MAKE YOUR FREE Commercial Lease
What we'll cover
What is a Commercial Lease?
A Commercial Lease is an agreement between a landlord and a business for the rental of a property. Commercial Leases allow a business to use a property for certain commercial purposes and set out the rights and obligations of each party under the lease.
For use in England and Wales only.
When should I use a Commercial Lease?
Use this Commercial Lease template:
- if you are the freeholder of a whole building and want to rent out the whole building as an office, warehouse for storage, shop, restaurant, or café
- to create a lease for a maximum of 3 years
- when you want to create a full repairing and insuring (FRI) lease
- to set out the tenant's obligations in respect of the property (eg repairing and maintaining obligations)
Sample Commercial Lease
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LEASE
DATE
BETWEEN
- ("the Landlord")
- ("the Tenant")
Definitions and Interpretation
- In this Lease, the following definitions are used:
Insurance Rent the yearly gross cost of the premium (before any discount or commission) for the insurance of the Property (other than any plate glass) for its full reinstatement costs against loss or damage of the Insured Risks including demolition, site clearance and incidental costs expenses and VAT. Insured Risks loss or damage by fire and such other risks as the Landlord considers prudent to insure against on the basis that such insurance is available in the market on reasonable terms acceptable to the Landlord. Legislation all Acts of Parliament and all orders regulations and bye-laws made to any Act of Parliament. Lease this lease. Permitted Use use as Prescribed Rate interest at a rate of 4 per cent above the base rate from time to time of The Royal Bank of Scotland plc. Property the land and buildings known as , owned by the Landlord and registered under Title Number . Rent Rent Payment Date . Service Media all sewers, drains, pipes, wires, cables, ventilation ducts, heating ducts, gas, electricity, water, sewage, telecommunications and other conducting media. Term the term of from and including . VAT value added tax chargeable under the Value Added Tax Act 1994 or any similar replacement tax. - In this Lease, unless the context requires a different interpretation:
- Words importing one gender include all other genders and words importing the singular include the plural and vice versa.
- If two or more persons are together the Tenant, their obligations to the Landlord shall be joint and several.
- Any obligation on the Tenant to do or not to do something includes an obligation on the Tenant to use their reasonable endeavours to ensure that no other person does or fails to do that same thing.
- A reference to the Term is the contractual term of this Lease.
- A reference to the end of the Term is to the end of the term however it ends.
- A reference to a person includes firms, companies, government entities, trusts and partnerships.
- The headings and sub-headings do not form part of this Lease.
- References to sub-clauses, clauses, schedules or appendices are to sub-clauses, schedules or appendices of this Lease.
Grant of the Lease
- The Landlord lets the Property to the Tenant for the Term TOGETHER WITH with the rights in Schedule 1 excepting and reserving to the Landlord the rights in Schedule 2
- The Lease is made with the Tenant paying as rent to the Landlord, the Rent and any VAT, the Insurance Rent, any interest payable under this lease and all other sums due under this lease.
