Signing a commercial lease is one of the larger commitments a business makes. Most of the attention, understandably, goes on the rent and the length of the term, and by the time the landlord's solicitor sends over a draft lease those points have usually been agreed. The lease deals with a good deal more than rent, however, and much of the long-term cost and risk sits in its detail. It decides what the tenant must repair, what it must contribute towards the building, whether it can leave early, whether it can stay on at the end, and what it can do with the premises if its plans change.
In this article we go through the main points a tenant should check before signing, in roughly the order a solicitor would look at them, and explain why each one matters. We also cover the checks that sit outside the lease itself, such as the landlord's title, searches and stamp duty land tax. Later articles in this series look at each topic in more depth.
Heads of terms and the draft lease
Most lettings begin with heads of terms, a short document prepared by the agents which records the main commercial points, such as the rent, the length of the term, any break right, any rent-free period and who is responsible for repairs. Heads of terms are almost always marked "subject to contract", which means that neither side is bound by them. In practice, though, once they are agreed it is difficult to reopen any of the points they cover, and the landlord's solicitor will draft the lease on the basis that those points are settled.
The draft lease itself is prepared by the landlord's solicitor, usually from the firm's standard form, and it is written to protect the landlord. That is entirely normal, and it is not a sign that the landlord is being unreasonable. It does mean, however, that the tenant's solicitor will need to check the draft against the heads of terms, take out anything that was not agreed, and negotiate the many points the heads of terms did not cover at all.
Where the landlord or its agent is a member of the Royal Institution of Chartered Surveyors, the RICS Code for Leasing Business Premises 2020, usually called the Lease Code, also applies. It requires the agreed terms to be set out in written heads of terms before the first draft lease is sent out, and it lists the matters those heads of terms must cover, including the term, security of tenure, break and renewal rights, rent review, service charge, repair, alterations, the tenant's ability to assign or sublet, and any guarantee or rent deposit. The Lease Code binds RICS members and firms rather than landlords generally, and it does not apply to lettings of six months or less. Where it applies, its recommendations on good practice give a tenant a useful reference point in negotiation.
Because so much is fixed at this stage, the most useful time for a tenant to take advice is before the heads of terms are agreed rather than after the draft lease arrives. We look at heads of terms in more detail in a separate article.
The length of the lease and ending it early
The first thing to check is the term itself, meaning the date it starts, the date it ends, and the date from which rent is payable, which may be later if a rent-free period has been agreed. These dates matter more than they might appear, because rent reviews, break dates and the timing of any renewal all run from them.
A break clause gives the tenant, the landlord or both the right to end the lease before the term expires, usually on a particular date and by giving a set period of notice. For a tenant taking a ten-year lease, a break at year five can be valuable. It allows the business to leave if it outgrows the premises, or if trading does not go to plan, without having to find someone to take the lease over. A tenant should check who may exercise the break, on which dates, and how much notice is needed. It is also worth checking whether the break is personal to the original tenant, because a personal break is lost if the lease is later assigned, even to another company in the same group.
The difficulty with break clauses is that they are interpreted strictly. If the lease requires six months' notice, the notice must be served in time, in the form required and at the address the lease specifies. If the right to break is subject to conditions, each of them must be met in full, and the courts will not generally excuse a near miss, however small. For that reason the conditions attached to a break often matter more than the break itself.
The conditions most often found in a landlord's draft are that the tenant has paid all sums due under the lease, has complied with all of its obligations, and gives vacant possession on the break date. Each of these can cause problems in practice. A requirement to have complied with every obligation can be failed because of a minor item of disrepair or a decorating obligation not quite carried out. A requirement that all sums have been paid can be failed if the landlord issues a service charge demand shortly before the break date. A requirement for vacant possession can be failed if furniture or partitioning is left behind.
The Lease Code recommends that a tenant's break should depend only on the tenant having paid the basic rent up to the break date and having moved out, leaving no subtenants or other occupiers behind. Even where the landlord is not bound by the Code, that is a reasonable position for a tenant to ask for, and it is best agreed at heads of terms stage rather than left to the negotiation of the lease.
