Signing a commercial lease is one of the largest financial commitments a business makes. The rent is the headline figure, but the lease terms — length, break rights, repair obligations, rent review mechanism — determine what you are actually agreeing to. Here is how to negotiate effectively.
Start with the Heads of Terms
Heads of terms are the commercial agreement between landlord and tenant before the lawyers draft the lease. Getting the right terms in the heads of terms is far more effective than trying to negotiate them out of the lease once it has been drafted in the landlord's favour.
The heads of terms should cover: rent, lease length, break clauses, rent-free period, repair obligations (full repairing and insuring or otherwise), rent review mechanism and timing, permitted use, alienation rights (subletting and assignment), and any landlord's works or tenant's fit-out contribution.
Do not sign heads of terms before taking legal advice. They are stated to be "subject to contract" and not legally binding — but the practical reality is that significant departures from agreed heads of terms are difficult to achieve once the drafting process has started.
Key Provisions to Negotiate
Break Clauses
A break clause gives you the right to end the lease early, typically at a specified date with a fixed notice period. Without a break clause in a 10-year lease, you are committed for the full term regardless of how the business performs. Negotiate for a break right at year three or five. Landlords will often agree a break if the market is competitive.
Watch the conditions attached to a break — some breaks are conditional on paying all rent, being in full compliance with all lease obligations, and giving vacant possession. A condition of full compliance can be very difficult to satisfy in practice and can render the break right effectively worthless.
Rent Review
Most leases of five years or more include a rent review mechanism. The most common is review to open market rent — the rent is reset to what a willing landlord and willing tenant would agree for the property at the review date. Other mechanisms include CPI/RPI-linked reviews (rent increases in line with inflation indices) and fixed uplift reviews (a predetermined percentage increase).
Open market reviews are generally more landlord-friendly in a rising market; index-linked reviews give more predictability for the tenant. Upward-only rent review clauses mean the rent can only go up or stay the same at review — it cannot fall even if the market has dropped. These are still common and worth resisting if you can.
Repair Obligations
A full repairing and insuring (FRI) lease makes the tenant responsible for all repair and maintenance of the property, including the structure and exterior. In a multi-let building this is typically via a service charge, with the landlord insuring and repairing the structure and common parts.
For older buildings in particular, the repair obligation can be significant. A schedule of condition — a photographic and written record of the state of the property at the start of the lease — limits your repair obligation to keeping the property no worse than it was when you took it. Always try to agree a schedule of condition for second-hand properties.
Alienation — Subletting and Assignment
What rights do you have to sublet the property or assign the lease to a third party if you want to exit? Most leases require landlord consent, which cannot be unreasonably withheld. But the practical process — obtaining consent, providing references and financial information for the incoming tenant — takes time and costs money. Understand your exit options before you commit.
The Rent-Free Period
A rent-free period at the start of a lease — typically given to allow fit-out — is commercially valuable and reduces your effective annual rent cost over the lease term. Push for it. In a soft market, landlords will often give 3–6 months rent-free on a 5-year lease.
Bonsai Law advises business tenants on commercial lease negotiation across the UK. If you are taking on new premises, speak to us before you sign the heads of terms — that is when the leverage is greatest.
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