Tenant's Obligations
- The Tenant covenants with the Landlord to:
- pay the Rent together with any VAT, by standing order;
- pay the Insurance Rent on demand and if the Landlord insured the Property with other land the amount of the Insurance Rent shall be a fair proportion of the total cost;
- pay all costs in connection with the supply and removal of electricity, gas, water, sewerage, telecommunications, data, services and other utilities to or from the Property;
- pay on demand a fair proportion of the costs payable for the maintenance, repair, lighting, cleaning and renewal of all Service Media used by the Property in common with other property;
- pay interest at the Prescribed Rate on any instalment of the Rent which shall not have been paid to the Landlord on the date 14 days after the due date;
- comply with all laws and recommendations of the suppliers of any services and utilities at the Property;
- keep the Property and all Landlord's fixtures and fittings at all times in good repair and condition (damage by an Insured Risk excepted unless the policy has been vitiated or monies refused in whole or in part by some act or default by the Tenant or its agents);
- keep all drains and sewers clean;
- only use the Property for the Permitted Use PROVIDED that nothing contained in this Lease shall imply or be deemed to be a warranty that the Property may under all Town Planning laws and regulations now or from time to time in force be used for the Permitted Use;
- decorate the outside and inside of the Property as often as is reasonably necessary and also in the last three months of the Term;
- replace the floor coverings at the Property within three months before the end of the Term with new ones of good similar quality;
- inform the Landlord immediately of any damage or loss relating to the Property from an Insured Risk;
- comply at all times with the requirements and recommendations of the insurers relating to the Property and comply with all requirements placed on the Tenant of all Legislation and of all authorities as to the condition and use of the Property;
- pay an amount equal to any insurance money that the insurers refuse to pay by reason of any act or omission of the Tenant at the Property;
- permit the Landlord and those authorised by it after reasonable notice (except in a case of emergency) to enter upon the Property or any part thereof for purposes of inspecting the Property or repairing rebuilding or replacing any adjoining premises or any Service Media;
- comply with acts and statutes in force relating to the use or occupation of the Property;
- permit the Landlord to enter on the Property on prior written notice (except in a case of emergency) for any reasonable purpose;
- pay all proper costs and expenses (including solicitors' costs, Counsel's fees, bailiffs' fees and surveyors' fees) reasonably incurred by the Landlord:
- incidental to or in contemplation of the preparation and service of a Schedule of Dilapidations and/or a notice under Sections 146 and 147 of the Law of Property Act 1925 (notwithstanding that forfeiture is avoided otherwise than by relief granted by the Court);
- in connection with every application for any consent made under this Lease whether such consent shall be granted or not unless unlawfully withheld by the Landlord;
- in connection with the recovery of arrears of rent and insurance contribution;
- arising from any breach of the covenants on the part of the Tenant contained in this Lease.
- indemnify the Landlord against any claims, proceedings, demands, damages, losses, costs and expenses incurred which might be brought against the Landlord by any servants, workpeople, agents or licensees of the Tenant in connection with any breach of the tenant covenants in this Lease other than due to the act or default of the Landlord or its agent.
- The Tenant covenants with the Landlord not to:
- attach any sign to the outside of the Property;
- make any alteration or addition to the structure, external or internal parts of the Property.
- store on the Property any petrol or other flammable substances;
- use the Property for any noxious, noisy or offensive trade or business nor for any illegal or immoral act or use;
- keep any animals at the Property or to hold any sales by auction;
- do anything in or on the Property which may become a nuisance, annoyance, disturbance or inconvenience to neighbouring properties;
- use the Property for residential purposes;
- permit trade empties to collect on the Property;
- obstruct the drains and Service Media;
- do anything at the Property which may make any policy of insurance void or voidable.
Dealing With the Property
- The Tenant can not:
- assign the whole or any part only of the Property;
- underlet the whole or any part only of the Property;
- charge the whole or any part of the Property;
- share or part with the possession of the Property .
End of the Lease
- At the end of the Term the Tenant must:
- yield up the Property and all fixtures (other than tenant's and trade fixtures) in such repair and condition as is required by the Tenant's covenants and obligations in this Lease;
- vacate the Property and remove all of the Tenant's items from the Property.
Landlord's Obligations
- The Landlord covenants with the Tenant as follows:
- that so long as the Tenant pays the rents reserved and complies with its obligations in this Lease the Tenant shall have quiet enjoyment of the Property without any lawful interruption by the Landlord or any person lawfully claiming under, through or in trust for the Landlord except as permitted under this Lease;
- to keep the Property (other than any plate glass at the Property) insured against loss or damage by the Insured Risks for the full reinstatement cost.
- If the Property or any part thereof shall be so destroyed or damaged so as to be unfit for occupation and use then this Lease shall terminate immediately.
