Commercial lease red flags: what to check before you sign

By Instrukt, published by Joshua Giles. Updated 30 October 2026. How we write guides

Not legal advice. This page has not been reviewed by a solicitor.

The short answer

As of October 2026, the commercial lease terms that most often cost tenants in England and Wales are conditional break clauses, full repairing obligations on an old building, upward-only or collared rent reviews, unlimited personal guarantees, uncapped service charges, and an exclusion of your right to renew. Check each one before you sign.

Start with the heads of terms

Most problems start before the lease is drafted. Under the RICS Code for leasing business premises, on a new letting with vacant possession, surveyors must record the agreed terms in written heads of terms covering, among other things, the term, break rights, rent and reviews, guarantees and deposits, repair, service charge and whether the Landlord and Tenant Act 1954 applies. If you are not represented, the Code requires the landlord’s side to tell you about it and recommend professional advice. It binds RICS members and firms, and not every landlord follows it. Read the heads of terms closely: the draft lease will be built from them. This guide covers business leases in England and Wales.

Which clauses are the red flags?

Red flag	Why it matters	What to ask for
Break clause conditional on full compliance or all sums paid	The RICS Code says a tenant’s break should depend only on basic rent paid, occupation given up and no subtenants or other occupiers left; extra conditions add ways for the break to fail.	Conditions limited to basic rent paid, occupation given up and no occupiers left.
No refund of rent after a break	Under Marks and Spencer v BNP Paribas [2015] UKSC 72, rent paid in advance for the period after the break date isn’t refunded unless the lease says so.	An express refund clause, as the RICS Code recommends.
Full repairing covenant on older premises with no schedule of condition	The RICS Code says a schedule of condition will normally be required if repair is to be limited to the initial condition, so without one you can be liable to put right defects that were there before you moved in.	Repair limited to the condition shown in an annexed schedule.
Upward-only rent review, or an index review with a collar	The rent can’t fall, or must rise by a set amount (see the ban on upward-only reviews), whatever the market does.	Reviews that can go down, or a cap to match any collar.
Unlimited personal guarantee	A guarantee can cover all of the tenant’s obligations under the lease; the RICS Code says the heads of terms should state whether it covers only rent or everything, any cap, and when it is released.	A cap, a time limit, or a rent deposit instead.
Uncapped service charge, or one covering improvements	The RICS Code says landlords should give proper estimates and disclose known irregular events with a significant impact on future charges; without a cap, costs can rise, including for major works to the building.	A budget, a cap, and exclusions for improvements and inherent defects.
Absolute bar on assigning or subletting	The RICS Code says leases should allow tenants to assign the whole of the premises with the landlord’s consent; an absolute bar can leave you unable to leave or sell your business with the lease.	Assignment of the whole with consent not to be unreasonably withheld.
Narrow permitted use	The RICS Code says a landlord’s control over changes of use should be no more restrictive than necessary to protect the value of the premises; a narrow use clause limits what you can do and who could take the lease over.	A use clause wide enough for your plans and a future buyer.
Reinstatement of all alterations at the end	The RICS Code says that, unless the heads of terms provide otherwise, a lease should let the tenant leave alterations in place unless it is reasonable for the landlord to require removal; a blanket reinstatement clause can mean your fit-out has to be stripped out at your cost.	Reinstatement only if the landlord asks, with notice, or not for agreed works.
A requirement to pay the landlord’s legal costs	Under the Costs of Leases Act 1958 you only pay them if you agree in writing.	Each side pays its own costs.

Is your right to renew being excluded?

Under Part 2 of the Landlord and Tenant Act 1954, many business tenants have a right to a new lease when the term ends. Landlords often exclude it (“contracting out”). That is lawful, but only if, under section 38A and the 2003 Order, the landlord serves a warning notice and you sign a declaration before you commit:

it is only possible for a lease for a fixed term (a “term of years certain”: section 38A(1));
notice at least 14 days before you sign or become bound: a simple declaration;
less than 14 days: a statutory declaration, made before a solicitor or another person authorised to take one;
the declaration must be in the form set out in Schedule 2 to the 2003 Order, or substantially in that form;
it must all be done before you are bound, and that includes becoming bound by signing an agreement for lease;
the notice, the declaration and the agreement to exclude (or a reference to it) must be in or endorsed on the lease (Schedule 2, paragraphs 5 and 6).

Contracting out is common and isn’t always a problem, especially on a short lease. But it means the landlord can ask you to leave at the end of the term, so factor that in before you spend money on fit-out. The Law Commission is reviewing the 1954 Act; its second consultation closed on 16 September 2026, and nothing has changed in law yet.

What can a red flag cost? A worked example

Three of the red flags above often come together: a repairing covenant not limited by a schedule of condition (RICS Code, Part 3 para 7.2), an upward-only review that keeps the rent up even if the market falls (RICS Code, Appendix B5), and an uncapped personal guarantee (RICS Code, Appendix B4). The example below puts figures on them.

Worked example (illustrative figures). A ten-year lease of an older industrial unit at £25,000 a year, full repairing, no schedule of condition, a personal guarantee with no cap and an upward-only review at year five.

Issue	Possible cost to you
Roof covering already near the end of its life, replaced in year six under the repairing covenant	£40,000
Market rent falls to £22,000 at review, but rent stays at £25,000 for five years	£15,000 (£3,000 × 5)
Company fails in year seven with three years left; the guarantor is pursued for rent	Up to £75,000, plus other sums

Each of those can be reduced in negotiation before signing, and much less easily afterwards.

What else should you check?

Energy rating. Landlords generally can’t let non-domestic property with an EPC below Eunless a valid exemption is registered. Ask for the EPC.
VAT on the rent. If the landlord charges VAT and your business can’t recover it, your real rent is 20% higher.
Rent-free periods and incentives. Check whether they are clawed back if you break.
Planning and use. The lease permitting a use doesn’t mean planning permission allows it.
The upward-only ban. It is law but not yet in force, so a lease signed now can still contain an upward-only review. See our guide to the upward-only rent review ban.

A red flag isn’t always a reason to walk away, but it is a reason to negotiate. Have the lease checked by a solicitor before you sign: we introduce you to an independent SRA-regulated solicitor who can review it.

Questions

What should I look out for in a commercial lease?

The break clause and its conditions, the repairing obligations, the rent review, any personal guarantee or deposit, the service charge, the alienation clause, reinstatement and whether the 1954 Act is excluded.

Is it bad if a lease is outside the 1954 Act?

Not necessarily, but it means you have no statutory right to renew. If the Act has been contracted out, that is only valid if the landlord served the warning notice and you made the required declaration before committing.

Do I have to pay my landlord’s legal fees for a new lease?

Only if you agree in writing, under section 1 of the Costs of Leases Act 1958. Many heads of terms say each side pays its own.

What is a full repairing and insuring lease?

A lease where the tenant is responsible for repairing the premises, often including structure and roof, and pays the cost of insuring them. On an older building that can be expensive without a schedule of condition.

Can I negotiate a commercial lease?

Usually, yes, especially before heads of terms are signed. Landlords expect points to be raised on breaks, repair, rent review and guarantees.

Spotted something in your lease?

Tell us about the lease and we’ll introduce you to an independent SRA-regulated solicitor who can check it for red flags before you sign.

Have your lease checked

Sources

This guide is general information, not legal advice. Instrukt is not a law firm.