What Can Go Wrong When Granting a Commercial Lease and How to Avoid Costly Mistakes?

Many commercial landlords assume that once a tenant signs a lease and begins paying rent, the main risks have passed. 

However, commercial leases create legally binding relationships that can last for many years. A poorly drafted lease, inadequate due diligence or failure to anticipate future issues can expose landlords to substantial financial loss, lengthy disputes and unexpected liabilities.

In reality, some of the most costly problems arise because important issues were overlooked before the lease was granted.

This article explains the most common mistakes landlords make when granting commercial leases in England and Wales, the consequences that can follow, and the practical steps that can help protect both the property and the landlord’s investment.

Understanding Why Commercial Leases Require Careful Planning

A commercial lease is much more than an agreement allowing a business to occupy premises in return for rent. It is a detailed legal contract that regulates rights and obligations for both landlord and tenant, often for many years.

Unlike residential tenancies, commercial leases are usually negotiated between businesses and can contain highly detailed provisions covering rent reviews, repairs, alterations, service charges, insurance and termination provisions.

A mistake made at the outset can remain embedded in the lease for its entire duration. In some cases, correcting the problem later may be impossible without the tenant’s agreement.

For this reason, careful preparation before the lease is granted is often significantly less expensive than attempting to resolve disputes after occupation has begun.

Common Mistakes Landlords Make When Granting Commercial Leases

Failing to properly investigate the tenant

One of the most significant risks is granting a lease to a tenant without adequately assessing their financial position and business stability.

A tenant may appear established but could have a poor credit history, substantial debts, ongoing legal disputes or limited trading history. If the tenant later becomes insolvent, the landlord may face rent arrears, empty premises and the cost of finding a replacement occupier.

Before granting a lease, landlords should consider:

• Credit and financial checks
  Reviewing accounts, credit reports, and trading history can provide valuable insight into a tenant’s ability to meet long-term obligations. Where concerns arise, additional security may be appropriate rather than abandoning the transaction entirely.
• Guarantors and additional security
  Personal guarantees, parent company guarantees, or rent deposits can provide important protection if a tenant defaults. These measures should be carefully documented to ensure they remain enforceable if difficulties arise later.

Granting the wrong lease term

The length of a commercial lease can have significant consequences for both flexibility and investment value.Some landlords focus solely on securing immediate rental income and overlook how the 

The lease term may affect future plans for the property. A lease that is too long may restrict redevelopment opportunities, while a lease that is too short may reduce income certainty and affect property valuation.

The appropriate term will depend on factors such as:

• The nature of the property.
• The tenant’s business model.
• Market conditions.
• Future development plans.
• Funding or refinancing considerations.

Careful consideration should be given to balancing security of income with long-term flexibility.

Overlooking security of tenure implications

Many business tenants acquire statutory protection under the Landlord and Tenant Act 1954.

If a commercial lease is protected by Part II of the 1954 Act, under specific circumstances, the tenant has ‘security of tenure’, which provides them the right to remain in occupation and the right to automatically renew the lease. 

Some landlords are surprised to discover that a lease end date does not necessarily guarantee vacant possession. In reality, a commercial lease may continue beyond its fixed-term unless it is formally and correctly terminated by the landlord in accordance with statutory requirements.

Ensuring Adequate Control Over Tenant Activities 

Unrestricted alterations

Commercial tenants often need to change the premises to suit their business operations.

Without carefully drafted controls, tenants may undertake alterations that affect the value, appearance, structure, or future marketability of the property.

The lease should clearly distinguish between:

• Structural alterations.
• Non-structural alterations.
• Internal fit-outs.
• Signage.
• Mechanical and electrical installations.

Consent procedures should also be clearly documented so that both parties understand when landlord approval is required.

Controls on assignment and subletting

Business circumstances can change rapidly.

A tenant who appears financially secure when the lease is granted may later seek to assign the lease to another occupier or sublet part of the premises.

Effective drafting should address:

• Assignment conditions.
• Authorised guarantee agreements where appropriate.
• Subletting restrictions.
• Sharing occupation arrangements.
• Group company occupation rights.

These provisions can significantly influence the long-term quality of occupation and the landlord’s ability to manage risk.

Planning and permitted use concerns

The intended use of the premises should always be carefully reviewed before the lease is granted.

Problems can arise where:

• The proposed use requires planning permission.
• Existing planning conditions restrict occupation.
• Licensing requirements apply.
• Change of use consent may be needed.

A tenant’s inability to lawfully operate from the premises can quickly lead to disputes, rent arrears, or lease termination issues.

