Pitfalls to look out for in a Commercial Lease

Taking on a commercial lease is a major commitment for any business. Whether you’re opening your first premises or expanding into a new space, the lease you sign can have long-term financial and operational consequences. Unfortunately, many businesses rush the process and overlook key details that can cause serious issues later down the line.

Here are some of the most common pitfalls to watch out for and how to avoid them.

Always request a full breakdown of costs. Rent is just one part of the equation. Service charges, insurance contributions, utilities, maintenance, and repair obligations can all add up quickly. It’s important that the lease is reviewed carefully and you understand exactly what you’re responsible for paying and when.

Many commercial leases include “full repairing and insuring” (FRI) clauses, which mean the tenant is responsible for keeping the property in good repair. If the property is older or in poor condition, this could result in significant costs later. Always inspect the premises and, if possible, attach a schedule of condition to limit your liability.

The length of your lease and your ability to exit early are crucial considerations. Without a break clause, you could be tied to the lease for years, even if your business circumstances change. On the other hand, landlords may include conditions that make it difficult to exercise a break. Be mindful to ensure any break clause is clearly defined, realistic and, where possible, unconditional.

Rent reviews typically occur every three to five years and the terms can vary widely. Some reviews are “upwards only,” meaning rent can increase but never decrease. Others are linked to market value or inflation. Understanding the rent review mechanism and negotiating fair terms can make a big difference to your long-term costs.

Your lease will likely include a “permitted use” clause that restricts how you can use the premises. If your business evolves, you may need flexibility to adapt your operations. Make sure the permitted use is wide enough to cover your current and future needs, and check local planning permissions too.

If you wanted to relocate or downsize in the future, you might look to assign or sublet the lease. However, many leases contain strict conditions or landlord consent requirements. Make sure these clauses are reasonable and don’t leave you tied to space you no longer need.

When your lease comes to an end, you will be required to carry out (or pay for) any repairs or restoration works that are needed to return it to its original condition. Failure to do so could result in the landlord issuing a dilapidations claim to recover the costs of putting things right. Review your obligations early, and consider taking professional advice before your lease ends to avoid any nasty surprises.

A commercial lease can be intricate, with provisions that often favour the landlord. Always seek advice from a commercial property solicitor before you sign. They can help identify hidden risks, negotiate fairer terms, and ensure the lease works for your business both now and in the future.

Signing a commercial lease is a major decision for a business, and getting it wrong can be costly. By identifying potential pitfalls early and taking expert advice, you can ensure your lease works to support your business goals.

If you’re considering a new lease or need a review of your current one, contact the Commercial Property team at Backhouse Solicitors for more guidance.

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