Direct Access Barrister
Business & Commercial
Business guide · please read and keep
Taking business premises: commercial leases, explainedThe clauses that decide what your premises really cost — read before heads of terms, not after
A commercial lease is usually the biggest contract a small business signs, and the one it signs with the least scrutiny. The landlord’s draft is written for the landlord; every clause you do not question stays that way for the whole term. This note explains the handful of provisions that determine the true cost and the true risk, in the order they will hurt you. It is general information, not advice on a particular lease.
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Heads of terms: the negotiation is nowBy the time a draft lease arrives, the commercial deal — rent, term, breaks, rent-free period, deposit — has usually been fixed in the “heads of terms,” and everything after is drafting detail around it. Your leverage is at its highest before heads of terms are agreed, while the landlord still has a void unit and you still have alternatives. Everything in this note should be raised then, not discovered later.
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The clauses that decide the real costRepair — the most expensive word is “full”A “full repairing and insuring” (FRI) lease makes you responsible for putting the premises into good repair even if they were in poor repair when you took them — and handing them back that way. On an older building this can dwarf the rent. The protection is a schedule of condition: a photographic record agreed at the start, with the repair obligation capped at “no worse than” that condition. On any building that is not new, insist on one. Break clauses — your escape hatch, their tripwiresA break right is only as good as its conditions. Courts enforce break conditions strictly: rent paid to the day, vacant possession, notice served exactly right — miss one and you are locked in for the rest of the term. Negotiate conditions down to the minimum (rent paid, premises returned), diarise the notice date the day you sign, and serve notice by the method the lease prescribes. Rent review — which way is upMost reviews are “upwards only”: rent can rise to market but never fall. Understand the mechanism (open market or index-linked), the intervals, and the assumptions the valuer must make — small drafting choices here move real money. On shorter leases, resist a review entirely. Service charge — the open chequeIn a multi-let building the service charge can be an uncapped share of whatever the landlord chooses to spend — including, in the worst case, a new roof in year one. Ask for the last three years’ accounts, a cap or fixed charge, and the exclusion of historic disrepair and improvements. Alienation — can you get out by assigning or subletting?If the business moves, grows or fails, your exit is assigning the lease or subletting. Check what consent is required and on what conditions — and beware an “authorised guarantee agreement” that keeps you on the hook for your assignee’s defaults. Personal guarantees — the clause that follows you homeLandlords routinely ask a small company’s directors to guarantee the lease personally. That converts a company risk into your house. Resist; offer a rent deposit instead; if a guarantee is unavoidable, cap it in amount and time and have it fall away once the company shows a trading record.
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Security of tenure — the question at the end of the termBy default, a business tenant has a statutory right to renew when the lease ends (the Landlord and Tenant Act 1954). Many landlords ask you to “contract out” of that protection before signing, by a formal notice-and-declaration procedure. Contracting out is not automatically bad — it is often the price of a shorter, cheaper lease — but understand what you are giving up: at term end you have no right to stay and no compensation, whatever you have spent on the fit-out and however good the location has become for you. And when it goes wrong mid-term: commercial landlords have a self-help remedy — forfeiture — that can see the locks changed for rent arrears without a court order. If you receive a forfeiture threat, a section 146 notice, or a schedule of dilapidations, take advice the same week: the remedies (relief from forfeiture, challenging the schedule) are real but time-sensitive.
Where we come in
A fixed-fee review of the draft lease (or the heads of terms, which is better) with a plain-English report: what each clause costs you, what to push back on, and the wording to ask for. Mid-term, a candid opinion on a dilapidations claim, a break-notice dispute or a forfeiture threat — before positions harden. This note is general information about commercial leases in England and Wales and does not constitute advice on a particular transaction. Lease terms vary widely; take advice on your actual draft before signing. |