How to negotiate a commercial lease as a small business

Small businesses are at the heart of the high street, many take on empty shops or small industrial premises and are socially and economically important - getting an initial commercial lease is often their biggest commitment and the terms agreed can ultimately affect cash flow, flexibility, and long-term growth.

These businesses (and medium-sized enterprises, or SMEs) constitute the vast majority of the UK's business population and are crucial for driving economic growth, innovation, and job creation, supporting millions of jobs across the country and contributing significantly to the private sector workforce.

Negotiating commercial leases

It is encouraging to see businesses being brave and opening up across our towns.  Commercial Property Lawyer, Paul McGladdery is a champion for these small concerns and enjoys helping negotiate their leases.

“Unlike large companies, small businesses may feel they have limited bargaining power but with the right strategy we can help them secure terms to protect their interests and when they move into new premises it’s a real feeling of job satisfaction,” said Paul.

“With experience in both sides of the transaction we are best place to advise clients, whether it’s a tenant looking for advice or a landlord protecting their investment, getting advice from a commercial property lawyer is crucial,” he added.

Some of the leases Paul has worked on include: hairdressers, takeaways, restaurants, pubs, café bars, to name just a few.

Key points to consider when negotiating a commercial lease

If you’re considering leasing business premises, here are some of the key issues to focus on when negotiating your lease. It is important to get your contracts right from the outset to ensure they reflect your particular circumstances as each business is unique.

When negotiating a commercial lease our solicitors will manage the following and give appropriate advice dependant on your business needs:

1. Lease term and break clauses

   Consider whether you want the security of a longer lease or the flexibility of a shorter one.

   A break clause allows you to end the lease early. Ensure the terms are clearly drafted and realistic so you can use them if needed.  However, an extension clause gives the tenant the option to extend the lease if desired.

2. Repairs and maintenance

   Most people think that the law surrounding residential property applies to commercial property as well and the landlord fixes everything, it doesn’t, and you can be responsible for the repair of the whole building.  Commercial leases are drafted to make the tenant proactively repair the property; it’s condition at the start of the lease is immaterial.

   If you’re leasing part of a building, check what shared costs you’ll be liable for and whether there’s a cap on service charges and annual increases.

3. Use of the premises and alterations

   Make sure the lease wording has permitted use that covers your business activities, including any potential future expansion.

   Negotiate flexibility to make non-structural alterations. Ideally, the landlord’s consent should not be “unreasonably withheld or delayed.”

4. Rent and rent reviews

   Check that the rent reflects current market rates for similar properties. A commercial property solicitor can help you assess whether it’s fair. From a landlord's point of view a unique property in a perfect location may justify higher rent.

   Many landlords will agree to a rent-free period to allow for fit-out or to help you establish your business. From their perspective this could prove beneficial with a tenant improving and adding value to a property.

   Look out for “upwards-only” rent reviews, this means the rent can only ever increase. Ask for open market rent reviews or a fixed cap.

5. Secuirty of tenure

   Under the Landlord and Tenant Act 1954, most business tenants have the right to renew their lease when it ends. Landlords sometimes ask tenants to contract out of this protection.

   Giving up these rights could leave you vulnerable, so always take advice before agreeing.

6. Deposits and personal guarantees

   Small business tenants are often asked for extra security, such as:

   • Rent deposits (commonly 3–6 months’ rent).
   • Personal guarantees from directors or business owners especially when the tenant is a new or small business. Whilst landlords might see this as added security, we might advise that tenants should be cautious and try to avoid personal guarantees.

At Pearson Solicitors we can negotiate limits on both the amount and duration of these commitments.

Statutory Compliance

There is an onus of responsibility to keep you, your employees, your customers and your premises safe. These laws are usually enforced by Government agencies such as the Health and Safety Executive (HSE) or Environmental Health departments of local councils.

Once you have signed the lease you are liable to ensure the property is compliant with all laws.  This can be an expensive exercise so the right advice should be sought before you sign.

Why use a solicitor for lease negotiation?

Commercial leases are complex legal documents.

“As lawyers specialising in commercial lease advice we are experts in this area and can negotiate to protect your interests and that of your business moving forward, there is enough to worry about and consider when you start up or move into bigger premises so it makes sense to let us do the legal worrying for you,” said Paul.

“Negotiating a commercial lease as a small business is about more than just rent, it is about balance and securing premises that support your growth, whilst at the same time avoiding unnecessary risks or costs.

“The right lease terms can safeguard your finances, give you flexibility, confidence, and provide a foundation for growth,” he added. “For tenants your solicitor can adapt the lease to your needs, and similarly for landlords we would work to ensure that the lease provides adequate protection and is enforceable.”

How can we help?

Our specialist commercial property team provides advice for small businesses on a commercial leases and lease renewals. Contact our commercial property solicitors on 0161 785 3500 or email enquiries@pearsonlegal.co.uk

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Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.