Why Rent Deposits and Guarantees Are Not Always Straightforward

While protections such as rent deposit and guarantees can be extremely effective, they are only effective when properly structured and documented.

Rent deposit arrangements

A poorly drafted rent deposit deed may create uncertainty regarding when funds can be accessed and how the deposit can be replenished. It may also expose the landlord to insolvency risk if the deposit is not properly structured. 

The agreement should clearly set out the circumstances in which the landlord may draw on the deposit and the tenant’s obligations thereafter.

Guarantee provisions

Guarantees can fail if there is an issue with drafting or if there are material variations to the lease without the guarantor’s consent, which may release them from liability under common law principles and the Landlord and Tenant (Covenants) Act 1995, subject to any authorised guarantee agreement or express provisions to the contrary.

Legal advice is often particularly valuable when guarantees form a significant part of the landlord’s risk management strategy.

The Consequences of Getting It Wrong

Commercial lease mistakes rarely remain minor administrative issues.

Depending on the circumstances, landlords may face:

• Significant financial losses
  Rent arrears, repair costs, service charge shortfalls, and litigation expenses can accumulate rapidly. Even a single drafting issue may have financial consequences lasting for the entire lease term.
• Property management difficulties
  Poorly drafted leases often create uncertainty regarding rights and responsibilities. This can make routine property management more time-consuming and increase the likelihood of disputes.
• Reduced property value
  Investors and lenders frequently scrutinise lease terms carefully. Defective provisions, weak tenant covenants, or problematic occupation arrangements can negatively affect the attractiveness and value of a commercial property.
• Lengthy legal disputes
  Commercial property litigation can be costly, disruptive, and time-consuming. Many disputes arise from issues that could have been identified and addressed before the lease was granted.

How Landlords Can Reduce Risk Before Granting a Lease

Carry out comprehensive due diligence

Thorough investigations should be undertaken before heads of terms are finalised.

This includes reviewing the tenant’s financial position, business structure, proposed use, and any risks associated with their intended occupation.

Early due diligence often reveals concerns that can be addressed through negotiation before legal commitments are made.

Ensure heads of terms are properly prepared

Heads of terms provide the framework for the transaction and help minimise misunderstandings during lease negotiations.

Although heads of terms are usually expressed to be ‘subject to contract’ and therefore not legally binding as to the lease itself, certain provisions (such as exclusivity, confidentiality, or costs clauses) may still be legally binding if drafted accordingly.

Obtain specialist legal advice at an early stage

Many of the most expensive commercial property disputes originate from issues that were overlooked before completion.

Early legal advice allows potential risks to be identified, assessed, and addressed before they become embedded within the lease documentation. It also helps ensure compliance with current legal requirements and reflects the landlord’s commercial objectives.

Why Early Legal Advice Often Saves Money

Some landlords view legal involvement as an administrative requirement that can be minimised to reduce costs.

In reality, the legal drafting stage is often where substantial financial risks are prevented.

A carefully negotiated and professionally drafted lease can help protect rental income, preserve asset value, reduce disputes and provide greater certainty throughout the tenancy.

When compared with the potential cost of litigation, unrecoverable repairs, problematic tenants or lost redevelopment opportunities, obtaining legal advice before granting a lease is often one of the most cost-effective investments a landlord can make.

How JLN Can Help

Granting a commercial lease is a significant legal and commercial decision. The terms agreed at the outset can affect the property, the landlord’s income and future flexibility for many years.

At JLN, our team advises landlords on every stage of the leasing process, from negotiating heads of terms and carrying out due diligence through to drafting leases, guarantees, rent deposit arrangements and ongoing property management issues.

We provide practical, commercially focused advice designed to identify risks early, protect your position, and help avoid costly disputes in the future.

If you are considering granting a commercial lease, or have concerns about lease terms already under negotiation, contacting JLN at an early stage can provide clarity, reassurance and the legal support needed to make informed decisions with confidence.

We will respond to most enquiries with both an indicative scope of work and a fee estimate, as well as the offer of a complimentary 20-minute discovery video call to discuss your issues and how we can help, before sending a more considered formal fee estimate via email.

In some limited cases, if you would just like initial advice and guidance on a call, we may instead offer a fixed fee appointment (commonly charged between £280 to £500 + VAT) whereby we will review the information you provide, hold a video call consultation and then follow up with an advisory email (as well as a fee estimate for any further work identified).

Please email wewillhelp@jonathanlea.net or call us on 01444 708640 as a first step. We first need an overview of the background and your issues, together with any significant documents, to provide an indicative scope of work and fee estimate.

VAT is charged at 20%.

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited. 

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