Negotiate the heads of terms, not the lease
The real negotiation happens before solicitors are instructed. Heads of terms are a short, non-binding summary of the deal, but once they are signed the landlord's solicitor drafts the lease to match them and it becomes very hard to reopen points later. Treat the heads of terms as the contract and get every commercial point agreed there.
A good set of heads of terms for a London shop, office or industrial unit should cover the rent, the term, break options, rent review mechanism, repairing obligation, alienation (assignment and subletting), permitted use, rent-free period, service charge cap, and whether the lease is inside or outside the Landlord and Tenant Act 1954. If any of these are blank or say 'to be agreed', they will be agreed on the landlord's terms.
- Ask for the landlord's proposed heads of terms in writing before making any offer
- Never agree a rent figure until you have evidence of comparable lettings on the same street or estate
- Get the measurement basis confirmed (usually IPMS or net internal area) so you are comparing like with like
Rent, rent-free periods and the incentive package
Headline rent is only part of the cost. In central and Greater London it is common for landlords to hold a headline rent for valuation reasons and give ground on incentives instead. On a ten year office lease with a five year break, three to six months rent-free is a realistic starting point in many submarkets, and longer where there is competing vacant space. Retail and leisure deals often include a capital contribution towards fit-out instead of, or as well as, rent-free.
Work out the net effective rent, which is the total rent paid over the term less incentives, divided by the years. That figure is what the deal actually costs and what a rent review surveyor will later argue about. If the landlord will not move on rent, push for a longer rent-free period, a stepped rent for the first two years, or a fit-out contribution. Each of these is negotiable and each has a different tax and cash flow effect for the tenant.
Break clauses, term length and the 1954 Act
A break clause is worth more than almost any other term for a growing or uncertain business. Aim for a tenant-only break at year three or five, with no more than six months notice, and resist conditions beyond paying the principal rent up to the break date. Landlords often try to attach conditions such as full compliance with all covenants or vacant possession with reinstatement. These make breaks fail on technicalities, and the courts have upheld that outcome repeatedly.
Also decide whether the lease should be protected by the Landlord and Tenant Act 1954. A protected lease gives you a statutory right to renew at the end of the term. Landlords across London routinely ask tenants to contract out. Agreeing to that is a genuine concession and should be traded for something, such as a lower rent or a longer rent-free period, not given away by default.
Repairs, service charge and dilapidations
The repairing clause quietly decides how much the lease costs you at the end. A full repairing and insuring lease on an older building can leave a tenant liable for a roof, plant or windows that were already tired when they moved in. Ask for a schedule of condition attached to the lease, so your obligation is limited to keeping the premises no worse than they were on day one. On a multi-let building, ask for a service charge cap, or at least exclusion of capital items and improvements.
Dilapidations claims at lease end in Greater London can run from a few thousand pounds on a small unit to six figures on a large office floor. The amount depends heavily on what was agreed at the outset, which is why a surveyor should look at the repairing wording and the building's condition before you sign, not five years later.
- Schedule of condition with dated photographs, referenced in the lease
- Service charge cap indexed to CPI, with a fixed first year figure
- Reinstatement obligations limited to alterations you actually make
- Clear yield-up wording so 'repair' does not become 'refurbish'
When to bring in a chartered surveyor
Agents acting for the landlord are paid by the landlord. A RICS chartered surveyor acting only for you will price the space against real comparable evidence, structure the offer, and negotiate the heads of terms before the solicitors start. For most London lettings the fee is a small fraction of the value gained through a better rent-free period, a workable break or a capped repairing liability.
The point at which advice is most valuable is before you make your first offer, because that offer anchors everything that follows. If you have already agreed heads of terms, it is still worth a review before the lease is signed, as the drafting can add obligations that were never discussed.
Common questions
How long does negotiating a commercial lease usually take in London?
From first offer to signed lease, allow eight to twelve weeks for a straightforward deal, and longer where the landlord has a mortgagee or superior landlord who must consent. Agreeing detailed heads of terms early is the single biggest factor in keeping that timescale short.
Can I negotiate the rent on a commercial lease or is it fixed?
Almost everything is negotiable, including rent, although London landlords often prefer to hold the headline rent and give ground through rent-free periods, stepped rents or fit-out contributions. Comparable evidence from recent lettings nearby is what moves the figure.
Do I need a solicitor and a surveyor, or just one?
Both, but for different jobs. The surveyor negotiates the commercial terms and the value of the deal, while the solicitor turns those terms into a lease and checks title, planning and legal risk. Bringing in the surveyor first usually gives the solicitor a better set of heads of terms to work from.