A commercial lease is a binding contract that usually runs for years, often five, ten or longer, and it is far harder to unpick after completion than a residential tenancy. Before you sign, whether as landlord, tenant or property investor, the terms actually in front of you, not the ones you assumed were standard, decide your rent liability, your repairing obligations, your ability to leave early, and your right to stay on when the term ends. As commercial lease solicitors acting for landlords, tenants and investors across London and nationally, we see the same handful of clauses cause the most expensive disputes, year after year.
This guide sets out the seven red flags we check for on every commercial lease we review, whichever side of the table our client sits on. It is not an exhaustive checklist of every possible lease clause, but it covers the issues that most often turn into a costly argument, a stuck negotiation, or a dispute after the lease is already signed.
The seven red flags at a glance
Each of these looks different depending which side of the lease you are on. The table below sets out why, before we go through the most important ones in more detail.
| Red flag | Risk for tenants | Risk for landlords | What to check |
|---|---|---|---|
| Unclear 1954 Act status | Losing the automatic right to renew without realising it | Contracting-out paperwork that does not actually exclude the Act | Whether the lease is inside or outside the Act, and whether the section 38A procedure was followed correctly |
| Repairing obligations mismatched to condition | Full repairing liability for defects that predate occupation | A repairing covenant too weak to recover the true cost of disrepair | Whether a schedule of condition is attached and how liability is capped |
| Break clause conditions | Losing the right to break over a technical failure | A break right that is easier to exercise than intended | Every condition attached to the break, not just the date |
| Rent review and service charge | Open-ended rent increases and unpredictable service costs | Income suppressed by too generous a cap or vague mechanism | Whether review is upward-only, capped, and how service charge is calculated and evidenced |
| Alienation and guarantees | Remaining liable after assignment under an AGA | Losing the ability to require a guarantee from an assignee | Assignment conditions, guarantor requirements and AGA drafting |
| Restrictive user clause | Being unable to diversify, expand or assign easily | Devaluing the unit for future lettings | Whether permitted use matches realistic future plans on both sides |
| Insurance and rent suspension | Paying rent on premises you cannot use after damage | Losing rental income with no clear insurance route to cover it | Whether rent is suspended if the premises become unusable, and who insures what |
Security of tenure and contracting out under the Landlord and Tenant Act 1954
Most business tenancies in England and Wales are automatically protected by Part 2 of the Landlord and Tenant Act 1954. This gives a tenant occupying premises for business purposes the right to apply for a new tenancy when the contractual term ends, and restricts the landlord’s ability to refuse renewal to a limited set of statutory grounds, including redevelopment, the landlord’s own occupation of the premises, or persistent breach by the tenant.
Landlords can exclude this protection, known as contracting out, before the lease is granted, but only by following the procedure in section 38A of the Act correctly: serving a prescribed warning notice on the tenant, then obtaining either a simple declaration (where the notice was served at least 14 days before completion) or a statutory declaration in front of an independent solicitor (where it was served later). Get this wrong, commonly by serving the notice too late and using the wrong form of declaration, and the lease keeps its 1954 Act protection even though both sides believed it had been excluded. As commercial lease solicitors, we regularly see contracting-out paperwork that would not withstand a challenge, which becomes a real problem for a landlord planning redevelopment or a straight relet.
For tenants, knowing whether a lease is inside or outside the Act matters just as much. It affects whether you have a statutory right to stay in the premises when the term ends, and what compensation, if any, you are entitled to if you have to leave.
It is also worth knowing that this area of law may not stay still. The Law Commission is currently reviewing the 1954 Act’s business tenancy renewal regime and published its second consultation paper, on modernising security of tenure, on 16 June 2026. That consultation closes on 16 September 2026, after which the Law Commission will analyse responses and publish a final report with its recommendations. Nothing changes for existing or new leases yet, but any business granting or taking on a lease with a long term should factor in that the framework could look different within the next few years.
