Leasing commercial premises, whether a high street shop, a cosy café, or a professional office space, is a major step for any business in the UK. Unlike residential tenancies, commercial leases are heavily negotiated contracts with fewer statutory protections for tenants. In England and Wales, most commercial leases are not automatically protected by the full security of tenure provisions of the Landlord and Tenant Act 1954 unless specifically included (or excluded by court order).
Failing to scrutinise the lease properly can lead to unexpected costs, inflexible terms, or difficulties exiting the premises. As experienced commercial property solicitors emphasise, understanding the key clauses upfront is essential before you commit. Here are the most important ones every tenant should review carefully.
1. The Demise (Description of the Premises)
The lease must clearly define exactly what you are renting. This includes the address, boundaries, any car parking spaces, communal areas, or fixtures and fittings included. For a shop or café, check if it covers external seating areas, signage rights, or shopfront alterations. For an office, confirm inclusion of meeting rooms, kitchen facilities, or IT infrastructure. Ambiguities here can lead to disputes over what you can use or alter.
2. Term Length and Commencement Date
Commercial leases often run for 5, 10, or more years. The start date is critical, as is whether the lease becomes legally binding upon exchange of contracts, completion, or actual occupation. Once binding, you are generally locked in unless a break clause applies. Always confirm the exact length and whether the term is contracted out of the 1954 Act (meaning no automatic right to renew).
3. Rent and Payment Terms
Rent is usually expressed as a yearly figure, payable quarterly in advance. Look for:
- Whether it is exclusive or inclusive of VAT, business rates, or service charges.
- Rent review provisions, often upwards-only every 3–5 years, based on open market rent.
- Any rent-free period at the start (common incentive for new tenants). Unexpected rent increases can strain cash flow, especially for a café or small shop.
4. Service Charges and Outgoings
Tenants typically pay a proportion of the landlord’s costs for maintaining the building, insurance, and common areas (e.g., cleaning, security, repairs to the roof or structure). For multi-unit properties like office blocks or parades of shops, these can be substantial. Check for caps on service charges, sinking funds for major works, and whether the landlord must consult on large expenditures.
5. Repair and Maintenance Obligations
Commercial leases often require the tenant to keep the premises in good repair, including internal and sometimes external elements (a “full repairing and insuring” or FRI lease). For a café, this might include kitchen extract systems, for a shop, shopfront glazing. Dilapidations claims at lease end can be costly budget for regular surveys and consider negotiating a schedule of condition to record the property’s state at the start.
6. Use Clause
This restricts what you can do in the premises. A shop lease might limit you to “retail sale of [specific goods]”; a café to “sale of food and beverages for consumption on or off the premises”. Any change of use requires landlord consent (often not to be unreasonably withheld). Planning permission may also be needed.
7. Alienation (Assignment and Subletting)
Most leases restrict transferring the lease to another party or subletting without landlord consent. Conditions often include proving the assignee’s financial strength and paying a fee. For growing businesses, flexible alienation clauses are valuable.
8. Break Clause
A break clause allows either party (or just the tenant) to end the lease early, usually on a specific date, by serving notice (often 6 – 12 months). Conditions might include paying all rent due and leaving the premises in repair. These are crucial for flexibility, especially in uncertain economic times.
9. Insurance
The landlord usually insures the building, with the tenant reimbursing the premium (often via service charge). Tenants must insure their own contents, stock, and public liability. Check if plate glass or specialist risks (e.g., deep fat fryers in a café) are covered.
10. Forfeiture and Compliance with Laws
The landlord can forfeit (end) the lease for breaches like non-payment of rent or unauthorised alterations. The lease will require compliance with statutes, including health and safety, fire regulations, and (increasingly) energy performance or green obligations.
Commercial leases are complex documents, often drafted in the landlord’s favour. Always take independent legal advice from a solicitor experienced in commercial property before signing. A thorough review can negotiate better terms, avoid pitfalls, and protect your business.
Toomey Legal, a North East-based firm specialising in commercial property matters (including lease negotiations for businesses in Newcastle, Northumberland, and surrounding areas), stresses the value of clear, fixed-fee advice to ensure you understand your obligations and rights as a tenant.
If you’re considering leasing a shop, café, or office, contact a qualified commercial property solicitor early in the process. It could save you significant time, stress, and money in the long run.