Commercial leases explained: a guide for business owners

24 July 2026

Contents

Rent is only the beginning. Before you commit to a commercial lease, here’s what the small print could mean for your business, and your finances.

For many business owners, signing a commercial lease is one of the most significant financial commitments they will ever make. Yet many tenants focus almost entirely on rent and location, overlooking legal obligations buried within the lease that can continue to affect the business for years, sometimes long after they have vacated the premises.

94.9% of UK organisations operate from leased premises rather than owning their commercial property outright | Commercial Property Market Statistics 2025

A commercial lease is not simply a rental agreement, it is a legally binding contract that may impose obligations relating to repair, alterations, permitted use, rent increases and exit conditions. Understanding the full picture before signing can protect your business from costly surprises down the line.

At Gordons Partnership, our Commercial Property team regularly advises businesses, landlords and tenants on all aspects of commercial leasing. This guide sets out the key issues every business owner should consider before committing to commercial premises.

Issue 1 – Understanding the length of the lease

The lease term is often the first point businesses focus on, and it deserves very careful consideration. The average commercial lease in the UK has shortened considerably over the past two decades, with many now running for three to ten years, though longer terms remain common in retail and industrial sectors.

According to United Kingdom State of CRE Leasing Report 2024, the average office lease lengths increase by 27% as tenants commit to longer terms, 69% growth in 3-5 year office leases signals a preference for stability, and retail lease lengths rebound, up 32% from 2023.

A longer lease can offer stability and may support more favourable rental terms or landlord contributions to fit-out costs. However, it also reduces flexibility if your business circumstances change. Before committing, consider:

How your business may grow, or contract, over the lease term
Whether the location and size of the premises will remain suitable long term
The total financial commitment across the full lease term
Staffing and operational requirements that may change
Whether a shorter lease with an option to renew might better suit your needs

What appears to be ideal premises today may not meet your needs in three or five years’ time. A solicitor experienced in commercial property can help you negotiate a lease term that balances stability with the flexibility your business requires.

Issue 2 – Reviewing rent and additional costs

Rent is only one part of the overall financial commitment. Many commercial tenants are surprised, sometimes significantly, by the additional costs that can accompany occupation of commercial premises.

Before signing, you should obtain a clear breakdown of all occupation costs, which may include:

Service charges – contributions to the cost of managing and maintaining shared areas or the wider building
Building insurance contributions – often required under the lease even if the landlord arranges the policy
Business rates – a significant overhead for many commercial occupiers, calculated based on the rateable value of the premises
Utilities – electricity, gas, water and, increasingly, digital infrastructure costs
Maintenance costs – depending on repair obligations, ongoing maintenance can be a substantial additional expense
Management fees – sometimes charged on top of service charges in managed multi-tenanted buildings

Service charges in particular can be unpredictable. Where possible, ask for historical service charge accounts for the property before committing, and consider seeking a cap on variable charges during lease negotiations.

Useful resource: GOV.UK – Business Rates: how business rates are calculated and what reliefs may be available.

Issue 3 – Understanding Repair Obligations

Repair obligations are one of the most commonly misunderstood, and most financially significant, aspects of a commercial lease. The extent of a tenant’s repairing liability depends entirely on the wording of the lease, and this wording varies considerably.

Depending on how the lease is drafted, a tenant may be responsible for:

Internal decorations and maintenance
Repair of fixtures and fittings
Structural repairs (in some full repairing leases)
Compliance with statutory obligations affecting the premises
Returning the property to a specified condition at the end of the lease, known as dilapidations

A schedule of condition, a photographic and written record of the property’s state at the start of the lease, can significantly limit your liability at the end of the term. Always commission an independent survey before signing, particularly for older properties or those that may have existing defects.

Issue 4 – Pay close attention to rent review clauses

Many commercial leases, particularly those with terms of five years or more, include rent review provisions. These clauses determine how and when rent may be adjusted during the lease term and can have a significant impact on your business’s long-term cost base.

