Signing a commercial lease is a big commitment for any business. Whether you’re opening your first premises or expanding into new locations, the terms you agree to will determine your legal and financial responsibilities for the duration of the lease. Before completing, it is essential to understand exactly what you are agreeing to and where the key risks lie.
At Ison Harrison, we regularly support SMEs, landlords, property developers and investors across England and Wales with clear, practical advice on commercial leases. In this blog we delve into the core issues every tenant should carefully review before signing.
Repairing Obligations: For What Condition Are You Responsible?
Repair clauses are one of the most common sources of dispute between landlords and tenants.
Most leases fall into two broad categories:
- Full repairing: you take responsibility for putting and keeping the premises in good repair, often including historic defects and pre‑existing disrepairs.
- Internal repairing only: the landlord looks after the structural and exterior parts of the building, whilst the tenant maintains the internal non-structural areas.
A tenant who signs a full repairing lease without a schedule of condition risks inheriting any historic problems. For example, a business who took on a warehouse with roof defects may later find itself liable for the full cost of a replacement because the lease made them responsible for “the whole” despite the issues pre-dating their lease.
Before signing always ask whether a schedule of condition can be attached to ensure the repairing standard relates to the state and condition as at the date the lease commences. This is also useful as evidence for the state and condition the property has to be handed back in at the end of the lease (i.e. any dilapidations).
Rent Review Provisions
Rent reviews can significantly increase costs over the life of a lease. They are usually implemented in the following ways:
- Upwards‑only open market reviews
- Index‑linked increases (e.g., RPI)
- Fixed stepped increases
Upwards‑only reviews mean the rent can be increased but reduced, which may not be inline with market conditions. Index‑linked reviews can be predictable, but in recent years steep inflation has left some tenants facing unexpected rises.
Understanding the timing, method and assumptions in the rent review clause is crucial, as disputes often arise from unclear or ambiguous wording.
Break Clauses: Flexibility If Circumstances Change
A well‑drafted break clause can be invaluable. It gives the tenant a chance to exit the lease early if trading conditions change.
Key points to review:
- Is the break unconditional?
Many breaks are subject to requirements such as full rent payment or “material compliance” with covenants. Even minor breaches, like a missing light fitting, can invalidate the break. - What notice period applies?
Notice must be served correctly and on time. Courts interpret break clause conditions strictly.
In Avocet Industrial Estates Ltd v Merol Ltd, a tenant’s break failed because of small unpaid default interest amount. This highlights how unforgiving the courts can be.
Service Charges and Additional Costs
For tenants in multi‑let buildings, service charges can be a major ongoing expense. These typically cover:
- Common area maintenance
- Building insurance
- Cleaning, heating and lighting of shared spaces
- Management fees
Problems arise where service charges are open‑ended or allow the landlord wide discretion. Always check:
- What costs can be included
- Whether caps or exclusions are possible
- How the service charge is calculated and reviewed
Alterations and Fit‑Out Rights
Most tenants will want to carry out some level of fit‑out. The lease will set out:
- What requires landlord consent
- Whether structural alterations are prohibited
- Whether reinstatement is required at the end of the lease
Applications to a landlord for a Licence to Alter can take time, so getting clear advice early on helps avoid delays to opening or trading.
Security of Tenure Under the Landlord and Tenant Act 1954
Commercial tenants usually benefit from security of tenure, meaning a right to renew the lease at the end of the term. However, many leases are “contracted out”, removing this protection.
If the landlord insists on contracting out:
- You must be served with a statutory notice, and
- You must sign a declaration confirming that you understand your rights are excluded.
Losing security of tenure can have a major impact on long‑term business planning, so it is important to understand the implications from the outset.
Use Clauses and Planning Considerations
The “permitted use” clause defines how you can operate from the premises. If restrictions are too narrow it may limit business development or prevent diversification.
Example: A tenant intending to run a café signed a lease permitting only “retail uses”, which resulted in a costly renegotiation after fit‑out had already begun.
Check that:
- The lease allows your intended use and any foreseeable future uses
- You have all necessary planning permissions
- There are no restrictive covenants affecting the property
Landlord’s Rights of Access and Redevelopment
Most leases allow landlords access for repairs. Some also contain redevelopment break rights, giving landlords the option to terminate the lease early for building works.
This can be a major issue for tenants investing heavily in fit‑out or building a customer base. If such rights exist, consider negotiating compensation or tighter conditions.
Conclusion: Take Advice Before You Commit
A commercial lease is one of the most important legal documents your business will ever sign. Every clause carries practical and financial implications, and what can seem like small details can have bigger, long‑term consequences.
Taking specialist legal advice before you sign anything ensures you understand the risks, negotiate fair terms and protect your business from future disputes or unexpected costs.
If you are considering taking on a commercial lease, the Commercial Property team at Ison Harrison can guide you through the process and provide clear, practical advice.
Call us on 0113 284 5000 or email commprop@isonharrison.co.uk.