Security of Tenure
- The parties agree that the provisions of sections 24 to 28 of the Landlord and Tenant Act 1954 (the 1954 Act) are excluded in relation to the tenancy created by this Lease. The Tenant confirms that before it became contractually bound to enter into the tenancy created by this Lease:
- the Landlord served a notice on the Tenant, as required by section 38A(3)(a) of the 1954 Act and which applies to the tenancy created by this lease, before this Lease was entered into;
- the Tenant, or a person duly authorised by the Tenant, in relation to the notice made a declaration (the "Declaration") in accordance with the requirements of section 38A(3)(b) of the 1954 Act in a form complying with the requirements of Schedule 2 of the Order.
- The Tenant further confirms that, where the Declaration was made by a person other than the Tenant, the declarant was duly authorised by the Tenant to make the Declaration on the Tenant's behalf.
General
PROVIDED ALWAYS AND IT IS EXPRESSLY AGREED that:
- The Landlord is entitled to re-enter upon the Property if:
- any part of the rents hereby reserved are not paid within fourteen days after becoming due, whether formally demanded or not or any breach of any covenant in this Lease;
- the Tenant fails or neglects to perform or observe any of the provisions of this Lease;
- the Tenant being a company:
- has a winding-up petition presented against or by it, or applies for or is subject to an application for an administration order, or an administration order is made, or notice of intention to appoint an administrator or notice of appointment of an administrator is given (whether filed at court or served on any party);
- passes a winding-up resolution or enters into liquidation (other than a members voluntary winding up for the purpose of reconstruction or amalgamation with a solvent body corporate); or
- has a receiver, or an administrative receiver, or a receiver and manager appointed; or
- the Tenant being an individual:
- becomes bankrupt;
- makes an application to the Court for an interim order under Part VIII of the Insolvency Act 1986; or
- a statutory demand under the Insolvency Act 1986 is served on them.
- Upon re-entry by the Landlord this Lease shall determine absolutely but without prejudice any right of action or remedy of the Landlord in respect of any breach of the Tenant's covenants existing at the date of re-entry.
- Subject to the provisions of sub-section (2) of section 38 of the Landlord and Tenant Act 1954 neither the Tenant nor any person deriving title from the Tenant to the whole or any part of the Property shall be entitled on quitting the Property to any compensation under section 37 of the said Act.
- In this Lease any references to the rents hereby reserved or any other sums payable by the Tenant under the terms of this Lease shall be exclusive of any Value Added Tax that is payable from time to time on such amounts and the Tenant shall pay any such Value Added Tax.
- The provisions of section 196 of the Law of Property Act 1925 as amended by the Recorded Delivery Service Act 1962 shall apply to any notices served or in connection with this Lease as if such notices were notices required or authorised under the Acts.
- Any person who is not a party to this Lease shall not have any rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Lease.
- The Landlord and the Tenant acknowledge that entering into this Lease it does not rely on any representation or warranty given by the other.
- This Agreement shall be governed by and interpreted according to the law of England and Wales and all disputes arising under the Agreement (including non-contractual disputes or claims) shall be subject to the exclusive jurisdiction of the English and Welsh courts.
This Lease is executed as a deed on the day and year first written above.
SCHEDULE 1
Rights Granted to the Tenant
The following rights for the Tenant, its servants, employees, agents, workmen and visitors in common with the Landlord and others:
- A right of light, air, support and protection.
- A right to the passage of services through all Service Media comprised in any adjoining or neighbouring property of the Landlord which serves the Property.
SCHEDULE 2
Rights Excepted to the Landlord
The following rights are reserved for the Landlord, its servants, employees, agents, workmen:
- All rights of light, air, support, protection and other easements over other land or premises and all rights and easements belonging to or enjoyed by any adjoining or neighbouring premises.
- The right to the passage of soil, water, gas, electricity, heating, ventilation, air conditioning and other services through any Service Media comprised in the Property from and to any adjoining or neighbouring premises.
- The right to carry out any works upon and otherwise deal with any adjoining or neighbouring premises as the Landlord may think fit notwithstanding any interference with any right of light or air or other easement enjoyed by the Property or any nuisance or inconvenience caused to the occupier.
