6 Commercial Lease Clauses That Could Cost Your Business (UK Guide)

Rent Review Mechanism — Upward-Only Reviews and RPI Surprises

Most commercial leases include a rent review clause triggered every three or five years. The mechanism matters enormously.

Open market reviews — where rent is reset to the current market rate — are standard in longer leases. The key risk: if the lease specifies upward-only open market reviews, your rent cannot fall even if market conditions deteriorate or if comparable properties are letting at lower rents.

RPI-linked reviews can produce sharp increases in high-inflation periods. A lease signed in 2018 with uncapped annual RPI increases would have generated substantial rent increases in 2022–23. Check for caps.

Fixed percentage uplift reviews are predictable but can leave you paying above-market rent if market values fall. Understand which mechanism applies and model the financial impact over the lease term.

Dilapidations — The End-of-Lease Bill You Did Not See Coming

Dilapidations are the obligations to keep and return the property in good repair. A full repairing and insuring (FRI) lease places all maintenance and repair obligations on the tenant, regardless of the state the property was in when you took it.

Without a schedule of condition (a photographic and written record of the property at lease commencement), you may be liable to return the property in a better state than you found it.

End-of-lease dilapidations claims are a major source of commercial tenancy disputes. The Dilapidations Protocol provides a framework, but costs regularly run to tens of thousands of pounds for even medium-sized commercial premises.

Negotiate a schedule of condition at the outset. Ensure the lease clearly states that repair obligations are limited to the condition recorded in the schedule.

Service Charge — Uncapped Costs and Sweeper Provisions

Service charges cover the landlord's costs of managing and maintaining the building and common parts. In multi-let buildings, tenants pay a proportionate share.

The risks: no cap on total service charge; sweeper provisions allowing landlords to recover costs not specifically listed; sinking fund requirements that may be unreasonable; inclusion of capital expenditure (major works) in the service charge without limit.

The RICS Service Charge Code provides a framework for best practice, but leases are not required to comply with it. Check whether your lease incorporates the Code and whether there is a mechanism to challenge unreasonable service charge items.

Break Clauses — The Pre-Conditions That Invalidate Your Exit

A break clause gives you (and sometimes the landlord) the right to terminate the lease early. They are extremely valuable — and frequently lost through technical non-compliance.

Courts have upheld the strict interpretation of break clause pre-conditions. Common pre-conditions include:

— Rent paid up to date with no arrears of any amount, including small disputed sums
— Vacant possession — the property must be entirely clear of your possessions and your sub-tenants
— Compliance with all lease covenants — any outstanding breach may invalidate the break

The notice itself must be served correctly: on the right person, in the right form, within the precise notice period. A notice served one day late or on the wrong legal entity can fail entirely.

Before exercising a break, obtain legal advice and create a checklist of every pre-condition.

Alienation — Being Trapped in a Property You No Longer Need

Alienation clauses control whether you can assign the lease to a new tenant or sublet the premises. A lease with an absolute prohibition on alienation leaves you paying rent with no exit route short of negotiating a surrender with the landlord.

More commonly, leases require landlord consent to assign, which must not be unreasonably withheld. But landlords can impose conditions — an authorised guarantee agreement (AGA) requiring you to remain liable if the new tenant defaults, financial references, and in some leases a profit-sharing requirement where premium assigned leases require the profit to be shared with the landlord.

For flexible occupiers or growing businesses, the ability to assign or sublet is critical. Negotiate for reasonable alienation rights at the outset.

Landlord and Tenant Act 1954 — Losing Your Right to Renew

Under the Landlord and Tenant Act 1954, business tenants in England and Wales have a statutory right to renew their lease at the end of the term. This security of tenure is valuable — it means the landlord cannot simply refuse to renew and regain possession without paying statutory compensation.

However, leases can lawfully be excluded (contracted out) from the Act's protection. A contracted-out lease gives the tenant no right to renew at the end of the term. The landlord can simply decline to renew without paying compensation.

For businesses building a presence in a location — retailers, restaurants, professional practices — the loss of security of tenure significantly weakens your bargaining position at lease renewal. If your lease is contracted out, consider negotiating an option to renew, or a longer initial term.