Two further points are worth bearing in mind. First, where rent is paid quarterly in advance and the break date falls part of the way through a quarter, the tenant will not automatically get back the rent for the days after the break date. The Supreme Court confirmed this in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72, so if a refund is wanted, the lease needs to say so, as the Lease Code recommends. Secondly, stamp duty land tax on a lease is calculated on the rent for the whole term, and none of it is repaid if the tenant later exercises a break. We cover break clauses more fully in a later article.
Renewing the lease at the end of the term
Most business tenancies in England and Wales are protected by Part II of the Landlord and Tenant Act 1954. In broad terms, this means that when the lease comes to an end the tenant is entitled to stay in occupation and to ask for a new lease, and the landlord can refuse only on one of the grounds set out in the Act, such as wanting to redevelop the property or to occupy it itself. In some of those cases the landlord must pay the tenant compensation for having to leave. This protection is usually referred to as security of tenure.
Landlords often ask for the lease to be "contracted out" of this protection, so that the lease simply ends on its expiry date. That is permitted by section 38A of the 1954 Act, provided the procedure set out in the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 is followed before the tenant commits to the lease. In short, the landlord must serve a warning notice explaining what the tenant is giving up, and the tenant must sign a declaration confirming that it accepts it. If the procedure is not followed correctly, the lease will usually have security of tenure after all.
Contracting out is common, and for a short lease, a start-up unit or a building the landlord intends to redevelop it is often a sensible arrangement for both sides. What matters is that the tenant agrees to it knowingly and with the consequences in mind. Without security of tenure there is no right to a new lease and no statutory compensation when the lease ends, so a business that expects to need the premises for longer than the term should either keep the protection of the Act or negotiate an option to renew.
The Law Commission consulted in the summer of 2026 on reforming the 1954 Act, including on simplifying the contracting-out procedure, but the law has not yet changed. We discuss security of tenure in more detail in a later article.
Repair and the condition of the premises
The repairing obligation is the clause most likely to produce a substantial bill at the end of a lease, so it deserves careful attention. Under a lease of a whole building, the tenant is usually responsible for all repairs, including the roof and structure. This is often described as a full repairing and insuring lease. Under a lease of part of a building, such as a floor of an office block or a unit on an estate, the tenant usually repairs the inside of its own premises and contributes to the cost of repairing the rest of the building through the service charge.
The point that most often catches tenants out is that an obligation to keep premises in repair includes an obligation to put them into repair if they are in poor condition when the lease begins. That has been the position since Proudfoot v Hart (1890) 25 QBD 42. A tenant who takes an older building on a standard repairing obligation may therefore find itself liable, at the end of the term, for disrepair that existed before it moved in.
The usual solution is a schedule of condition. This is a written and photographic record of the state of the premises at the start of the lease, agreed by both parties and attached to the lease, with the repairing obligation limited so that the tenant need not return the premises in any better condition than the schedule shows. The Lease Code supports this approach where the term is short or the premises are not in good repair, and suggests that the parties agree at the outset who will pay for the schedule to be prepared. A building survey before the lease is signed will usually show whether one is needed.
For a newly built or recently refurbished property, the tenant should also ask for inherent defects to be excluded from its repairing obligation. These are faults in the design, materials or construction of the building which existed when the works were completed but could not be seen at the time. They are properly a matter for the landlord and its contractors rather than the tenant.
Handing the premises back
The repairing obligation needs to be read together with the yield-up clause, which sets out the condition the premises must be in when the lease ends, and with any obligation to remove alterations and reinstate the premises. For a tenant that has invested in a substantial fit-out, the cost of stripping it out at the end of the lease can be considerable, and reinstatement is often one of the more contested points in a lease negotiation. The Lease Code recommends that, unless the heads of terms say otherwise, a tenant should be allowed to leave its alterations in place unless it is reasonable for the landlord to require their removal.
If the premises are not in the required condition when the lease ends, the landlord may bring a claim for the cost of the work, usually called a dilapidations claim. The landlord's damages for disrepair are limited by section 18(1) of the Landlord and Tenant Act 1927 to the amount by which the disrepair reduces the value of the landlord's interest in the property.
