Acquiring a Commercial Lease: What to Check Before You Sign

Taking on a commercial lease is one of the more significant commitments a business makes, and it is often made under time pressure. The terms you agree at the outset can shape your costs and your flexibility for years, so it is worth understanding what you are signing up to.

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Commercial leases are not residential leases

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The most important difference is regulation. Residential tenancies are heavily regulated, with a good deal of protection built in by law. Commercial leases are not. The terms are largely whatever the parties negotiate, which means the burden falls on you to make sure they work for your business.

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In practice, commercial leases also place far more responsibility on the tenant, particularly around repairs and contributions to insurance, and they commonly include rent reviews, break clauses and service charges.

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The terms that matter most

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Some provisions do more work than others. The length of the term determines how long you are committed. Rent review clauses determine how and when your rent can increase. A break clause determines whether you can leave early, and if there isn't one, you may remain liable for the rent for the full term even if your circumstances change.

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Beyond that, look closely at your repair obligations, the permitted use of the property, whether you can assign or sublet, and how service charges are calculated.

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Permitted use catches people out more often than you might expect. If the lease restricts use to storage and your business needs the unit for manufacturing, you may find yourself in breach from the day you move in.

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Due diligence before you commit

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Due diligence means investigating the legal and practical risks attached to the property before you are bound by them. That includes checking title and ownership, reviewing planning permission and permitted use, identifying any rights or restrictions affecting the property, assessing its condition, and confirming what you will be liable for by way of service charge.

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Repair obligations deserve particular attention

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Most commercial leases are full repairing and insuring, meaning the tenant takes on internal and external repairs, sometimes structural elements, and a contribution to the building's insurance.

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The critical step is obtaining a schedule of condition before you sign. This records the state of the property at the point you take it on. Without one, you may find yourself obliged to hand the property back in better condition than you received it, and disputes at the end of a lease can be expensive.

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Budget beyond the rent

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Rent is rarely the whole picture. Business rates, service charges, insurance contributions, professional fees and Stamp Duty Land Tax on certain lease terms all add to your occupancy costs, and service charges in particular can rise over time.

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Before you sign

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Early advice, ideally at heads of terms stage, is far more useful than advice once terms have been agreed. At Marsons Solicitors we review and negotiate lease terms, carry out legal due diligence, and advise on repair liabilities and flexibility, so your lease works for your business rather than against it.

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If you are considering taking a lease on a shop, office or industrial unit, you can find out more about how our commercial team can help at marsons.co.uk/services/commercial.

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