- The right to erect scaffolding at the Property in connection with any of the rights reserved to the landlord.
- The right to build on, to connect with or otherwise take into use any of the walls or fence surrounding the Property and any Service Media comprised in or serving the Property without payment of any purpose, consideration or compensation to the Tenant subject to the Landlord making good at its own expense any damage thereby caused to the Property.
- The rights are reserved for the Landlord and for anyone else who is permitted to exercise them and for anyone with the Landlord's authority.
- The Tenant shall allow anyone entitled to exercise any right to enter the Property including their workers, contractors, advisers and to enter the Property at any reasonable time and except in the case of an emergency on reasonable notice to the Tenant.
This deed has been executed and delivered as a deed on the date first written above.
About Commercial Leases
Learn more about making your Commercial Lease
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How to make a Commercial Lease
Making your Commercial Lease online is simple. Just answer a few questions and Rocket Lawyer will build your document for you. When you have all the information about the owner’s shares and contributions prepared in advance, creating your document is a quick and easy process.
You’ll need the following information:
The landlord’s and tenant’s details
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What is the landlord’s name, address, and (if it’s not an individual) their business’ legal structure? If the landlord is a company, what’s their company number?
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What is the tenant’s name, address, and (if it’s not an individual) their business’ legal structure? If the tenant is a company, what’s their company number?
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If the landlord or the tenant is a company or a partnership (including an LLP), how will it sign the lease? You must select from the options provided for executing a deed. You’ll need to provide the names of the director(s) or member(s) who will sign.
The property
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What’s the property’s address?
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Is the property registered at the Land Registry? If so:
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What is its title number? This can be found on the title register or on the last contract of sale for the property.
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Will you attach a copy of the title plan? Title plans illustrate the extent of the property. They can be obtained from the Land Registry if the landlord does not have a copy.
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The terms of the lease
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What will the tenant use the property for? This template allows you to create a lease for an office, a warehouse for storage, a shop, a restaurant, or a cafe. If you want to create a lease for other commercial purposes, Ask a lawyer for assistance.
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If it will be used as a shop, what kind of products will it sell? Will it be open on Sundays?
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What additional rights will the tenant be granted under the lease? For example, a right to access the property via a certain route for deliveries.
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What is the start date of the tenancy? Remember that this can be different to the day that the Commercial Lease is dated (ie made).
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What’s the term of the tenancy (ie how long is it for)? Select from 1, 2, or 3 years.
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Can the tenant and/or the landlord end the lease early? If so, the Commercial Lease will include a break clause. For each party that can end the lease early:
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Is there a specific date after which they can do so?
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How much notice do they need to give to end the lease?
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Is the tenant allowed to assign (eg transfer to another party) or underlet (ie sublet to someone else) the lease?
Rent
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Will the rent increase each year of the tenancy or will it be fixed?
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If increased, how much will the rent be for each year?
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If not, how much is the rent?
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When is the first rent payment due?
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How regularly must rent be paid? Select from monthly or quarterly.
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If monthly, on which day of the month must it be paid?
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Exclusion of security of tenure
What sort of declaration will the tenant make when they sign the Tenant’s agreement to exclude security of tenure? It can be a simple or a statutory declaration.
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Common terms in a Commercial Lease
Commercial Leases set out the terms of the relationship that will exist between a landlord and a tenant, to avoid confusion and disputes. To do this, this Commercial Lease template includes sections covering:
The date of the lease
This line is important. It’s not the date of signature or that the tenancy starts, but the date that the lease is created. For more information, read the Make it legal checklist.
Definitions and interpretation
This definition table assigns specific meanings to key terms used throughout the lease. When these terms are used capitalised throughout the lease, they carry the meaning they’re given in this table. The table’s definitions include setting key details of the Commercial Lease, for example, how the property can be used (ie the ‘Permitted Use’), how much rent must be paid (‘Rent’), and the length of the tenancy (‘Term’).