Service charge, insurance and other costs
In addition to the rent, most commercial leases require the tenant to pay a share of the landlord's insurance premium, often called insurance rent, and the business rates for the premises. Where the premises form part of a larger building or estate, the tenant will also pay a service charge towards the landlord's costs of running, maintaining and repairing the common parts.
The service charge provisions are worth reading closely, because the lease will define what the landlord can recover. A tenant would usually expect to exclude costs that properly belong to the landlord as owner of the building, such as improvements that go beyond ordinary repair, the cost of empty units, the cost of finding tenants for other units, damage covered by the landlord's insurance, and the cost of putting right defects in a new building that the landlord can recover from its contractors. It is sensible to ask for the service charge budgets and accounts for recent years, to check how the tenant's share is calculated, and, where the tenant is in a position to negotiate one, to ask for a cap. The Lease Code says that service charge provisions should follow, as far as practicable, the RICS professional standard on service charges in commercial property.
VAT also needs checking. Whether VAT is added to the rent depends on whether the landlord has opted to tax the building, and the Lease Code requires the heads of terms to say whether it will be charged. For most businesses this makes little difference, because the VAT can be recovered. For a business that cannot recover VAT, for example because it makes exempt supplies, VAT at 20% adds a fifth to the real cost of the rent.
Finally, the lease will usually require the tenant to pay the landlord's legal and surveyors' costs of dealing with any application for consent and of enforcing the lease. That is standard, but those costs should be limited to costs that are reasonably and properly incurred.
Rent review
A lease of more than five years will usually provide for the rent to be reviewed. The most common form is an open market review every five years, in which a valuer assesses the rent that a willing tenant would pay for the premises on the review date. The valuation is carried out on the terms of a hypothetical lease and is subject to a set of assumptions and disregards set out in the clause, and these deserve close attention because they can make a real difference to the outcome. The tenant's own improvements and the goodwill of its business, for instance, should be disregarded, or the tenant will in effect be paying rent on its own investment. The main alternatives to a market review are increases linked to an index, such as the Consumer Prices Index, and fixed increases at stated dates.
Market rent reviews in existing leases are usually upwards only, which means the rent rises to the market figure or stays where it is, but never falls. The English Devolution and Community Empowerment Act 2026, which received Royal Assent on 29 April 2026, bans upwards-only rent reviews in new and renewal business leases in England and Wales. The ban is not yet in force, and the date on which it will take effect is to be set by regulations. Leases granted before then are generally unaffected, and fixed or stepped increases are not affected at all. We look at rent review clauses, and at the new ban, in separate articles.
Assigning, subletting and sharing the premises
A lease will often outlast the plans the business had when it signed it. The alienation clause decides what the tenant can do with the lease if its needs change, whether by assigning it, which means transferring it to a new tenant such as a buyer of the business, by subletting all or part of the premises, or by sharing them with another company in the same group.
The usual position is that the tenant may assign or sublet the whole of the premises with the landlord's consent, which is not to be unreasonably withheld. Section 19(1) of the Landlord and Tenant Act 1927 implies that qualification where a lease requires consent, and the Landlord and Tenant Act 1988 requires the landlord to deal with an application for consent within a reasonable time.
Section 19(1A) of the 1927 Act also allows a lease to set out in advance the circumstances in which the landlord may refuse consent to an assignment, and the conditions it may impose. A landlord will commonly be entitled to ask the outgoing tenant to give an authorised guarantee agreement, under which it guarantees that the incoming tenant will meet its obligations under the lease. The tenant should make sure these are reasonable. A right to refuse consent where there are arrears, for example, should be limited to rent and service charge that is not the subject of a legitimate dispute, rather than extending to any breach of the lease, however minor.
It is also worth checking that the tenant may share the premises with group companies, as the Lease Code recommends, and that any subletting can be granted at the market rent at the time rather than at the rent payable under the tenant's own lease. A requirement to sublet at the passing rent can make subletting impossible if rents in the area have fallen.
