The basics of commercial leases
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Contact our teamWhen entering the world of commercial property, one of the most important concepts to understand is the commercial lease. But what is it exactly?
At its core, a commercial lease is a legally binding agreement between a landlord and a business tenant. In exchange for a regular payment (usually rent), the tenant is granted the right to use the property for business purposes over an agreed period of time. The lease not only covers the use of the space but also outlines key responsibilities—such as maintenance, repairs, and compliance with regulations—for both the landlord and tenant throughout the term.
Unlike renting a flat or house, a commercial lease brings with it a different level of responsibility. These leases tend to be more flexible and negotiable, which allows for a greater degree of customisation to fit the needs of the business. For instance, rent reviews, break clauses, or even the length of the lease term can often be tailored to suit both parties’ objectives. However, it’s essential to note that, with this flexibility, commercial tenants typically have less statutory protection than residential tenants. This makes it even more important to understand every aspect of the agreement before signing.
Richard Hughes
Partner | Commercial Property, Real Estate, Real Estate Finance
Commercial vs residential leases: key differences
While both types of leases revolve around the same fundamental exchange—using property in return for payment—the nature of a commercial lease is quite different from a residential one. Commercial leases are designed with business use in mind, meaning they offer less legal protection for tenants compared to residential agreements. This is because commercial tenants are assumed to have a better understanding of business dealings and are considered more equipped to manage their obligations than someone renting a home.
Additionally, the negotiation process tends to be more fluid in a commercial lease. Since both parties—landlord and tenant—are generally more familiar with business practices, there is often more room for negotiation. This level of customisation makes it essential for both parties to approach the lease with clear goals and a thorough understanding of their rights and obligations.
Can commercial leases ever be oral agreements?
While technically possible, oral agreements are rare in the commercial property world—and for good reason. The absence of a written contract makes it nearly impossible to enforce the terms if a dispute arises. Without a documented lease, resolving disagreements would come down to one party’s word against the other, leaving a lot of room for misunderstanding. Written agreements provide both clarity and protection, ensuring all terms are clear and legally enforceable, which is why a written lease is almost always the preferred approach.
Meet our team of commercial property solicitors
Jo Farr
Partner | Commercial Property, Real Estate, Land Development, Real Estate Finance
Richard Hughes
Partner | Commercial Property, Real Estate, Real Estate Finance
Julian Parkes
Partner | Commercial Property, Real Estate, Landed Estates and Farming
Nellie van der Lande
Senior Associate | Commercial Property, Real Estate Finance, Rural Services
Callum Leary
Senior Associate | Commercial Property, Real Estate, Real Estate Finance
Sam Ho
Senior Associate | Commercial Property, Real Estate, Real Estate Finance
Sharon Mays
Senior Associate | Commercial Property, Real Estate, Land Development, Real Estate Finance
Nicola Donnelly
Associate | Real Estate, Plot Sales, Residential Property
Fiona Hampton
Chartered Legal Executive | Commercial Property, Land Development, Plot Sales
Helen Archibald
Consultant | Commercial Property, Real Estate, Land Development
Janice Taylor
Conveyancing Executive | Real Estate, Plot Sales, Residential Property
Key elements of a commercial lease
A commercial lease is more than just a rental agreement—it outlines the fundamental terms of the relationship between the landlord and tenant. Here’s what it typically includes:
- Description of the property: An accurate description of the property type and the address of the premises being leased.
- Tenancy length: Whether the lease is for a fixed term or renewable periodically.
- Rent: The amount to be paid and the agreed payment schedule.
- Permitted business use: What kind of business activities can be carried out at the property.
- Improvements: Responsibilities for any alterations or upgrades to the property.
- Security deposit: Terms outlining how much is required and how it will be handled.
- Insurance: Who is responsible for insuring what.
- Repair Obligations: for both the landlord and the tenant.
Some leases might go into further detail, covering areas such as:
- Lease renewal options
- Subletting permissions
Every lease is different, which is why it’s crucial to review each one carefully and understand all terms before signing.
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Who handles disputes?
If there’s ever a disagreement, the law governing the lease is based on the location of the property, not where the landlord or tenant might live. A well-drafted lease often includes provisions for handling conflicts, helping prevent lengthy and costly legal battles.
Who’s involved in the lease signing process?
The main players in any commercial lease are:
- The landlord (or lessor): The property owner.
- The tenant (or lessee): The business or individual renting the premises.
In some cases, a guarantor may also be involved. This person or entity agrees to cover any financial losses or damages if the tenant is unable to meet their obligations under the lease.
The premises
The lease will include a legal description of the property, similar to what you’d find in purchase documents or land registry forms. But it’s also important to understand the terms related to the physical state of the property:
- Fixtures: These are items attached to the property that can’t be removed without causing damage, like built-in shelving or kitchen units.
- Chattels: Personal items not fixed to the property, such as desks, blinds, or microwaves.
- Leasehold improvements: These are permanent changes made to the property by the tenant, such as installing new lighting or building partition walls. These improvements often depreciate over time.
Finally, the lease will define how the property can be used. If you plan to use it for anything outside the permitted purposes outlined in the lease, you’ll need written permission from the landlord.
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How to terminate a commercial lease
To terminate a commercial lease, you will need to have reviewed the lease terms carefully to ensure that the correct procedure is followed.
Break clauses allow for early termination under specified conditions. If a break clause is present, you’ll need to follow the precise terms, such as providing the correct notice period and submitting a written notice in the required format. This notice period often ranges from a few months to longer, depending on the lease. Meeting the notice requirements exactly as specified is crucial to avoid complications or penalties.
If there is no break clause or provision for early termination, consider negotiating with the landlord. You may be able to reach a mutual agreement, sometimes involving an exit fee or a replacement tenant to cover the remaining lease term. Additionally, ensure all lease-end obligations are fulfilled, such as repairs, cleaning, or restoring the property to its original condition, to prevent disputes or charges.
A solicitor can help clarify your options, ensure compliance with legal requirements, and facilitate a smoother termination process.
Whether you’re setting up your first retail store, relocating your office, or expanding your portfolio of commercial properties, understanding the ins and outs of a commercial lease is key. At Moore Barlow, we’re here to guide you through the process, ensuring you enter any agreement with confidence and clarity.