Grant of the lease
This section states that the lease is granted to the tenant in exchange for rent, on the terms of this document (eg along with the prescribed tenant’s rights and subject to the landlord’s rights)
Tenant’s obligations
This section sets out a list of obligations that the tenant will have to the landlord when they sign the Commercial Lease. Most of these relate to:
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payments - the tenant has an obligation to pay rent, insurance costs, utility costs, some maintenance and repair costs, and some costs related to consent applications and similar
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repair and maintenance obligations
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how the tenant can use the property (eg in a permitted way and in accordance with the law)
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insurance obligations - the tenant has various financial and informative obligations relative to the property’s insurance cover
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access and inspection - the tenant must allow the landlord access to the property in certain circumstances
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the tenants’ promise to indemnify the landlord against costs from any legal claims related to any breaches of the lease by the tenant
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obligations particular to the property’s use, for example, obligations to keep the business open at certain times or obligations related to gas equipment or licensing
The tenant also promises in the lease not to do various things. These covenants (ie promises) are mostly related to making alterations to the property, safety considerations, and using the property in a certain (eg respectful) manner.
Dealing with the property
This section deals with what the tenant can and cannot do with the lease (eg assigning (ie transferring) it or underletting (ie subletting) it). Whether assigning or underletting are allowed depends on your answers given during the document interview.
If the tenant is allowed to assign the property, this section requires that they obtain written consent from the landlord before doing so and explains the rules around the landlord’s granting of consent.
If the tenant is allowed to underlet the property, the lease will set out rules that must be followed when creating any sublets (eg they must be made by deed and the tenant must obtain written consent from the landlord before subletting).
End of the lease
This section explains what must happen when the lease ends. It states that the tenant must give up possession of the property and leave it empty (of the tenant’s possessions) and in good repair.
Landlord’s obligations
In this section the landlord promises to allow the tenant quiet enjoyment (ie uninterrupted use) of the property and to insure aspects of the property. This section also states that if part of the property is damaged and becomes unfit for occupation, the lease will end.
Security of tenure
This is the section in which security of tenure is excluded for the tenancy. It complies with the rules for excluding security of tenure as set by the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, by referring to the landlord’s warning notice and the tenant’s declaration regarding excluding security of tenure, and to the agreement to do so.
Break clause
If you indicate that one or both parties can end the lease early, this break clause section will be included in the lease. It sets out who can end the lease early, when they can do so (eg after what date), and how much notice must be given to the other party.
General
This section sets out various other provisions relevant to the lease. It states, for example, that:
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the landlord may re-enter the property (and, therefore, end the lease) if certain circumstances arise (eg if the tenant doesn’t perform certain promises they’ve given under this lease, or if they’re winding up (if it’s a company) or bankrupt (if it’s an individual))
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payments under the lease are exclusive of VAT
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notices that must be served under this lease must be served in accordance with the service provisions of section 196 of the Law of Property Act 1925 (as amended)
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third parties cannot use rights under the Contracts (Rights of Third Parties) Act 1999 to enforce provisions of this lease
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the lease is governed by the law of England and Wales (ie this is its jurisdiction)
Schedule 1 - Rights granted to the tenant
This schedule sets out additional rights that the tenant is granted under the lease (ie additional to those contained elsewhere in the lease). The schedule will always grant tenants a right to light and air and passage of services (eg utilities) through infrastructure (eg cables and pipes) to serve the property. It also contains any additional rights you’ve chosen to include, for example, a right to access the property via a certain route for deliveries.
Schedule 2 - Rights excepted to the landlord
This schedule sets out various rights that the landlord retains, including:
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certain rights enabling the landlord to deal with neighbouring properties, for example:
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to air and light and the passage of services to them
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to carry out works related to them
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rights related to erecting scaffolding and building at or by the property
Signatures
The lease ends with the signature section. It explicitly states that the lease is executed as a deed on the date written at the top of the lease. It then provides spaces for all relevant parties to sign and for witnesses to sign. For more information, see the Make it legal checklist.
