The Other Side of the Lease: What Commercial Landlords Should Get Right

Most writing about commercial leases is aimed at tenants, which is fair enough, since tenants are usually the ones signing something they did not draft. But a lease is only as good as the protection it gives the landlord, and the problems landlords encounter tend to have their origins in decisions made right at the start.

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Here are the points that most often determine how a letting turns out.

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Heads of terms do more work than people expect

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Heads of terms are usually treated as a formality, agreed quickly so that solicitors can get on with the lease. In practice they set the commercial shape of the deal, and once a point has been conceded at that stage it is difficult to recover later without appearing to move the goalposts.

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The time to think carefully about term length, break rights, repair obligations and what happens at the end is before heads are agreed, not after.

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Who you are letting to matters as much as what you are letting

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A lease is only worth what the tenant can pay under it.

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That makes it worth understanding who the tenant actually is, how long they have traded, and whether the entity signing the lease is the substantive business or a newly formed company with nothing behind it. Where there is doubt, a guarantor or a rent deposit can bridge the gap, but both need to be properly documented to be worth anything.

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Repair obligations need to be unambiguous

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Repair is one of the most commonly disputed areas in commercial property, and ambiguity almost always works against whoever is trying to enforce.

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If the lease intends the tenant to take full responsibility, it should say so clearly and the drafting should match the physical reality of the building. Where a schedule of condition is agreed, its scope matters, because it will be the reference point years later when the tenant leaves.

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Break clauses and rent reviews turn on their conditions

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Both are routine provisions, and both generate a disproportionate share of disputes.

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Break clauses are frequently drafted with conditions attached, and those conditions determine whether a break is effective. Small ambiguities here have large consequences, because the result is binary: either the lease ended or it did not.

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Rent review provisions should be clear about the basis of review, the timing, and what happens if the parties cannot agree. Vague review machinery tends to favour the party with the least to lose from delay.

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Think about the end at the beginning

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Two things are worth settling early.

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The first is whether the lease will carry security of tenure or whether the parties will agree to exclude it, which affects your ability to recover the property at the end of the term.

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The second is dilapidations. What the tenant must do before leaving, and what happens if they do not, should be clear from the lease rather than argued about once they have gone.

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Getting it right at the outset

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A well-drafted lease is the cheapest protection a landlord has. The alternative is enforcing a poorly drafted one.

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You can find out more about how our team can help at marsons.co.uk/services/commercial/commercial-landlords-and-tenants.