A commercial lease grants a business the right to occupy premises for a defined period in return for rent and compliance with specified obligations. Harper James is a UK commercial law firm advising businesses on the laws of England and Wales, including commercial property matters.
The rent is the basic payment for occupation, usually paid quarterly or monthly. A lease may also require a rent deposit or a personal or corporate guarantee. Business rates, utilities, insurance contributions and service charges are separate costs unless the lease states otherwise. A rent review clause sets out when and how the rent changes. Common methods include an increase linked to an index, an open-market review or a fixed increase.
A service charge covers the landlord’s costs of maintaining and managing shared parts of a building or estate. The lease should explain which costs are recoverable, how they are apportioned and whether any cap applies. The tenant should also check whether the service charge includes major works, management fees and legal costs.
The term is the length of the lease. A break clause gives the landlord, tenant or both parties a right to end the lease early, subject to conditions such as giving notice by a specified date, paying rent and complying with other obligations. Missing the deadline or failing to meet a condition can prevent the break from taking effect.
Repairing obligations determine who maintains the premises. Under a full repairing and insuring lease, the tenant commonly bears extensive repair costs and contributes to building insurance. The tenant should assess the premises before signing and record its condition in a schedule of condition where appropriate. At the end of the lease, dilapidations are claims for breaches of repair, reinstatement or redecoration obligations.
The permitted use clause restricts how the premises may be used. It should match the business’s activities and account for planning and licensing requirements. Alienation provisions govern assignment of the lease, subletting and sharing occupation. Landlord consent is often required, and the lease may impose conditions on any transfer.
Before signing, a tenant should review the term, break rights, rent review mechanism, repair liability, service charge, permitted use, alterations, assignment and exit obligations. The lease should also be checked against the business plan, including likely changes in staffing, equipment, trading activities and premises requirements.