10 Unfair Terms in a Commercial Lease That You Should Look Out For
- Details
Signing a commercial lease is a significant commitment for any business. It not only ties you to a particular location for a given period but also imposes legal, financial, and operational obligations that can shape your business’s success and flexibility. While landlords understandably aim to protect their investment and secure stable income, some lease terms can be one-sided, imposing disproportionate burdens on the tenant.
As a prospective tenant, you must thoroughly understand the lease document and watch for clauses that could jeopardize your interests. Below are ten potentially unfair terms frequently encountered in commercial leases, along with explanations of why they can be problematic and how you might negotiate for fairer wording.
Table of Contents
- 1. Unilateral or Upward-Only Rent Review Clauses
- 2. Excessively Long Repair and Maintenance Obligations
- 3. Blanket Prohibitions on Assignment or Subletting
- 4. One-Sided Break Clauses
- 5. Inflexible Permitted Use and Signage Restrictions
- 6. Excessive Service Charges Without Transparency or Caps
- 7. Personal Guarantees and Security Deposits with No Return Triggers
- 8. Unreasonable Rent Review Mechanisms
- 9. Broad Rights of Landlord Entry and Interference
- 10. Draconian Dilapidations Clauses and End-of-Term Obligations
- How to Protect Yourself as a Tenant
- Conclusion
- FAQs
- 1. Why are some commercial lease terms considered “unfair”?
- 2. How can I identify unfair terms before signing a commercial lease?
- 3. What are the most common unfair terms I should look out for?
- 4. Am I obligated to accept these terms as they are?
- 5. Can I negotiate rent reviews and repair responsibilities?
- 6. What if the landlord refuses to remove or amend unfair terms?
- 7. Are unfair terms always enforceable?
- 8. How can I protect myself against unfair service charge clauses?
- 9. What’s the best way to handle dilapidations clauses?
- 10. Can I still ask for changes after signing heads of terms but before signing the lease?
- 11. Do I need a solicitor to help identify and negotiate unfair terms?
- 12. What if I have already signed a lease with unfair terms?
- 13. Are shorter leases less risky in terms of unfair terms?
- 14. How can I ensure that future changes in my business won’t trigger unfair clauses?
- 1. Why are some commercial lease terms considered “unfair”?
- How Moeen & Co. Solicitors Can Help:
1. Unilateral or Upward-Only Rent Review Clauses
What is it?
A rent review clause allows the rent to be adjusted periodically to reflect market conditions. However, some leases stipulate “upward-only” reviews, meaning that rent can increase to market levels but never decrease—even if market rents have fallen.
Why It’s Unfair:
Upward-only reviews lock the tenant into paying rent that may become above-market if economic conditions deteriorate, or local vacancy rates rise. The tenant faces escalating costs even during downturns.
What to Do:
Negotiate for a more balanced mechanism: market-based (up or down) reviews, index-linked adjustments, or caps that limit the maximum increase. If a landlord insists on upward-only reviews, try to include a break clause at the review date if the new rent is unaffordable.
Understanding the Responsibilities of a Commercial Tenant
2. Excessively Long Repair and Maintenance Obligations
What is it?
Some leases, especially Full Repairing and Insuring (FRI) leases, push significant repair and maintenance responsibilities onto the tenant, including structural and external elements that the tenant neither controls nor benefits from directly.
Why It’s Unfair:
Requiring the tenant to fund major structural repairs, roof replacements, or expensive external works can result in unpredictable, large costs. This transfers long-term capital improvement burdens onto the tenant instead of the landlord, who actually owns the property and benefits from its improved condition.
What to Do:
Seek a more balanced approach: ask that structural and external repairs remain the landlord’s responsibility. If that’s not possible, try for a service charge cap, a schedule of condition to limit dilapidations, or narrower definitions of what you must maintain.
Understanding the Responsibilities of a Commercial Landlord
3. Blanket Prohibitions on Assignment or Subletting
What is it?
Assignment and subletting clauses let the tenant transfer their interest in the lease to a third party. Some leases make it extremely difficult or impossible for the tenant to assign or sublet, granting the landlord excessive discretion or prohibiting it altogether.
Why It’s Unfair:
Without the ability to assign or sublet, a tenant who outgrows the space or faces changing business conditions is stuck. This can trap the tenant in an unsuitable, expensive location, forcing them to pay rent even if the premises no longer serve their needs.