Repairing obligations and dilapidations liability
Repairing covenants are one of the most argued-over parts of any commercial lease, and the wording rarely matches the actual state of the building on day one. A full repairing and insuring (FRI) lease puts the entire burden of repair, and often of structural repair, onto the tenant, regardless of the condition the property was in when the tenant took occupation.
For a tenant, the fix is a schedule of condition attached to the lease: a photographic and written record of the property’s actual state at the start of the term, with the repairing covenant expressly limited to keeping the property in no worse condition than that record shows. Without one, a tenant can end up liable for repairing defects that existed long before they moved in.
For a landlord, the protection runs the other way. Under section 18(1) of the Landlord and Tenant Act 1927, damages for a tenant’s disrepair at the end of the lease are capped at the actual diminution in the value of the landlord’s reversionary interest caused by the disrepair, not simply the cost of the repair works. If the landlord intends to redevelop or relet on different terms regardless of the state of repair, that cap can significantly reduce, or even eliminate, a dilapidations claim that looks straightforward on paper. Both sides benefit from a dilapidations schedule prepared, or at least reviewed, by a surveyor experienced in section 18 valuations before any figure is agreed.
Break clauses: why strict compliance catches out both sides
A break clause looks simple on the page: a date, a notice period, done. In practice, the courts require strict compliance with every condition attached to a break right, and a tenant who gets one condition wrong, commonly by failing to give up vacant possession, leaving fixtures behind, or having rent arrears outstanding on the break date, can lose the right to exit altogether and remain bound for the rest of the term.
For tenants, that means checking exactly what vacant possession requires under this particular lease, since it is often not just clearing your own belongings but removing tenant’s alterations and reinstating the premises, and diarising the notice period from the correct date, not the date you happen to decide to serve it.
For landlords, an unclear or badly drafted break clause cuts both ways too. It can hand a tenant a break right that is easier to exercise than intended, or create genuine uncertainty about whether a notice served was valid, which is expensive to resolve if it ends up in dispute. Getting the conditions precisely worded, and reviewed properly before signature, protects both sides from an argument that only gets settled once one party has already acted on the assumption they were right. Where that argument does happen, our commercial property litigation team deals with exactly this kind of dispute.
Rent review and service charge provisions
Most commercial leases longer than five years include a rent review, typically every three or five years, and the majority in the UK market are drafted as upward-only, meaning the rent can rise or stay the same at review but never fall below the passing rent. For a tenant, an upward-only review with no cap and a loosely defined open market rent can produce a significant increase with limited room to challenge it. For a landlord, an overly generous cap or a poorly defined review mechanism can suppress income below what the market would otherwise support.
Service charges raise a related but separate issue. The lease should set out clearly what costs can be recovered, how they are apportioned between tenants in a multi-let building, and ideally include a cap or at least a requirement for an annual budget and reconciliation. A service charge clause drafted too broadly exposes a tenant to costs they cannot predict or budget for. One drafted too narrowly can leave a landlord unable to recover genuine expenditure on maintaining the building, which is exactly the kind of disagreement we see play out in practice, our post on an NHSPS service charge dispute sets out one recent example.
Assignment, subletting and guarantees
Alienation clauses, the provisions governing whether and how a tenant can assign the lease, sublet, or share occupation, matter more than they first appear, particularly for a growing or contracting business that may need to exit the premises before the lease term ends.
A landlord will usually require its consent to any assignment, which under the Landlord and Tenant Act 1927 cannot be unreasonably withheld, and commonly requires the outgoing tenant to enter into an Authorised Guarantee Agreement (AGA), guaranteeing the incoming tenant’s performance of the lease covenants. For a tenant, that means assigning the lease does not necessarily end your liability under it: if the assignee defaults, you may still be called on to make good the rent. For a landlord, the AGA is valuable protection, but only if the clause is drafted so it can actually be relied on, and the conditions for granting consent are clear enough to avoid delay or dispute when a genuine assignment is proposed.
