What is an FRI lease and how does it differ from an IRI lease?

A Full Repairing and Insuring (FRI) lease makes the tenant responsible for all repairs to the premises — including the structure and exterior of the building — and for insuring the building. This is the standard in the UK commercial property market and is heavily weighted in favour of the landlord. An Internal Repairing and Insuring (IRI) lease limits the tenant's repairing obligation to the internal parts of the premises only; the landlord retains responsibility for the structure, roof, and exterior. IRI leases are more tenant-friendly and are common in multi-let buildings where the landlord manages common areas. In practice, even in a nominally FRI lease, you can negotiate limitations — particularly by commissioning a Schedule of Condition at the outset.

What is a break clause in a commercial lease?

A break clause allows one or both parties to terminate the lease early at a specified date (fixed break) or after a specified period of notice (rolling break). Break clauses are highly valuable for tenants who are uncertain about long-term requirements. However, they are notoriously difficult to exercise correctly. Landlords attach strict conditions — most commonly that all rent must be paid to date, all covenants must be complied with, and vacant possession must be given. Courts have ruled that even minor technical breaches of these conditions can invalidate an attempted exercise of a break clause. Always take specialist legal advice well before the break date and serve notice in exactly the correct form within the specified timeframe.

How do upward-only rent reviews work?

Most UK commercial leases have upward-only rent reviews, typically every 5 years. At each review, the rent is assessed against the open market rental value of comparable properties at the review date. The rent can only go up or stay the same — it cannot go down, even if market rents have fallen. This means a tenant could pay above-market rent for the remainder of the lease after a review. Alternatives include: index-linked rent reviews (tied to CPI or RPI), which can go up or down; fixed uplifts (e.g. 2% per year); and open market reviews without the upward-only restriction (very rare in the UK market but more common in Scotland). When negotiating a new lease, try to limit review intervals, negotiate a collar and cap on any uplift, or use index-linking.

What are dilapidations and how can I protect myself?

Dilapidations are the obligation to return the premises to the condition required by the lease at the end of the term. Under an FRI lease, this can require reinstating alterations, redecorating throughout, repairing structural defects, and removing fixtures — costs can easily run into tens of thousands or even hundreds of thousands of pounds on a large commercial property. The key protection is a Schedule of Condition: a photographic and written record of the condition of the premises at the start of the lease, agreed with the landlord. Your repairing obligation is then limited to returning the premises to no better condition than shown in the Schedule. Without a Schedule of Condition, you are potentially obliged to return the premises to a standard better than when you took it.

What are service charges and how can I check they are reasonable?

Service charges are additional annual costs payable to the landlord to cover the maintenance of common areas, building management, security, cleaning, and insurance. In a multi-let building, these can add 15–40% to your base rent cost. Service charges are frequently challenged by tenants as unreasonable or opaque. To protect yourself: (1) request 3 years of audited service charge accounts before signing; (2) negotiate a cap on year-on-year increases; (3) insist on a right to inspect service charge invoices and accounts; (4) join the RICS Service Charge Code, which encourages best practice in commercial property management; (5) if charges are unreasonable, seek an independent surveyor's opinion. Unlike residential service charges, commercial tenants have limited statutory rights to challenge service charges — it depends on the lease terms.

Negotiating a Commercial Lease in the UK: Guide for Business Tenants 2024 | Yolist

Commercial leases in the UK are heavily landlord-friendly by default — long terms, upward-only rent reviews, extensive repairing obligations, and punishing dilapidations provisions. As a business tenant, understanding what to negotiate before you sign can save you tens of thousands of pounds over the lease term. This guide covers the key terms every tenant must negotiate.

1. FRI vs IRI leases

The repairing structure of a commercial lease fundamentally determines your financial exposure:

Full Repairing and Insuring (FRI): you are responsible for all repairs to the entire premises, including structure, roof, and exterior, plus insuring the building at your cost. This is the UK market standard and can be extremely costly, particularly in older buildings.
Internal Repairing and Insuring (IRI): you are responsible only for internal parts. The landlord maintains the structure, exterior, and roof. Common in multi-let buildings. Far preferable for tenants.

