CRE Deal Terms & Lease Structuring
Break Clauses
A break clause is a contractual right that allows a landlord or tenant to exit a commercial lease before the end of the agreed term, usually at a fixed date and subject to strict conditions. For tenants, exercising a break successfully requires careful preparation: missed deadlines, outstanding rent, or unreturned keys can all invalidate the right entirely.
Dilapidations
Dilapidations are the repair and reinstatement obligations a tenant carries under a commercial lease, which a landlord can enforce at the end of the term. The scope of liability depends on the lease type and any schedule of condition agreed at the outset, but claims can be substantial in larger or longer-term occupancies. Tenants who plan ahead and document the property's condition from day one are far better positioned to limit their exposure.
Full Repairing and Insuring Leases
A full repairing and insuring (FRI) lease places responsibility for the repair, maintenance, and insurance of a property entirely with the tenant, regardless of its condition at the start of the term. In multi-let buildings this liability is typically channelled through a service charge rather than direct obligation. Tenants considering an FRI lease should commission a building survey before signing to understand exactly what they are taking on.
Heads of Terms
Heads of terms set out the key commercial points of a proposed lease or sale before solicitors become involved, covering rent, term length, break rights, and repair obligations. While they are not legally binding, they establish the framework that the formal documentation will follow, making it important to negotiate them carefully. Negotiating heads of terms carefully gives tenants and investors more control over the conditions that will carry through into the formal documentation.
Rent Review
A rent review is a mechanism built into most commercial leases that allows the landlord to reassess the passing rent at set intervals, most commonly every five years. In the UK, the majority of commercial leases operate on an upward-only basis, meaning rent can rise to reflect market conditions but cannot fall below the current level. Tenants approaching a review date should seek specialist advice early, as the process is governed by strict procedural rules.
Schedule of Condition
A schedule of condition is a factual record, usually photographic, of a property's state at the point a lease is granted. Its primary purpose is to limit the tenant's repairing liability to returning the premises in no better condition than they were at the start, rather than to a full repair standard. Without one, tenants face dilapidations claims based on a fully repaired benchmark, regardless of what state the property was in when they took it on.
Security of Tenure
Security of tenure is the statutory right, established under the Landlord and Tenant Act 1954, that gives commercial tenants the right to renew their lease at the end of the term on reasonable conditions. Landlords can only oppose renewal on specific grounds set out in the Act, which limits their ability to remove an occupying tenant without justification. Tenants should confirm whether their lease is protected or contracted out before signing, as the distinction has significant implications for long-term occupation.
Service Charges
Service charges are the payments tenants make to contribute to the cost of maintaining, managing, and insuring the common parts of a multi-let property. Unlike residential service charges, commercial service charges in the UK have no statutory cap, which means exposure can be significant and difficult to predict without careful scrutiny of the lease. Tenants should review the service charge provisions and any available accounts before committing, and where possible negotiate a cap to protect against unexpected cost increases.
