rent can be reviewed and on what basis. Many leases include rent reviews that allow the rent to increase during the term. It is important to understand whether the rent can only go up or whether it can go down as well.
You should also review all additional costs carefully. These may include service charges, insurance contributions, utilities, and management fees. In some buildings, service charges can be substantial and unpredictable.
Other financial risks may include interest on late rent, landlord legal costs, and obligations to pay for works to the property. These costs can add up quickly and affect the viability of your business.
Repairing obligations, alterations, and personal risk
Repairing obligations are one of the most misunderstood parts of a commercial lease. Many leases are full repairing and insuring, meaning you may be responsible for keeping the property in good condition, even if it was in poor condition when you moved in.
You should check whether a schedule of condition is attached to the lease. This can limit your repair obligations by recording the condition of the property at the start of the lease. Without this, you may face significant costs at the end of the lease in the form of dilapidations claims.
You should also check what alterations are permitted. Some leases restrict even minor changes without landlord consent. If you plan to fit out the premises or adapt it for your business, this is critical.
Finally, consider whether you are being asked to give a personal guarantee. This can make you personally liable for rent and other obligations if the business fails. This risk should never be accepted without proper advice.
Before signing, you should carefully consider the following.
• The length of the lease and any break clauses
• Rent review provisions and additional costs
• Repairing and maintenance obligations
• Restrictions on use and alterations
• Any personal guarantees or security required
Why early legal advice matters
Commercial leases are not standard documents and are often heavily weighted in favour of the landlord. Once signed, the terms are difficult to change. A solicitor can identify risks, explain your obligations in plain English, and negotiate more favourable terms before you commit.
Early advice can also help ensure the lease supports your business plans rather than restricting them. In many cases, small changes at the outset can prevent costly disputes later.
If you are considering signing a commercial lease and want to be sure you understand what you are agreeing to, contact us today for clear, practical advice. We can help protect your business before you commit.
