Commercial Lease Agreement — England & Wales

Overview

A commercial lease (also called a business lease) is the agreement under which a landlord grants a tenant the right to occupy premises for business purposes in exchange for rent. In England and Wales, most commercial leases of business premises are affected by Part II of the Landlord and Tenant Act 1954 ("the 1954 Act"), which gives a tenant in occupation for the purposes of a business a statutory right to apply for a new lease when the contractual term ends ("security of tenure"), unless the landlord can rely on one of the specific statutory grounds for opposing renewal set out in section 30(1) of the Act (for example persistent non-payment of rent, breach of repairing obligations, or the landlord's intention to redevelop or occupy the premises itself). When to use it: for any letting of business premises (shop, office, warehouse, industrial unit) where the tenant will occupy for the purposes of a business it carries on. It is not suitable for residential lettings, which are governed by an entirely different statutory regime (the Housing Act 1988 and related legislation). Contracting out: landlord and tenant may agree to exclude sections 24 to 28 of the 1954 Act ("contracting out"), so the lease ends automatically on expiry without any statutory right to a new lease. This requires the landlord to serve a prescribed warning notice on the tenant before the lease is completed, and the tenant (or its authorised officer) must then make a simple declaration (for a lease completed at least 14 days after the notice) or a statutory declaration before an independent solicitor (for a shorter notice period). A lease that purports to contract out without following this procedure remains within the protection of the Act. This template includes both the protected and the contracted-out variant — select the option that matches the parties' agreement, and always follow the correct notice-and-declaration sequence for a contracted-out lease. Parties: the landlord (freeholder or superior leaseholder with authority to grant the lease) and the tenant (the business occupier, whether an individual, partnership, or company). If the tenant is a company, a director's guarantee or rent deposit is common where the company has limited trading history. Key clauses: precise description of the demised premises (ideally with a plan), the permitted use, the term and any tenant/landlord break rights, the rent and rent review mechanism (commonly upwards-only review to open market rent, or increasingly to an index such as the Consumer Prices Index), the service charge and insurance provisions, repairing obligations (often FRI — full repairing and insuring, whether directly or via service charge), alienation provisions governing assignment, underletting and charging of the lease, and alterations provisions. Repairing obligations: the tenant's repairing covenant should be calibrated to the condition of the premises at the start of the term — a full repairing obligation on an old building can be a harsh and disproportionate liability; a schedule of condition attached to the lease can cap the tenant's obligation to putting the premises back into no worse condition than recorded at the outset. Common pitfalls: failing to clarify whether the lease is protected or contracted out (and, if contracted out, failing to complete the statutory notice-and-declaration procedure correctly, which can leave the landlord unexpectedly exposed to a renewal claim); omitting a rent deposit or guarantor where the tenant covenant is weak; an unclear or overly narrow user clause that restricts the tenant's ability to assign or sublet later; and failing to register the lease at HM Land Registry where required (leases granted for a term of more than seven years must be registered).

Information to customize

• Landlord's name or company name

• Landlord's registered/correspondence address

• Landlord's company number (if a company)

• Tenant's name or company name

• Tenant's registered/correspondence address

• Tenant's company number (if a company)

• Address of the premises

• Description of the premises (extent, floor area, plan reference)

• Permitted use (planning use class and description of business)

• Term commencement date

• Length of the term (years)

• Is the lease contracted out of sections 24-28 of the Landlord and Tenant Act 1954?

  Yes = excluded from security of tenure (statutory notice/declaration procedure must be followed). No = tenant has statutory renewal rights.

• Break clause details (if any)

• Initial annual rent (exclusive of VAT)

• Rent payment frequency

  Usually quarterly in advance on the English quarter days.

• Rent review basis

  E.g. upwards-only open market review, or indexed to CPI/RPI.

• Rent review pattern (e.g. every 5 years)

• Repairing obligation and any schedule of condition

• Service charge arrangements (if applicable)

• Rent deposit or guarantor arrangements (if any)

• Date of signature

Customize your template

Frequently asked questions

What is security of tenure under the Landlord and Tenant Act 1954?

Security of tenure is the statutory right, under Part II of the Landlord and Tenant Act 1954, of a business tenant in occupation to apply for a new lease when the contractual term ends, unless the landlord can rely on one of the specific grounds in section 30(1) to oppose renewal (e.g. persistent arrears, intention to redevelop or occupy).

What does it mean for a lease to be "contracted out"?

Contracting out means the landlord and tenant agree to exclude sections 24 to 28 of the 1954 Act, so the lease ends automatically at the end of the term with no statutory right to renew. This requires the landlord to serve a prescribed warning notice and the tenant to make a simple or statutory declaration before the lease is completed — skipping this procedure leaves the exclusion ineffective.

Who is responsible for repairs — landlord or tenant?

It depends on the lease. Many commercial leases are "full repairing and insuring" (FRI), placing the repairing burden on the tenant either directly or via a service charge. A schedule of condition can limit an onerous repairing obligation on an older building to its condition at the start of the lease.

How does rent review typically work?

Commercial leases commonly provide for periodic rent review (e.g. every 3 or 5 years) either to open market rent (often on an upwards-only basis, so rent can never fall below the previous level) or indexed to a published index such as the Consumer Prices Index.

Does this lease need to be registered at HM Land Registry?

A lease granted for a term of more than seven years generally requires registration with HM Land Registry as a matter of compulsory first registration. Shorter leases usually do not require registration, though they may still be protected by other means.

Can the tenant assign or sublet the premises?

Only with the landlord's consent, which under section 19(1A) of the Landlord and Tenant Act 1927 cannot be unreasonably withheld where the lease specifies the circumstances and conditions for consent (an "alienation" clause), which is standard commercial drafting practice.

Is this template suitable for a residential letting?

No. This template is for business premises only. Residential lettings are governed by a different statutory framework (principally the Housing Act 1988) and require different documentation entirely.

Does the lease need to be reviewed by a solicitor?

Yes. Commercial leases are complex, heavily statute-affected documents with significant financial consequences (particularly around security of tenure and repairing liability), and this template should always be reviewed by a qualified solicitor before completion.

Related templates