If you want your Commercial Lease to include further or more detailed provisions, you can edit your document. However, if you do this, you may want a lawyer to review the document for you (or to make the changes for you) to make sure that your modified Commercial Lease complies with all relevant laws and meets your specific needs. Use Rocket Lawyer’s Ask a lawyer service for assistance.
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Legal tips for landlords and tenants
Make sure you complete the whole process of creating a commercial tenancy, not just the lease document
Creating your Commercial Lease document is an important part of forming a commercial tenancy, but it’s not the only part. You must make sure to complete the other relevant steps in order to create a tenancy that allocates risks and obligations appropriately and in the manner that the parties have negotiated. Particularly, make sure you:
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complete the documents required to exclude security of tenure
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deal with the tenant’s deposit in a fair and secure way (eg using a Rent deposit deed)
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keep a strong record of the property’s condition at the start and end of the tenancy (eg using a schedule of condition and/or an inventory)
For more information on these obligations, read the FAQs above, Entering a commercial lease, and the Make it legal checklist.
Understand when to seek advice from a lawyer
In some circumstances, it’s good practice to Ask a lawyer for advice to ensure that you’re complying with the law and that you are well protected from risks. You should consider asking for advice if:
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part of the property is residential or if there is more than one commercial tenant in the building
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you want to agree on a term sheet (ie heads of terms) detailing the key points of the lease before you start
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you want help with how to complete your lease once it’s drafted
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you want to let a property for longer than 3 years
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you want to allow your tenant the automatic right to stay in the property at the end of the term (ie you don’t want to exclude security of tenure)
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Commercial Lease FAQs
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What's included in a Commercial Lease?
This Commercial Lease template covers:
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the grant of the lease, including what the property can be used for and other restrictions
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the rent and other expenses to be paid by the tenant
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the tenant's rights and obligations
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the landlord's rights and obligations
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how the tenant can deal with (eg assign) the lease
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an optional break clause
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exclusion of security of tenure
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Do I need a Commercial Lease?
A business needs a Commercial Lease if it wishes to carry out its business activities in a specific space. A landlord needs one if they want to allow a business to carry out commercial activities in their property.
A Commercial Lease sets out the detailed terms of the relationship between a landlord and a commercial tenant. It should be carefully written to define the purposes for which the property can be used, to allow the tenant to carry on their business successfully in a way that is acceptable to the landlord.
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How does a Commercial Lease differ from a residential lease?
A Commercial Lease is used for business purposes, whereas a residential lease is used for the rental of a home that somebody lives in. A Commercial Lease is usually subject to more negotiation than a residential lease. Commercial Leases also usually offer less protection to tenants, because they do not personally reside in the property. In particular, commercial leases are not subject to most consumer protection laws that govern residential tenancies (eg limits on security deposits or rules protecting a tenant's privacy).
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What is an FRI lease?
A full repairing and insuring lease (an FRI lease) is a Commercial Lease in which all maintenance, repair, and insurance costs are borne by the tenant.
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What is security of tenure?
Security of tenure is a statutory right that allows tenants to remain in a commercial property (ie to renew their lease) at the end of a lease. The landlord can only refuse to grant this new lease for certain reasons, and doing so can be difficult.
It is possible to exclude this right in a Commercial Lease. This must be done when the lease is created, and certain documents must be in place before the Commercial Lease is dated. Excluding security of tenure is common for short-term commercial leases. For more information, read Security of tenure.
This Commercial Lease template includes provisions to exclude security of tenure. To utilise these, you must also follow the instructions contained in the Make it legal checklist.
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How can a Commercial Lease be ended?
This Commercial Lease will end at the end of its fixed term. You may choose to allow one or both parties the option to end the lease early by including a break clause in the lease. If you include a break clause, the relevant parties can end the lease by following the provisions in the clause (eg by serving written notice to the other party).
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