A commercial lease is not a standard form document. Every provision is negotiable, and the default position — as drafted by the landlord's solicitor — will almost always favour the landlord. Here are the provisions that catch tenants out most often.
The Permitted Use Clause
The permitted use clause defines what you can use the property for. If it is drawn too narrowly — for example, restricted to "use as a solicitors' office" rather than "use as offices" — it limits your ability to change your use, sublet, or assign without landlord consent and potentially without planning permission.
Check that the permitted use is broad enough to cover your current operations and any reasonably foreseeable expansion. Check also that the planning permission for the property matches your intended use.
The Service Charge Cap and Reasonableness
In multi-let buildings, service charges can be a significant additional cost — sometimes as much as 20–30% of the rent. The lease will usually provide for a fair and reasonable apportionment, but "fair and reasonable" is disputed often enough to be worth scrutinising.
Ask for a cap on the service charge, particularly in the first years of the lease. Ask for audited service charge accounts and for the right to challenge items you consider unreasonable.
Personal Guarantees and Authorised Guarantee Agreements
Landlords often require a personal guarantee from a director if the tenant company does not have a sufficient financial track record. If the company defaults, the guarantor is personally liable for the rent and other lease obligations.
On assignment of a lease, the outgoing tenant is often required to enter into an Authorised Guarantee Agreement (AGA), guaranteeing the performance of the incoming tenant. Understand that assigning your lease does not necessarily release you from liability — it may simply replace one liability with another.
Dilapidations
At the end of the lease, the landlord will assess the condition of the property against your lease obligations. A dilapidations claim — a claim for the cost of putting the property back into the condition required by the lease — can be a significant financial liability.
The best protection is a schedule of condition at the start of the lease, limiting your repair obligation. The second-best protection is keeping good records of the property's condition throughout the lease and maintaining it properly.
Break Clause Conditions — Read Carefully
Break clause conditions have caught out many tenants. A break clause that requires the tenant to be "in full compliance with all covenants" at the break date can be invalidated by something as minor as a small area of peeling paint or an unpaid invoice for a trivial sum.
Aim to negotiate a break clause that is conditional only on payment of the principal rent and giving vacant possession. Any broader condition should be resisted.
Hidden Costs
Beyond rent, budget for: service charges, business rates (and any rates relief you may be entitled to), buildings insurance (if not included in the service charge), landlord's legal costs on grant and on any consent applications, and dilapidations at the end of the term.
Bonsai Law reviews commercial leases for business tenants across the UK. Send us the draft before you sign — the provisions above are far easier to fix on paper than in a dispute.
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