Common rent review mechanisms include:

Open market rent reviews – rent is reset to the prevailing market rate, which can result in significant increases in areas of strong demand
Fixed percentage increases – rent increases by an agreed percentage at specified intervals, providing more certainty
Index-linked reviews – rent is tied to the Consumer Price Index (CPI) or Retail Price Index (RPI), which in recent years has produced substantial increases
Turnover-based rent – more common in retail; rent is linked to a percentage of the tenant’s revenue

It is also worth noting whether rent reviews are upward-only, meaning rent can increase but not decrease even if market conditions deteriorate. This remains a common feature of UK commercial leases and is something to negotiate carefully before signing.

Issue 5 – Consider whether a break clause is available

A break clause gives either the landlord, the tenant, or both parties the right to end the lease early, usually on a specified date and subject to providing notice within a defined period. For businesses operating in uncertain markets or planning future expansion, a break clause can provide invaluable flexibility.

A common and costly mistake: We regularly see situations where tenants lose their right to exercise a break clause because they missed a notice deadline by a matter of days, or failed to comply with a technical condition, such as having no outstanding rent arrears on the break date. Once the opportunity to break has passed, the tenant may be committed to the full remaining lease term.

Break clauses require careful attention to:

The specific break dates available and whether these can be renegotiated
The notice period required – typically six to twelve months
Conditions that must be satisfied for the break to be effective (e.g. no rent arrears, vacant possession)
Whether the break right is personal to the original tenant or passes to an assignee

Always diarise break notice deadlines as soon as the lease is signed, and seek legal advice well in advance of any break date to ensure all conditions can be met.

Issue 6 – Check permitted use restrictions

Every commercial lease specifies how the premises may be used. These permitted use clauses may appear straightforward at first reading but can create significant difficulties as your business evolves.

For example, a lease may permit “retail use” but restrict certain ancillary services, food preparation, or online fulfilment activities. A lease for office use may not permit customer-facing activities. A hospitality business may find restrictions on hours of operation embedded within the user clause.

Before committing, consider whether the permitted use clause aligns not only with your current operations but also with the direction you expect the business to take. A broader use class may offer more flexibility and is worth negotiating at the outset, it is considerably harder to widen after the lease is signed.

It is also important to check that the proposed use is permitted under the relevant planning use class for the property. Your solicitor can advise on whether planning permission may be required for your intended use.

Issue 7 – Understand assignment and subletting rights

Business needs can change unexpectedly. You may need to relocate, downsize, merge with another business, or dispose of part of your operation. In these circumstances, the ability to assign the lease to a third party or sublet the premises can be extremely valuable, and in some cases essential to avoid continued financial liability for a property you no longer occupy.

Commercial leases typically address assignment and subletting in one of three ways:

Permitted subject to landlord consent – the most common position; consent cannot be unreasonably withheld, but the process can be slow and conditions may apply
Prohibited entirely – the tenant cannot transfer the lease under any circumstances; this significantly restricts future flexibility
Freely permitted – rare in commercial leases but occasionally negotiated in shorter-term arrangements

Be aware that even where assignment is permitted, the original tenant may retain a contingent liability under the Landlord and Tenant (Covenants) Act 1995 if the assignee subsequently defaults. Understanding this risk before signing is important.

Issue 8 – Security of tenure and lease renewal rights

Many commercial tenants assume they will automatically be entitled to remain in their premises when the lease expires. This is not always the case, and the distinction can have serious implications for businesses that have invested significantly in a location.

Certain commercial leases in England and Wales are protected under the Landlord and Tenant Act 1954, giving qualifying tenants a statutory right to renew their lease at the end of the term. However, leases can be, and frequently are, “contracted out” of this protection entirely, meaning the tenant has no right to remain or to renew when the term ends.