Even if the lease is labelled FRI, you can negotiate Schedule of Condition protection to limit your actual exposure to what you can reasonably be expected to have caused — not what was already present when you arrived.

2. Lease length and break clauses

Typical UK commercial lease terms are 5–15 years. Longer leases give security of tenure; shorter leases give flexibility. Key considerations:

A longer lease gives the landlord more leverage — push back for break clauses at years 3, 5, or 7
Break clauses must be exercised precisely — even minor technical breaches of lease conditions can invalidate a break
Negotiate a rolling break (exercisable at any time after a minimum period) rather than a fixed-date break if possible
Check what conditions are attached to the break (vacant possession, all rent paid up, no breaches of covenant) — and plan to comply with them before the notice date

3. Rent and rent reviews

The headline rent is only part of the story. Negotiate:

Rent-free period: standard for new leases — typically 1 month per year of lease term (e.g. 6 months rent-free on a 6-year lease)
Rent review mechanism: most UK leases use open market upward-only reviews every 5 years. Push for index-linked (CPI or CPIH) rather than open market if rents are volatile in your sector
Cap and collar: even with an open market review, negotiate a maximum and minimum annual uplift (e.g. no less than CPI, no more than CPI+2%)

Remember that upward-only means rent can never go down even if market rents collapse — you saw this risk materialise in retail during 2019–2022.

4. Dilapidations

Dilapidations is the most overlooked and potentially most expensive element of a commercial lease. At the end of the term, you must return the premises to the condition required by the lease — which under an FRI lease with no Schedule of Condition could mean reinstating all alterations, full internal and external redecoration, structural repairs, and reinstatement of original fixtures.

Protection measures:

Commission a Schedule of Condition at the start — limits your obligation to no better than the condition documented at lease commencement
Keep records of all works, licences for alteration, and reinstatement obligations throughout the lease
At lease end, commission a dilapidations assessment from your own surveyor before the landlord serves a schedule — so you negotiate from a position of knowledge
Challenge any inflated claims — landlords cannot claim for improvements that would benefit future tenants or exceed the diminution in value of the landlord's reversion

5. Service charges

In multi-let buildings, service charges cover shared costs: insurance, management fees, cleaning, security, maintenance of common areas, and capital expenditure on the building. They can add 15–40% to your base rent. Negotiate:

A service charge cap on year-on-year increases (e.g. capped at CPI or 5%, whichever is lower)
Right to inspect and audit service charge accounts and invoices
Exclusion of certain costs from the service charge (e.g. major capital works, improvements that primarily benefit other tenants)
Request the last 3 years of certified service charge accounts before signing

6. Business rates

As tenant, you will be responsible for business rates from the date your lease starts (or from when you take occupation, whichever is earlier). Before signing:

Check the rateable value on the Valuation Office Agency (VOA) website
Calculate your expected rates bill (rateable value × multiplier; 2024/25 small business multiplier = 49.9p, standard = 54.6p)
Check eligibility for Small Business Rate Relief (if rateable value under £15,000)
Consider appealing the rateable value if you believe it is too high

7. Alienation (subletting and assignment)

Alienation rights determine your ability to exit the lease before term. Standard leases allow subletting and assignment with landlord's consent (not to be unreasonably withheld). Negotiate:

An absolute right to sublet part of the premises — allows you to share occupancy costs
Reasonable conditions for landlord's consent on assignment (e.g. based only on financial covenant strength, not commercial preference)
The right to surrender — if the landlord will accept it, negotiate a surrender option in the lease from the outset

8. Heads of terms (HOTs)

Negotiate all commercial terms informally first, before instructing solicitors. Once solicitors are involved, changing fundamental terms becomes expensive. Key items to agree in HOTs:

Rent, rent-free period, review mechanism
Lease length and break clause dates
Permitted use (ensure it covers all activities you plan to carry out)
Repairing obligations and Schedule of Condition
Service charge cap and audit rights
Alienation provisions
Landlord's works (if the premises needs fit-out contribution)

The RICS publishes a Commercial Lease Code which encourages landlords to negotiate fairly. Reference it in your HOTs negotiation.

Negotiating a Commercial Lease — UK Guide for Business Tenants