Using and altering the premises
A landlord gives no implied promise that the premises are suitable for the tenant's intended use, whether physically or in planning terms. The tenant must therefore satisfy itself that its proposed use is permitted under planning law, and should check that the use clause in the lease covers what the business does now and what it may reasonably want to do in future. Where a change of use requires the landlord's consent, the lease should say that consent is not to be unreasonably withheld, because, unlike consent to assign, that is not implied by law.
Leases commonly prohibit structural and external alterations and allow internal, non-structural work with the landlord's consent. A tenant that plans to fit out the premises should agree the works with the landlord before the lease is signed, ideally in a licence for alterations completed at the same time. Signs, and equipment such as air conditioning units that need to be placed outside the premises, should be dealt with expressly in the lease.
Guarantees and rent deposits
A landlord letting to a new or small company will often ask for a personal guarantee from one or more of its directors, a rent deposit, or both. The Lease Code says that the heads of terms should state how long any guarantee or deposit will last, whether it secures only the rent or all of the tenant's obligations, and whether a guarantee is subject to a financial limit.
These points are worth negotiating. A guarantee with no end date and no limit may stay with a director for the whole term, and, if the lease is later assigned and the director is asked to guarantee the tenant's authorised guarantee agreement, potentially beyond it. It is reasonable to ask for a guarantee or deposit to be released once the company has filed accounts showing profits at an agreed multiple of the rent. Any deposit should be held in a separate designated account, with the interest belonging to the tenant, as the Lease Code recommends.
Checks outside the lease
The lease is only one part of the picture. Before the lease is completed, the tenant's solicitor will check that the landlord owns the property and is entitled to grant the lease, and whether the consent of the landlord's lender or of a superior landlord is needed. The Lease Code places responsibility for obtaining any such consent on the landlord. The solicitor will also check the title for restrictive covenants that might prevent the tenant's intended use, carry out searches with the local authority and other bodies, and review the landlord's replies to the Commercial Property Standard Enquiries, the standard set of pre-contract questions which cover matters such as disputes, service charge, planning, asbestos and fire safety.
Energy performance should be checked as well. Under the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, a landlord may not let, or continue to let, non-domestic property with an energy performance certificate rating below E unless a valid exemption has been registered. In its interim response of 18 June 2026, the government confirmed that rented buildings of more than 1,000 square metres will need to reach an EPC rating of B from 2031 where that is cost-effective, while smaller buildings will remain at E. The legislation to give effect to this has not yet been made. A lease granted in breach of the current standard is still valid, but the tenant should ask to see the certificate and check how the lease deals with the cost of any energy improvements during the term.
Formalities, registration and stamp duty land tax
A lease for more than three years must be made by deed if it is to take effect as a legal lease, under sections 52 and 54 of the Law of Property Act 1925. A lease granted for more than seven years must also be registered at HM Land Registry under section 27 of the Land Registration Act 2002, and the tenant does not acquire the legal estate until it is registered.
Stamp duty land tax is charged on the net present value of the rent payable over the term of the lease. For non-residential property, no tax is charged on the first £150,000, the portion from £150,001 to £5 million is charged at 1%, and the portion above £5 million at 2%, with any premium taxed separately. A return must be made to HMRC for most new leases even where no tax is payable, and the return must be filed and any tax paid within 14 days of completion.
When to take advice
The most useful time to involve a solicitor is before the heads of terms are agreed, because that is when the term, the break, the repairing obligation, the basis of rent review and security of tenure are settled. Advice at the draft lease stage remains important, but by then the main commercial terms are usually fixed. Even a modest lease represents a significant commitment. The rent alone on a ten-year lease at £40,000 a year comes to £400,000, before the service charge, insurance and the cost of handing the premises back are taken into account.
Landlords look at the same clauses from the other side, as the terms on which the value of their investment depends, and much of what is said above applies equally when acting for a landlord.
This article is general information on the law of England and Wales as at October 2026. It is not legal advice on any particular lease, and you should take advice on your own circumstances before signing.
Lawyerly's commercial lease solicitors review and negotiate leases for tenants and landlords. You can read more about how we work on our commercial lease solicitors page.
