- Commercial leases are governed mainly by the contract, not by protective legislation.
- Additional rent is often the larger and less predictable part of the cost.
- Personal guarantees survive assignment and are frequently overlooked.
- Renewal, assignment and demolition clauses determine whether a business can plan or move.
A different regime
Residential tenants have extensive statutory protection. Commercial tenants have very little.
The Commercial Tenancies Act deals mainly with mechanics such as distress and forfeiture. It does not regulate rent, control termination, or imply the kind of protections residential tenants take for granted.
The consequence is that in a commercial lease, the document is the law. What is not negotiated is not protected.
What the rent actually is
Base rent is the headline number and often not the larger one.
In a net lease, the tenant also pays additional rent, a proportionate share of realty taxes, insurance, utilities, maintenance, and common area costs. In a fully net lease this can approach or exceed the base rent.
Questions worth resolving before signing: exactly which costs are included; how the proportionate share is calculated and whether it uses rentable or usable area; whether there is a cap on year-over-year increases in controllable costs; whether capital expenditures can be passed through or must be amortised; and whether management fees are charged and how.
A tenant comparing two premises on base rent alone is not comparing them at all.
Use, exclusivity and continuous operation
The permitted use clause defines what the tenant may do. A narrow clause restricts the business and makes assignment harder, because a buyer must fit within it.
An exclusivity clause prevents the landlord leasing to a competitor in the same complex. It is valuable to the tenant and resisted by landlords.
A continuous operation covenant requires the tenant to keep trading. It matters if the business needs to close or reduce hours, and breach can be a default.
Term, renewal and demolition
A renewal option gives the tenant the right to extend, and it is only as good as its drafting. The rent on renewal should be determinable, a formula, or fair market rent with a defined resolution mechanism. An option to renew “at a rent to be agreed” may be unenforceable for uncertainty.
Options must be exercised strictly in accordance with their terms, in writing and within the window. Missing the window loses the right, and landlords are not obliged to remind anyone.
Demolition and relocation clauses allow the landlord to terminate or move the tenant on notice. For a business that has invested in fit-out or depends on location, these can be existential, and they are easy to miss.
Assignment, subletting and guarantees
Most leases prohibit assignment without the landlord’s consent. Whether that consent may not be unreasonably withheld is a critical negotiation, because a tenant who cannot assign cannot easily sell the business.
Even with consent, the original tenant usually remains liable unless expressly released. Selling a business does not by itself end the lease obligations.
Personal guarantees are common for smaller tenants, and they are where owners are most exposed. A guarantee typically survives assignment and can extend through renewal terms. Limiting a guarantee, to a defined amount, or a defined period, or with a burn-off on performance, is one of the more valuable things to negotiate.
Fit-out, repair and the end of the term
Who does the work, who pays, and what allowance is provided should be set out precisely, along with who owns the improvements afterwards.
Repair obligations vary widely. A tenant taking responsibility for structural elements or building systems is assuming a risk that may exceed the value of the lease.
Restoration at the end of the term is frequently overlooked. An obligation to remove improvements and restore the premises can produce a very large bill at exactly the point the tenant is leaving, and it should be quantified before signing rather than discovered later.
Common questions
Can a commercial landlord lock out a tenant for non-payment?
The Commercial Tenancies Act provides remedies including distress and re-entry, and the position is quite different from residential tenancies. Both sides should take advice before acting.
Is my personal guarantee limited to the initial term?
Not unless it says so. Guarantees frequently extend through renewals and survive assignment.
What is a reasonable additional rent estimate?
It varies by property type and location. Ask for historical figures for the actual premises rather than an estimate, and check what is excluded.
Can I get out of a commercial lease early?
Only if the lease permits it or the landlord agrees. Otherwise liability generally continues, subject to the landlord’s duty to mitigate in certain circumstances.
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