As the end of a commercial lease approaches, many tenants are focussed on what comes next. But handing back commercial premises is rarely as simple as returning the keys.
Rachael Flintoft, commercial property solicitor who advises clients across South Yorkshire and the East Midlands, highlights five red flags to consider before the end of your commercial lease.
1. Repairing Obligations in Commercial Leases
One of the biggest risks at lease expiry is underestimating your repairing obligations. Many commercial leases are granted on a full repairing and insuring (FRI) basis, making the tenant responsible for keeping the property in repair throughout the lease term.
Crucially, this can mean putting the premises into a better condition than when you first moved in. If repairs have been neglected during the tenancy, the landlord may seek compensation for the cost of putting things right.
Reviewing the lease early and getting advice from a building surveyor can help identify potential issues before they become expensive to resolve. A schedule of condition agreed at the start of the lease can also help limit future repairing obligations.
2. Alterations and Reinstatement Obligations Under Commercial Leases
Over the course of a lease, many businesses make changes to their premises, whether that is installing partition walls, signage, air conditioning systems or specialist equipment.
It’s easy to assume those improvements can remain in place when you leave, but leases frequently require alterations to be removed and the property reinstated to its original layout and condition before vacating. There may also be separate obligations relating to tenant fixtures, fittings and equipment.
If you fail to meet reinstatement requirements, the landlord could carry out the works and pursuing you for the associated costs.
Alterations are usually permitted by a landlord in a separate document called a “licence to alter” and you can use this document to be clear on what alterations do need to be reversed.
3. What Does 'Yielding Up' Mean for Commercial Tenants?
Most commercial leases contain a "yielding up" clause, setting out precisely how the property must be handed back at the end of the term.
These obligations can extend beyond repairs and alterations. For example, tenants may be required to remove furniture, equipment, waste and signage, return keys and access devices, and leave the premises clean and vacant.
Overlooking these requirements can result in additional claims from the landlord, even where the property is otherwise in good condition.
4. Has the Landlord Served a Schedule of Dilapidations?
A schedule of dilapidations is a document that identifies alleged breaches of a tenant's obligations, typically relating to repairs, decoration, reinstatement works or compliance with lease covenants.
Receiving a substantial dilapidations claim can be concerning, but you should not assume every item included is justified. Landlords' claims can often be challenged, particularly where the proposed works exceed the tenant's obligations or the landlord's actual loss.
Getting advice from both a commercial property solicitor and a building surveyor can help assess the validity of the claim and, where appropriate, negotiate a fair settlement.
5. Does the Lease Actually End When You Think It Does?
It’s a surprising one, but not every commercial lease automatically comes to an end on the contractual expiry date. If your lease has security of tenure under the Landlord and Tenant Act 1954, it may continue beyond the end of the fixed term unless the correct statutory procedures are followed. This is called “holding over”.
If you are planning to relocate, renew the lease, or bring your occupation to an end, make sure you understand your position well in advance. Getting it wrong could lead to unexpected ongoing liabilities for rent and other lease obligations.
Plan Ahead for a Smooth Exit
The end of a commercial lease should not be treated as an afterthought. Repairing obligations, reinstatement requirements, yielding up provisions and potential dilapidations claims can all result in significant costs if they are not addressed early.
Reviewing your lease at least six to twelve months before expiry gives you time to understand your obligations, carry out any necessary works and engage with the landlord where appropriate. In many cases, obtaining advice from both a solicitor and a building surveyor can help minimise disputes and avoid costly surprises.
Speaking to a Commercial Property Solicitor About Your Lease
If your commercial lease is approaching expiry, obtaining advice early can help avoid unnecessary costs and disputes. Banner Jones' commercial property solicitors advise businesses across Sheffield, Chesterfield, Mansfield and the wider East Midlands on lease renewals, dilapidations claims, landlord and tenant disputes and commercial property matters.
To discuss your commercial lease, contact our Commercial Property team today.
Frequently Asked Questions About Commercial Lease Expiry
What happens when a commercial lease expires?
When a commercial lease expires, tenants may need to repair the premises, remove alterations, comply with yielding-up obligations and settle any dilapidations claims.
Can a landlord claim for dilapidations after a lease ends?
Yes. A landlord can pursue a dilapidations claim where they believe a tenant has breached repairing, decorating or reinstatement obligations.
Do I have to remove alterations at the end of a commercial lease?
Many leases require tenants to remove alterations and restore the premises to their original condition before vacating.
How early should I review my commercial lease before expiry?
Businesses should ideally review their lease six to twelve months before expiry to understand their obligations and avoid unexpected costs.