What to Do:
Negotiate for reasonable conditions: the landlord can require consent to an assignment or sublet but should not withhold that consent unreasonably. Adding criteria for what “reasonable” means and possibly allowing assignments to companies of a certain financial standing can inject fairness.
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4. One-Sided Break Clauses
What is it?
A break clause allows early termination of the lease before the fixed term ends. Sometimes the lease grants this privilege solely to the landlord, or attaches extremely onerous conditions to the tenant’s ability to exercise a break (e.g., requiring perfect compliance with all lease terms, no rent arrears, and a large penalty).
Why It’s Unfair:
If only the landlord can break, the tenant is locked in if conditions deteriorate. If the tenant’s break clause requires near-impossible conditions or large fees, it effectively negates the tenant’s flexibility.
What to Do:
Seek symmetry: If the landlord has a break option, the tenant should have one too. Negotiate more realistic conditions for exercising a break, such as requiring no major rent arrears and giving proper notice, rather than demanding flawless compliance.
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5. Inflexible Permitted Use and Signage Restrictions
What is it?
The lease defines a permitted use for the property—e.g., “retail shop” or “office.” Some leases are extremely narrow, and they prohibit any change of use or even minor diversification of business activity without landlord consent. Similarly, strict signage rules can limit the tenant’s ability to advertise or brand their space effectively.
Why It’s Unfair:
Businesses evolve. If the tenant wants to add a complementary service (like installing a small café in an office lobby) or adjust the nature of their offering, they risk being in breach of a rigid permitted use clause. Overly restrictive signage rules may hamper marketing efforts, affecting footfall and revenue.
What to Do:
Negotiate for a broader permitted use or a mechanism to request the landlord’s consent for changes, with a clause stating consent may not be unreasonably withheld. For signage, seek defined criteria for approval (size, quality, safety) rather than a vague prohibition.
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6. Excessive Service Charges Without Transparency or Caps
What is it?
In multi-tenant properties, the landlord often recovers maintenance and communal costs through service charges. An unfair lease may allow the landlord to charge for almost any expenditure without justification, failing to detail the scope of included services or putting no cap on costs.
Why It’s Unfair:
Tenants risk facing unpredictable and large service charge bills, paying for upgrades or inefficiencies they never agreed to. Lack of transparency means the tenant cannot easily verify if the costs are reasonable.
What to Do:
Negotiate for a service charge schedule detailing what’s covered. Request a service charge cap or at least a clause that charges must be “reasonable and proper.” Insist on annual accounts and, if possible, the right to audit service charge expenditures.
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7. Personal Guarantees and Security Deposits with No Return Triggers
What is it?
Some landlords demand personal guarantees from the tenant’s directors or large security deposits without clear conditions for their return. If the lease lacks fair triggers for releasing the guarantee or refunding the deposit, the tenant faces ongoing liability and financial insecurity.
Why It’s Unfair:
If the business thrives and never defaults, the tenant’s personal guarantee or large deposit is tying up resources unnecessarily. Without defined conditions, the landlord can hold on to the deposit longer than needed or keep demands on personal guarantors even after obligations are met.
What to Do:
Limit guarantees to a fixed time period, or reduce them over time as the tenant demonstrates reliability. For deposits, ensure the lease spells out when and how the deposit is returned, such as a timeline after lease expiry and satisfactory dilapidations settlement.
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8. Unreasonable Rent Review Mechanisms
What is it?
While we discussed upward-only reviews earlier, other unfair rent review clauses may set complicated or obscure formulas, or allow the landlord to appoint their own valuer without tenant input, or impose extreme penalties if the tenant disputes the figure.
Why It’s Unfair:
The tenant can end up paying well above market rent if they cannot challenge an inflated valuation easily. A biased process reduces the tenant’s ability to achieve a fair review.
What to Do:
Seek clauses that define a clear, transparent rent review process. This might involve appointing an independent valuer by mutual agreement and using market comparables. If disputes arise, a neutral arbitration or independent expert determination clause can ensure fairness.
9. Broad Rights of Landlord Entry and Interference
What is it?
Some leases grant the landlord broad powers to enter the premises, conduct inspections frequently, or disrupt the tenant’s operations for building works without proper notice or compensation.
