Commercial Lease Guide for Tenants

Taking on a commercial lease is a major commitment for any business. Whether you are opening your first premises, relocating or planning for growth, it is important to understand what you are agreeing before you sign.

A commercial lease can affect your cashflow, your ability to leave the property, your repair responsibilities and your future plans. This guide explains the key points business tenants should check before taking a commercial lease in England and Wales, including rent reviews, break clauses, repairing obligations, service charges, guarantees and due diligence.

This guide is for general information only and is not legal advice. Every lease and business is different, so tailored advice should be taken before committing.

What This Guide Covers 

• Why heads of terms matter
• What name should be on the lease?
• Will I need to provide a rent deposit or personal guarantee?
• Lease length, flexibility and break clauses
• Rent, rent reviews and VAT
• Repairing obligations and hidden costs
• Alterations, fit‑out and signage
• Assignment, underletting and exit strategies
• Service charges and shared costs
• Due Diligence before you commit: what you should check before you sign
• Post-Completion
• How Our Commercial Property Team Can Help

Why heads of terms matter

Before the lease is drafted, the landlord or agent will usually prepare heads of terms. These set out the main commercial points, such as the rent, lease length, break clause, rent review, repair responsibilities, service charge and whether the lease will be excluded from renewal rights.

Although heads of terms are not the final legal document, they are important because they form the basis of the lease. Taking advice at this stage can help identify risks early, before positions become harder to change. Good advice enables you to negotiate a satisfactory commercial position.

What name should be on the lease?

The identity of the tenant usually follows the structure of your business. Sole traders often take leases in their personal name, while companies typically lease in the company name.

This decision is important. Once a commercial lease is signed, you may be committed to ongoing payments, repair responsibilities and other obligations for the duration of the lease.

If you take a lease in your personal name, your personal assets (including your home) may be at risk if things do not go to plan. Where possible, personal liability should be avoided, and for many businesses that means leasing through a limited company. 

In some cases, it may be worth discussing with your accountant whether a new company structure is appropriate before you commit to premises.

Will I need to provide a rent deposit or personal guarantee?

Landlords need confidence that rent will be paid and lease obligations met. Where a tenant is new or has no track record, a landlord may ask for additional security, commonly:

• a personal or parent company guarantee, or
• a rent deposit (often three to six months’ rent).

While guarantees expose individuals to personal risk, rent deposits are usually repaid at the end of a lease (subject to deductions) and can be a preferable alternative where affordable. Business tenants should understand not only what security is being provided, but when and how it can be called upon.

Lease length, flexibility and break clauses

A commercial lease commits you to a fixed term, commonly between three and ten years. Before agreeing the term, consider:

• how long you realistically need the space;
• whether the business may outgrow the premises;
• how vulnerable the business is to market change; and
• whether flexibility is essential in the early years.

If you require flexibility, a break clause should be negotiated upfront. Break clauses can allow a tenant to end a lease early. It is important to seek advice on any break conditions that may be imposed.  

Business tenants may have a statutory right to stay in the property and to the grant of a new lease when the current lease ends. However, this right can be removed if the lease is set up in a certain way. This is known as being “contracted out”. It is important to check this early, before you agree the main lease terms.

Rent, rent reviews and VAT

Rent is rarely just a headline figure. Commercial tenants should understand:

• whether VAT is payable now or may become payable in future;
• whether rent is payable quarterly or monthly in advance;
• whether any rent‑free period is agreed and how it operates.

For longer leases, rent review provisions are particularly important. Reviews may be based on open market value, indexation (such as CPI or RPI), fixed uplifts, or a combination of any of these. Many leases still contain upwards‑only rent reviews, meaning rent can go up but not down, even if market conditions change. Budgeting for future rent increases is essential.

Repairing obligations and hidden costs

Repair terms are often one of the most significant, and misunderstood, parts of a commercial lease. They are one of the biggest risks for commercial tenants. 

A lease may require a tenant not just to maintain the property, but to put and keep it in repair. This can mean improving the condition of premises that were already in a poor state when the lease began.

Key questions include:

• Exactly what parts of the building are you responsible for?
• Does liability include structure, roof and services?
• Is a schedule of condition in place to limit exposure?

Without careful negotiation, repairing obligations can result in substantial unplanned costs, particularly at the end of a lease.

Alterations, fit‑out and signage

Most business tenants need to fit out premises and install branding. Leases usually restrict alterations and signage, often requiring landlord consent in advance.

It is important to discuss fit‑out plans early and ensure consent is either pre‑approved or straightforward to obtain. Tenants should also check whether they will be required to reinstate alterations at lease end – a potentially significant cost that is often overlooked when budgets are prepared.

Assignment, underletting and exit strategies

If your circumstances change, you may want to assign (i.e. transfer) the lease or underlet the property. Most leases allow this only with landlord consent and impose specific conditions.

On assignment, landlords often require an Authorised Guarantee Agreement (AGA), meaning the outgoing tenant may remain liable if the new tenant defaults. Underletting can provide income, but the original tenant remains fully responsible to the landlord.

While these options can provide flexibility, they are rarely a full substitute for a well‑drafted break clause if a tenant needs to exit a lease early. 

Service charges and shared costs

Where premises form part of a larger building or estate, business tenants are usually required to contribute to shared costs such as maintenance, insurance and management.

Before committing, tenants should understand:

• what services they are paying for;
• whether contributions are capped;
• historic and projected service charge levels;
• whether a sinking fund is in place.

Service charges can materially affect affordability and long‑term budgeting.

Due Diligence before you commit: what you should check before you sign

Taking a lease without proper due diligence is a false economy. Key checks include:

• Title, including rights of access, covenants restricting use etc;
• Planning use and restrictions;
• Listed building status;
• Condition of the property and any known defects; and
• Compliance with statutory obligations, such as environmental regulations. 

Tenants can tailor the level of due diligence to the nature of the property, the lease length and their risk appetite – but doing nothing is rarely the right answer.

Post-Completion

Completing the lease is not necessarily the end of the legal work. In many cases, stamp duty land tax will be payable, and the lease may need to be registered or noted at the Land Registry. 

How Our Commercial Property Team Can Help

At Battens Solicitors, we help business tenants understand and manage the risks involved before they sign a lease. Our Commercial Property team can support you in negotiating a lease which reflects the commercial terms you have agreed. We also help identify potential liabilities at the outset, so there are fewer unexpected costs throughout the lease term and when it comes to an end.

We take a pragmatic and tailored approach, focussed on supporting your business today and helping provide the mechanisms needed to adapt to future changes.

If you are considering taking a commercial lease, contact our Commercial Property team for early advice.

This guide provides general information only and should not be relied upon as legal advice. Every lease and business is different, and tailored advice should be taken before committing.