Important: Where a lease is contracted out of the 1954 Act, the landlord can refuse to renew and require the tenant to vacate at expiry – regardless of how long they have occupied the premises or how much they have invested in the fit-out.

Before signing any commercial lease, establish clearly:

Whether the lease is inside or outside the protection of the Landlord and Tenant Act 1954
What rights (if any) you have to renew at expiry
Whether you can negotiate to bring the lease within the Act’s protections
The implications for your business if renewal is refused

Issue 9 – Be aware of alterations and fit-out restrictions

Many businesses invest substantial sums fitting out commercial premises to suit their specific operations. However, most commercial leases contain restrictions on alterations, and carrying out unauthorised works can have serious consequences both during the lease and at its end.

Landlord consent is typically required before carrying out:

Structural works of any kind
Internal alterations including partition walls and mezzanine floors
Signage installation and shopfront modifications
Mechanical, electrical, plumbing or HVAC changes
Works affecting fire safety systems or building regulations compliance
Consent, where required, must usually be obtained in writing before works commence – a verbal agreement is not sufficient.
The lease may also require that certain alterations are removed and the premises reinstated to their original condition at the end of the term, adding to dilapidation liability.

If a significant fit-out is planned, seek your solicitor’s advice before works begin. It may also be worth negotiating fit-out rights, and any landlord contributions to fit-out costs, as part of the original lease terms.

Issue 10 – Consider the exit strategy before you sign

One of the most important questions any business owner should ask before signing a commercial lease is: “How will I leave this lease if circumstances change?”

It may feel premature to think about exit arrangements before you have even moved in, but planning ahead is one of the most effective ways to protect your business from significant financial exposure if things do not go to plan.

Exit Strategy Checklist – Before You Sign

Does the lease include a break clause, and when can it be exercised?
What notice is required to exercise the break, and by what method?
Can the lease be assigned, and to what categories of assignee?
Is subletting permitted, and on what terms?
What are the dilapidations obligations at expiry?
Is the lease protected under the Landlord and Tenant Act 1954?
What happens to your fit-out investment if you exit early?

A clear understanding of your exit options, agreed and documented before you sign, can provide valuable protection if business circumstances change unexpectedly. This is not pessimism; it is commercial prudence.

Key Consideration – The risks of signing without legal advice

Commercial leases are often lengthy, technical documents containing obligations that may not become apparent until years after signing. The consequences of misunderstanding key provisions can be severe, particularly for smaller businesses where lease liabilities represent a significant proportion of overall costs.

Common issues that arise when tenants sign without appropriate legal advice include:

Unexpected and disproportionate repair liabilities, including structural obligations
Service charge disputes where the basis of calculation is unclear
Rent review disagreements arising from ambiguous review mechanisms
Restrictions on business activities that limit the tenant’s ability to develop
Loss of break clause rights through procedural non-compliance
Dilapidations claims at expiry that significantly exceed expectations
Inability to exit the lease when business circumstances change

Many of these problems can be identified, and addressed through negotiation, before the lease is signed. The cost of proper legal advice at the outset is almost always significantly less than the cost of resolving problems that emerge later.

What should business owners do next?

Before committing to any commercial lease, take time to understand both the immediate and the long-term implications of the agreement. Commercial property is often the single largest fixed cost a business will face, and making fully informed decisions at the outset can protect you from costly problems for the duration of the lease and beyond.

A thorough legal review of the lease terms before signing can identify potential risks, clarify obligations and, crucially, create the opportunity to negotiate improvements before you are bound by the document.

Before you sign – key steps

Instruct a commercial property solicitor to review the full lease before signing
Commission an independent survey to identify existing defects and agree a schedule of condition
Obtain a full breakdown of all costs including service charges, rates and insurance
Confirm the permitted use covers your current and anticipated business activities
Establish whether the lease is inside or outside the Landlord and Tenant Act 1954
Negotiate a break clause if a long lease is proposed
Understand your exit obligations before you commit