Why It’s Unfair:
Excessive interference can harm the tenant’s business. Customers may be deterred by constant works or interruptions, and employees disrupted by landlord visits at inconvenient times. Without proper notice and limits, the tenant lacks the security of quiet enjoyment.
What to Do:
Negotiate for reasonable notice periods (e.g., at least 24–48 hours’ written notice) and restrict the landlord’s entry to business hours unless emergencies occur. Ensure that significant building works that disrupt trading come with prior consultation and possibly compensation or rent reductions.
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10. Draconian Dilapidations Clauses and End-of-Term Obligations
What is it?
Dilapidations refer to the repairs and reinstatement works the tenant must carry out at lease end. Some leases contain overly harsh dilapidations clauses, demanding the tenant restore the property to a condition better than when they took occupancy, or imposing penalties far exceeding actual repair costs.
Why It’s Unfair:
Unreasonable dilapidations obligations can impose heavy financial burdens as the lease ends, forcing the tenant to pay for improvements that largely benefit the landlord’s long-term property value.
What to Do:
Negotiate for a schedule of condition at lease start, documenting the premises’ state. Agree that the tenant only returns the property in no worse condition than documented, less fair wear and tear. Limit dilapidations liabilities to reasonable, evidence-based sums.
How to Protect Yourself as a Tenant
Hire a Solicitor and Surveyor:
Before signing, engage a commercial property solicitor to review the lease. They can identify unfair terms and propose amendments. A surveyor can assess the property’s condition, helping you estimate potential repair costs or challenge unreasonable obligations.
Negotiate and Don’t Hesitate to Walk Away:
The initial lease draft often favors the landlord. Tenants who push back can often secure concessions. If negotiations fail and the landlord is inflexible, consider looking elsewhere. A better property with a fair lease may save money and stress long-term.
Seek Transparency and Caps:
For service charges, repair obligations, and insurance premiums, push for transparency, defined limits, or break clauses if conditions become oppressive. The more detail you secure in writing, the fewer unpleasant surprises you’ll face.
Understand Local Laws and Protections:
In some jurisdictions, tenants have statutory rights preventing certain unfair terms. Knowing these laws strengthens your negotiating position and helps you spot terms that may be unenforceable.
Conclusion
Commercial leases can contain terms that significantly tilt the balance of responsibilities and costs towards the tenant. Unfair clauses—such as upward-only rent reviews, extensive repair obligations, or tightly restricted assignment rights—can limit flexibility, inflate costs, and create long-term risks for the tenant’s business.
The key to avoiding these unfair terms is to thoroughly review the lease, seek professional advice, and negotiate from a position of knowledge. By identifying and challenging these issues before signing, tenants can secure more balanced terms, maintain greater control over their operating costs, and ensure the premises remain a supportive asset rather than a liability.
Ultimately, a well-negotiated, fair lease sets the stage for a stable, productive relationship between tenant and landlord, allowing the tenant to focus on running a successful business rather than battling burdensome lease conditions.
FAQs
1. Why are some commercial lease terms considered “unfair”?
Certain clauses may heavily favor the landlord by shifting unexpected costs, limiting tenant flexibility, or imposing strict conditions that don’t align with normal market practice. These terms are often considered “unfair” because they create an imbalanced relationship, putting the tenant at a significant disadvantage compared to what is typical or reasonable in a commercial tenancy.
2. How can I identify unfair terms before signing a commercial lease?
Carefully review the lease and pay special attention to clauses regarding rent reviews, repairs, service charges, restrictions on assignments or subletting, and dilapidations. Look for vague or one-sided provisions that lack reciprocal obligations. Consulting a commercial property solicitor to conduct a thorough legal check can help you spot and understand these clauses.
3. What are the most common unfair terms I should look out for?
Some common examples include:
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Upward-only rent reviews.
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Excessive repair responsibilities placed solely on the tenant.
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Blanket prohibitions on assignments or subletting.
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Draconian break clauses that heavily favor the landlord.
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Unreasonable service charge arrangements without caps or transparency.
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Strict dilapidations clauses demanding extensive end-of-term restorations.
4. Am I obligated to accept these terms as they are?
No. A lease is negotiable. Many landlords start with a “landlord-friendly” draft, expecting the tenant to push back. If you identify unfair terms, you can request amendments, more balanced language, or protective measures such as caps on expenses or clearly defined conditions for break clauses.