User restrictions and permitted use
The permitted use clause defines what the tenant is allowed to do in the premises, and it is often drafted more narrowly than either side really intends. For a tenant, an overly restrictive use clause, limited to one specific trade rather than a broader use class, can block a legitimate change of business direction, or make it harder to assign or sublet later, since a narrow permitted use shrinks the pool of businesses who could take on the lease. For a landlord, permitted use terms drawn too broadly can reduce the value or lettability of the wider building, particularly where other tenants’ leases contain exclusivity provisions that a wide use clause could inadvertently breach.
A lease has two sides: why we act for landlords, tenants and investors
Every one of the red flags above looks different depending which side of the lease you are on, and a solicitor who only ever acts for tenants, or only ever acts for landlords, tends to see half the picture. Our landlord and tenant solicitors advise landlords, tenants and property investors across London and nationally on commercial leases, from initial heads of terms through to renewal, rent review and disputes when they arise. That means we know what a landlord is realistically likely to concede on a break clause or a service charge cap, and equally what a tenant needs to protect before signing, because we have negotiated both sides of the same clauses many times over. Our work on commercial landlords and tenants matters covers everything from a single shop unit to a portfolio of let premises.
This matters just as much for specialist premises. A lease for a dental surgery, GP practice or care home carries its own quirks on top of the general points above, our post on why a GP surgery lease differs from a standard commercial lease covers one example in detail.
What a commercial lease solicitor checks before you sign
Before you sign a new lease, or before you serve or respond to a section 25 or section 26 notice on an existing one, a commercial lease solicitor should be reviewing:
- Whether the lease is contracted out of the 1954 Act, and whether the contracting-out procedure was actually followed correctly
- The repairing covenant against a schedule of condition, or the absence of one
- Every condition attached to any break right, not just the break date
- How rent review and service charge are calculated, capped and evidenced
- The alienation clause, including guarantee and AGA requirements
- Whether the permitted use matches your actual and likely future business
- Insurance obligations and what happens to rent if the building becomes unusable
A proper lease review takes days, not weeks, for most straightforward commercial units, and it is considerably cheaper than unpicking a dispute over any of the above once the lease is signed. If you are buying or selling premises with an existing lease in place, our commercial property conveyancing team can run the lease review alongside the transaction itself. If a disagreement over any of these clauses has already turned into a dispute, take a look at our post on why it pays to involve a business dispute lawyer before trouble starts.
Frequently asked questions
Do I need a solicitor to review a commercial lease?
There is no legal requirement to instruct a solicitor before signing a commercial lease, but the terms are heavily negotiable and are often drafted to favour whichever side’s solicitor wrote the lease first. A review before signature is the cheapest point at which to fix an unfavourable clause.
What does contracting out of the 1954 Act mean?
It means the parties agree, before the lease is granted, that the tenant will not have the automatic statutory right to a new tenancy when the term ends. It requires the landlord to serve a specific warning notice and the tenant to make a declaration, following the procedure in section 38A of the Landlord and Tenant Act 1954. Get the procedure wrong and the exclusion may not be effective.
How much notice does a break clause usually require?
This varies by lease, commonly somewhere between three and six months, but there is no statutory default. The exact notice period, and the date it runs from, is set out in the individual break clause and must be followed precisely.
Can I negotiate the terms of a commercial lease before signing?
Yes. Heads of terms are typically agreed before solicitors are instructed to draft or review the lease, but many of the substantive protections, repairing caps, break conditions and rent review structure, are negotiated during the legal drafting stage rather than before it.
Talk to our commercial property team
None of the seven points above are unusual or hidden in small print. They are often on page one of the lease, in the definitions or the repairing covenant. What causes the damage is not knowing which clauses to read closely, and on which side of the negotiating table they will actually matter to you.
If you are taking on, granting or renewing a commercial lease, whether that is a shop unit, an office, a warehouse or specialist premises such as a dental or GP surgery, get in touch with our commercial property team or call us on +44 207 566 1188. You can also email us at info@gurvelegal.com. We act for landlords, tenants and investors across London and nationally, and a lease review before you sign is the most cost-effective stage at which to have one.
