A Commercial Lease
A commercial lease is where a commercial landlord allows a commercial tenant (the occupier) to use their premises for specific business use for an agreed fixed term. A fixed term means the time the lease lasts.
A commercial lease is the same as a commercial tenancy agreement. However, the term ‘lease’ in commercial property tends to be used rather than a ‘tenancy’.
A commercial tenant pays the landlord a rental fee for the use of the commercial property and enjoys exclusive possession of the commercial premises. A lease agreement between the tenant and the landlord details the term of the lease.
A lease term can be anywhere as short as 1 day to as long as 999 years. There is no minimum or maximum term for commercial leases. However, commercial leases tend to have fixed terms of between 1 and 25 years. Within this, most commercial leases are between 1 to 3 years. You and your landlord will agree on the fixed term of your lease before you commit to the lease.
Short-Term Lease
A short-term commercial lease is very common for businesses to opt for nowadays. It is more attractive to commercial tenants as they have flexibility regarding their business options, as the lease term ends sooner rather than later. For example, offices tend to have short-term leases providing more flexibility for a commercial tenant.
A short-term lease might only have a term of 1 to 5 years, meaning it naturally has a lower total rent value than a 10-to-20-year lease. If the rent is a market rent (and there is no premium), then a short-term arrangement may mean you pay less stamp duty land tax after you sign the lease.
If you sign a short-term lease as a commercial tenant, you will usually only be responsible for the property’s interior. Your landlord will, therefore, usually be responsible for the exterior. You may also have better chances of limiting your repair obligations to a schedule of conditions. This will mean spending less on repairs and restoring the premises when you vacate.
Long-Term Lease
It is rare nowadays for commercial leases to have a term of more than 25 years. Long-term leases are more common in industrial or warehousing properties. Often, commercial tenants who tend to lease this type of property are likely to stay there for longer.
A long-term commercial lease naturally has a higher amount of rent to be paid as the lease is over a long period and, therefore, usually incurs more stamp duty land tax. You must register a lease over seven years with the HM Land Register, so a long-term lease will incur the extra costs of registration fees.
Long-term leases tend to be favored by commercial landlords as, naturally, it provides them with the security of occupancy of the long-term property and rent. If you are considering a long-term lease, it is prudent to negotiate break rights in your favour to end the lease early.
Key Differences
The following table sets out some of the key differences between a short-term and a long-term commercial lease in the UK.
Key Takeaways
When you sign a commercial lease agreement for your commercial property, you will negotiate with your landlord the lease term. This term is the duration the lease lasts. There are key differences between short-term and long-term commercial leases, which can determine your choice of lease term. For example, short-term leases are common in commercial office space, and long-term leases are common for warehouse and industrial leases. Further, short-term and long-term leases are different in that a short-term lease may offer your business more flexibility than a long-term lease in terms of your business moving forward.
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