Entering into a commercial lease agreement in the UK is a critical step for any business, carrying long-term financial and operational implications. Poor decisions made at this stage can hinder growth, strain cash flow, or even lead to costly legal disputes. To help you avoid common pitfalls, we outline five frequent mistakes businesses make when signing a commercial lease and how to avoid them.
1. Misunderstanding Key Terms in a Commercial Lease Agreement
Commercial lease agreements in the UK often contain dense legal language, technical terminology, and complex clauses. Failing to fully understand these terms, such as rent review clauses, repair obligations, or renewal rights, can result in significant liabilities.
For instance, overlooking how rent increases are calculated (e.g. upwards-only rent review) can disrupt long-term financial planning. Other overlooked clauses may relate to responsibility for insurance, alterations, or service charges.
Always review the lease thoroughly. Instruct a solicitor with experience in this field to explain your legal obligations and negotiate fairer terms where necessary.
2. Focusing Only on Rent and Missing Hidden Costs
Many businesses fixate on the base rent while underestimating the true cost of occupying commercial premises. Common additional costs in UK business leases include service charges for common area maintenance, business rates (payable by the tenant in most cases), utilities and insurance, and repair obligations under a full repairing and insuring lease (FRI).
These costs can be substantial, particularly in older or poorly maintained buildings. If you don’t factor these in at the outset, your business may face unpredictable overheads or disputes with the landlord.
Request a detailed breakdown of total occupancy costs and review the service charge history before signing a business lease.
3. Choosing a Property That Doesn't Support Future Growth
A frequent error is leasing a space that only meets current needs without considering future business expansion or changes. A commercial lease agreement often spans 3 to 10 years, and being locked into the wrong space can be disruptive and costly to exit.
Considerations should include layout and usability for your operations, access to transport, parking, and deliveries, staff facilities and space for team growth, and flexibility to sublet or assign the lease.
Ensure the lease provides enough adaptability for your long-term business strategy. Include rights of assignment or subletting if future relocation is a possibility.
4. Skipping Professional Advice and Property Inspection
Commercial leases are rarely standardised, and even small clauses can carry major risks. Yet many SMEs skip legal or surveyor advice to cut costs. This often proves more expensive in the long run.
You should instruct a solicitor to review and negotiate lease terms, arrange a full building survey or inspection to identify hidden defects, and clarify responsibility for structural repairs, damp, asbestos, and compliance issues.
Visiting the property in person is vital. A legal review and survey could help you renegotiate terms or avoid signing an unfavourable lease entirely.
5. Not Planning an Exit Strategy or Negotiating Flexibility
UK commercial lease agreements can bind tenants for long periods. If your circumstances change, due to market conditions, downsizing, or relocation, you could be stuck with an inflexible lease.
Without key provisions like a break clause (early exit right), the right to assign or sublet the lease, and reasonable notice periods for non-renewal, you may face financial penalties or legal difficulties when trying to exit or transfer your lease.
Always negotiate break clauses and subletting rights at the start of the lease term. Check how much notice is required to terminate or renew, and document any options clearly.
For more information, please contact us on 01524 907100, info@pre-law.co.uk or through our online enquiry form.