5. Can I negotiate rent reviews and repair responsibilities?
Yes. Negotiate for more balanced rent review mechanisms, such as market-based (up or down) reviews rather than upward-only. For repairs, you can seek a more limited scope of responsibility, request a schedule of condition, or at least limit your liability for structural or major external issues that you do not cause.
6. What if the landlord refuses to remove or amend unfair terms?
If the landlord is inflexible, consider whether the property’s location, cost, or unique features justify accepting the risks. If not, you may walk away and seek a more balanced lease elsewhere. Remember that commercial property markets are competitive—if a landlord refuses to negotiate, another property may offer better terms.
7. Are unfair terms always enforceable?
Not necessarily. Some clauses may be so one-sided that a court, if asked, could deem them unreasonable or unenforceable, especially if they contravene statutory protections. However, relying on future litigation is risky and costly. It’s better to negotiate fair terms upfront than to hope a court will invalidate an unfair clause later.
8. How can I protect myself against unfair service charge clauses?
Ask for clear itemization of service charges, a cap or limit on annual increases, and the right to audit service charge accounts. Negotiate provisions stating that charges must be “reasonable and necessary,” giving you room to dispute unreasonable costs.
9. What’s the best way to handle dilapidations clauses?
Start with a schedule of condition at the outset, documenting the property’s state. Negotiate that you’ll only return it in “no worse condition” than originally recorded, allowing for fair wear and tear. This prevents the landlord from demanding extensive, costly works at lease end that improve the property beyond its initial state.
10. Can I still ask for changes after signing heads of terms but before signing the lease?
Yes. Heads of terms are not usually legally binding. This is the ideal stage to bring in a solicitor to refine the draft lease before signing. If the landlord pushes back, you can still walk away until the final lease is executed.
11. Do I need a solicitor to help identify and negotiate unfair terms?
While not legally required, a commercial property solicitor’s expertise is invaluable. They recognize red flags, propose suitable compromises, and ensure the final lease aligns with standard market practice and the tenant’s interests. Skipping professional advice can lead to accepting detrimental terms that haunt you for the lease’s duration.
12. What if I have already signed a lease with unfair terms?
Review your options with a solicitor. While changing terms mid-tenancy might be challenging, you could seek the landlord’s agreement to vary certain clauses. If the landlord refuses and you face serious financial or operational strain, consider break options if available, or plan for a more favorable lease when the term expires.
13. Are shorter leases less risky in terms of unfair terms?
Shorter leases may reduce long-term exposure to disadvantageous clauses, giving you an opportunity to move on or renegotiate sooner. However, short leases could have higher rent per square foot or less security of tenure. Balancing lease length with the fairness of terms is crucial.
14. How can I ensure that future changes in my business won’t trigger unfair clauses?
Negotiate flexible permitted use and assignment/subletting provisions, rent review clauses that reflect real market conditions, and break clauses that allow exit if conditions become untenable. Planning ahead ensures your lease can adapt with your business rather than trap you.
How Moeen & Co. Solicitors Can Help:
Facing a complex commercial lease negotiation and worried about unfair terms? Moeen & Co. Solicitors is here to guide you every step of the way.
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Expert Lease Review:
Our experienced commercial property solicitors meticulously review proposed leases, flagging suspicious clauses and explaining their implications. We identify unfair terms before you commit, giving you a chance to negotiate improvements. -
Strategic Negotiation Support:
We don’t just point out problems; we offer solutions. Our team suggests balanced amendments, pushes for fair rent review mechanisms, secures reasonable service charge caps, and seeks workable assignment provisions. By advocating firmly on your behalf, we help level the playing field with the landlord. -
Clarity and Communication:
Moeen & Co. Solicitors presents complex legal issues in plain language. We ensure you understand the stakes and options, empowering you to make informed decisions. You’ll approach signing your lease with confidence, knowing which clauses work in your favor and which could pose long-term risks.
There are several ways to contact our solicitors based in Hayes, London: We are located near Hayes and Harlington Station on Hayes High Street, in Hayes Town Centre.
In a market where landlords often present leases initially skewed towards their advantage, having a dedicated legal team at your side makes all the difference. Moeen & Co. Solicitors ensures that you enter into commercial leasing arrangements with eyes wide open, shielded from onerous terms and better positioned to thrive in your chosen premises.
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