Commercial Lease True Cost Calculator

The true occupancy cost of a commercial lease goes far beyond the headline rent. You need to factor in business rates, service charges, insurance, fit-out costs amortised over the lease term, and potential dilapidations at the end. These additional costs can add 30-60% on top of the base rent.

Dilapidations are the costs of returning the property to its original condition at the end of the lease. This can include removing partitions, replacing carpets, redecorating, and repairing any damage. Dilapidations claims typically range from £10-£50 per square foot depending on the property condition and lease terms.

A rent-free period is a concession from the landlord where no rent is charged for an agreed number of months at the start of the lease. It is usually given to allow the tenant to fit out the space. The effective rent should be calculated by spreading the rent-free benefit over the entire lease term.

A break clause gives either the tenant, the landlord, or both the right to terminate the lease early on a specified date. Tenant break clauses are valuable as they limit your commitment. However, exercising a break usually requires giving 6-12 months notice and meeting strict conditions such as being up to date with rent.

Service charges cover the landlords costs of maintaining and managing the building including common areas, lifts, reception, security, and building insurance. They are usually charged annually and can increase significantly. Always check the service charge cap and what is included before signing.

Business rates are based on the rateable value of the property set by the Valuation Office Agency, multiplied by the business rates multiplier (currently around 51.2p in the pound for 2024/25). Small businesses may qualify for Small Business Rate Relief of up to 100%.

Yes. A building survey or schedule of condition is essential before signing a commercial lease. It documents the existing condition and protects you from dilapidations claims for pre-existing issues. The cost is typically £1,000-£5,000 but can save you tens of thousands at lease end.

An FRI (Full Repairing and Insuring) lease makes the tenant responsible for all repairs and insurance of the property. An IRI (Internal Repairing and Insuring) lease limits tenant responsibility to internal repairs only. FRI leases are more common for standalone buildings, while IRI leases are typical for units within larger buildings.

Almost everything in a commercial lease is negotiable. Key items to negotiate include the rent level, rent-free period, break clauses, rent review mechanism, service charge cap, permitted use, assignment and subletting rights, and dilapidations liability. Always use a commercial property solicitor.

A rent review is a provision allowing the rent to be adjusted at specified intervals, typically every 3 or 5 years. Most reviews are upward-only, meaning the rent can only increase or stay the same. The review is usually to open market rent, determined by comparable evidence or an independent surveyor.