Commercial landlord and tenant
New commercial lease for a tenant
Legal work for a business taking a new lease, negotiating repair, break rights, rent review, alienation and renewal rights under the 1954 Act.
This work depends on the details, so our team prepares a quote for you, usually within one working day.
If you are asked to give a personal guarantee, ask the law firm to explain it before you sign anything. It can make your own assets answerable for the business's rent for years.
Signing a commercial lease is one of the biggest commitments a business makes. The rent is only part of it: you may also be taking on repairs to the building, service charges, insurance costs and obligations that last for years, often backed by a personal guarantee.
It suits businesses taking new shop, office, industrial or leisure premises, whether it is your first lease or another site. Your solicitor checks the landlord's title and the planning position, explains what the draft lease means for you and negotiates the terms that carry the most risk: repair, break rights, rent review, alienation (your freedom to assign or sublet) and renewal rights under the Landlord and Tenant Act 1954.
To price this accurately, our team looks at the heads of terms and the type of premises, then sends a tailored quote, usually within one working day. If you already have the landlord's draft lease, include it with your request.
What is involved
Your solicitor usually works through these stages:
- Heads of terms: checking the agreed deal before the landlord's draft arrives and spotting missing points, such as rent-free periods, landlord's works or parking.
- Due diligence: confirming the landlord owns the property and can grant the lease, carrying out searches and raising enquiries about services, the service charge and the building's condition.
- The draft lease: explaining the main obligations in plain terms and what they could cost you.
- Negotiation: limiting repair to the condition shown in a schedule of condition (a photographic record of the premises when you move in), simplifying the conditions attached to any break right (an option to end the lease early), checking how rent reviews work, securing rights to assign, sublet or share with group companies, and agreeing whether the 1954 Act applies.
- Guarantees and deposits: keeping any personal guarantee or rent deposit limited in amount and time where possible.
- Before completion: confirming any landlord's works are done, signing the lease and, if it is contracted out of the Act, making the required declaration.
- After completion: filing an SDLT or LTT return if one is needed and registering the lease at HM Land Registry if it is for more than seven years.
What the legal fee covers
- Reviewing the heads of terms and pointing out gaps
- Checking the landlord's title and any superior lease
- Searches and enquiries about the premises and the service charge
- A report explaining the lease terms and their risks
- Negotiating repair, break, rent review and alienation clauses
- Checking the terms of any deposit or guarantee the landlord wants
- Explaining what contracting out means for you and making your declaration, if needed
- Completing the lease and filing any land transaction return
- Registering the lease at HM Land Registry if it is over seven years
Costs you may see on top
- SDLT or LTT on the rent or any premium, if the thresholds are met
- HM Land Registry fee for registering a lease of more than seven years
- A building survey or a photographic schedule of condition from a surveyor
- The landlord's legal costs, if you have agreed to contribute
- VAT charged on top of the rent by a landlord that has opted to tax
- Separate advice for a director asked to give a personal guarantee, if the landlord requires it
- An environmental report, for industrial premises
What to have ready
- The heads of terms and the marketing particulars for the premises
- The name and registered number of the business taking the lease
- Details of anyone giving a personal guarantee
- How you plan to use the premises and any fit-out works
- Your target opening or move in date
- Recent accounts, if the landlord has asked for them
- Any survey or schedule of condition you already have
How long it takes
Taking a straightforward lease commonly takes 4 to 8 weeks from the landlord's first draft, though 8 to 12 weeks is not unusual where there is a lot to negotiate, the landlord needs its lender's consent or works must be finished first. If you need to be trading by a particular date, say so at the outset: fit-out works, the landlord's own works and any licence for alterations often take longer than the lease itself. Having your guarantor available to sign, and accounts ready if the landlord asks for them, avoids last-minute hold-ups.
Things to watch for
- Get a schedule of condition before you sign. Photographs of the premises' existing state, attached to the lease, can stop you being asked to repair defects that were there before you moved in.
- Read the break conditions closely. A break that depends on full compliance with every covenant can be lost over a minor breach, so push for conditions limited to paying the rent and giving back the premises empty.
- Check the service charge. Ask for the budget and recent accounts, and look for a cap or exclusions for major repairs and improvements to the building.
- Think now about how you might leave. Your rights to assign, sublet or share with group companies, and whether the lease is inside the 1954 Act, decide how easily you can exit or stay on.
- Check the rent review basis, because open market reviews, index links and fixed increases behave very differently and a cap can limit your exposure. A new law will stop reviews in new leases in England and Wales being upward only, but only once the government brings it into force.
- Be careful with personal guarantees. A director's guarantee can last for the whole term and may continue after you assign the lease, so aim to limit it in time and amount.
Questions people ask
What is a full repairing and insuring lease?
It is a lease where the tenant pays for all repairs and for insuring the building, either directly or through a service charge. If you take a whole building, that can include the roof, structure and foundations, even if they were in poor condition when you moved in. A schedule of condition, or limiting your repair obligation to the existing state, can make the risk manageable. The commercial lease guide covers the other main terms.
Should my lease be inside or outside the 1954 Act?
Inside the Act, you usually have a right to a new lease when the term ends, and the landlord can only refuse on specified grounds, such as redevelopment or wanting the premises for its own business, and may then have to pay you compensation. Outside the Act, you have no automatic right to stay. Landlords often ask for shorter leases to be contracted out, so weigh up how important staying on is to your business. The Act applies in England and Wales only.
Will I pay SDLT on a new lease?
In England and Northern Ireland, SDLT on a new commercial lease is charged on the net present value of the rent, meaning today's value of all the rent over the term: 1% on the part between £150,000 and £5 million and 2% above that, plus SDLT on any premium. Many small leases pay nothing, though a return can still be needed. Wales has its own rules, and your solicitor works out the figure.
What is alienation?
Alienation is the lawyers' word for dealing with the lease: assigning it (transferring it to someone else), subletting all or part of it, or sharing occupation. Most leases allow these only with the landlord's consent and on conditions. Good alienation rights give you a way out if your business moves, shrinks or is sold, so they are worth negotiating at the start.
What is a rent-free period?
It is a period at the start of the lease when you pay no rent, often given to cover fitting out or as an incentive for a longer term. It should be written into the lease itself, not left in the heads of terms. Check whether it covers service charge and insurance as well as rent, and whether you have to pay it back if you use a break option.
Who does the work
Your matter is handled by a law firm regulated by the Solicitors Regulation Authority, the Council for Licensed Conveyancers or CILEx Regulation, or in Northern Ireland by a solicitor regulated by the Law Society of Northern Ireland. At the moment the law firms on our panel act for property in England and Wales, so for property in Northern Ireland we tell you whether a firm can act for you before we pass your details to anyone. The firm confirms who will work on your file, their experience and its terms before you instruct it. How we choose our firms.