The lease is the most important document behind any commercial property investment. It decides how much rent you receive, for how long and who pays for what.
Term
The length of the lease. Longer terms give more certainty of income.
Break clauses
A right for the tenant (or landlord) to end the lease early on a set date, usually with notice. Investors often look at the "term certain", the time to the first break.
Rent reviews
- Open market: reset to the market rent, often on an upward-only basis.
- Index-linked: rises with RPI or CPI, often with a cap and collar.
- Fixed: pre-agreed increases.
Repairs and insurance
Many leases are on full repairing and insuring terms.
Service charge
On multi-let sites, tenants contribute to shared costs.
Alienation
Whether the tenant can assign the lease or sublet, and on what conditions.
Security of tenure
In England and Wales, business tenants have a statutory right to renew under the Landlord and Tenant Act 1954 unless the lease is "contracted out". This affects what happens when the lease ends.
Why investors care
Lease length, tenant strength and review terms drive value. A building with a strong tenant on a long lease is generally valued at a lower yield, and therefore a higher price, than the same building with a short lease. See commercial property yields.
This guide is general information, not financial, tax or legal advice. If you are unsure whether an investment is right for you, speak to a regulated financial adviser.