A lease can make or break a business purchase. Before buying, check the lease term, rent, service charge, assignment rights, landlord consent, repair obligations, use restrictions, break clauses, rent reviews and dilapidation risk.
Quick Answer: What should you check in a lease before buying a business?
Before buying a leasehold business, you need to check several critical things. Can the lease actually be assigned to you, and does the landlord need to consent? How long is left on the term, and is there a right to renew? What is the full monthly cost including rent, service charge and business rates? What are the repair obligations, and what is the dilapidation risk at the end? Are there any use restrictions that could prevent you from trading in the way you intend?
Do not assume that buying the business automatically gives you the right to occupy the premises. In most cases, a lease assignment is required, and the landlord will have conditions. If the lease cannot be transferred — or the landlord refuses consent — the entire business sale may fall through.
Always use a commercial property solicitor to review the lease before you commit to anything. Never complete a business purchase until the lease position is fully resolved.
Contents
Why the lease matters
For the majority of small businesses, the premises are not just a cost — they are part of what makes the business work. A café relies on its location. A hair salon depends on its shopfront. A childcare nursery must trade from premises that meet specific regulatory requirements. A gym needs the space it has built its membership around.
When you buy a business, you are not just buying the customer relationships, the equipment and the goodwill. You are buying the ability to continue operating from that location. If the lease is weak, short, unaffordable or impossible to transfer, the business can unravel quickly — regardless of how strong the rest of the deal looks on paper.
The lease can affect:
Whether the business can continue at all.If the lease cannot be assigned and the landlord refuses a new one, the business effectively cannot be sold in its current form.
Whether you can trade from the premises.Specific use restrictions may prevent you from running the business in the way the seller described.
Your monthly cost base.Rent is often the largest fixed cost after wages. A business that appears profitable on paper may struggle once full occupancy costs are considered.
Future rent increases.A rent review in twelve months' time could significantly change the economics of the acquisition.
Your repair and reinstatement liability.Dilapidation obligations at the end of a lease can run into tens of thousands of pounds.
The business's value.A business with five years left on a protected lease is worth more than one with twelve months and no right of renewal.
Your ability to finance the purchase.Some lenders will not advance money against a business where the lease term is very short.
A profitable business can become a poor investment very quickly if the lease position is not properly understood before you commit.
Lease term: how long is left?
The first question is straightforward: how long does the lease have left to run? But the answer needs more context than the number of years on paper.
Ask:
How long remains on the current lease?Count from today's date, not the start date of the lease.
Is there a right to renew?Under the Landlord and Tenant Act 1954, many business tenants in England and Wales have a statutory right to renew their lease when it expires, unless they have agreed to contract out of that protection.
Is the lease inside or outside security of tenure?A lease "inside" the 1954 Act gives the tenant renewal rights. A lease "contracted out" of the Act does not — when it ends, it ends, and the landlord can refuse to grant a new one.
Are there break clauses?A break clause allows one or both parties to end the lease before its natural expiry (see the section below).
Does the buyer need a new lease rather than an assignment?Some landlords prefer to grant a new lease to an incoming buyer rather than allow an assignment of the existing one. This can sometimes be better for the buyer (a fresh term) but requires negotiation.
Has any notice been served?The seller or landlord may have already triggered a renewal or break process that changes the situation.
Are there any disputes with the landlord?Rent arrears, repair disagreements or planning issues can complicate or delay an assignment.
A short remaining term — typically under three years — significantly reduces the value and attractiveness of the business. You may not have enough time to recover the purchase price before the lease expires, and there is no guarantee the landlord will renew. A longer term gives you security but also commits you to ongoing rent obligations regardless of how the business performs.
Assignment and landlord consent
Lease assignment is the legal process of transferring the existing lease from the seller (the current tenant) to you as the buyer. It is not automatic. In almost every commercial lease, the landlord's consent is required.
Understanding how this works in practice is essential before you make an offer.
What is usually required for an assignment:
Written application to the landlord by the seller
References from you as the incoming tenant — typically a bank reference, accountant reference and trade references
Evidence of your financial standing (the landlord wants to know you can pay the rent)
Possibly a rent deposit — typically three to six months' rent held as security
An Authorised Guarantee Agreement (AGA) — this is a personal guarantee by the assignor (seller) that you will meet the lease obligations. If you default, the seller can be held liable. This is worth understanding from both sides of the deal.
Payment of the landlord's legal and surveying fees in connection with the consent
A formal Licence to Assign, which is the legal document recording the landlord's consent
Timing:Landlord consent can take anywhere from a few weeks to several months, depending on how responsive the landlord and their solicitors are, and whether there are conditions to satisfy. This timeline needs to be built into your completion plan. Trying to complete a business purchase without confirmed landlord consent is a significant risk.
What happens if assignment is not possible:Some leases explicitly prohibit assignment. In other cases, the landlord may unreasonably withhold consent (though there are legal remedies for this). If the lease cannot be assigned, you may need to negotiate a surrender of the existing lease and the grant of a new one — or the business purchase may need to be restructured or abandoned.
Never let a seller persuade you to complete a business purchase on the basis that "the landlord will be fine with it." Get it in writing, in the form of a formal Licence to Assign, before you pay.
Rent, service charge and business rates
Rent is the headline figure, but the total cost of occupying the premises is almost always higher. Before you assess affordability, you need the full picture.
Ask for:
Current passing rent— the actual rent being paid under the lease today
VAT on rent— some commercial leases charge VAT on top of rent. This is recoverable if you are VAT registered, but affects cash flow
Service charge— common in multi-occupancy buildings, shopping centres and managed estates. This can be substantial and may vary year to year
Insurance recharge— the landlord insures the building and recharges the cost to tenants
Business rates— this is a separate charge paid to the local council, calculated on the rateable value of the premises. Check whether the current rateable value is up to date
Utilities— electricity, gas, water. Who pays, and are there any shared supplies?
Waste removal charges— in some retail parks or managed sites, waste collection is charged separately
Maintenance contributions— some leases require tenant contributions to common area maintenance
Rent arrears— is the seller up to date with rent? Arrears can block an assignment
Deposit held by the landlord— is there a rent deposit in place, and will it be returned to the seller or transferred to you?
Here is a simple example of how occupancy costs can add up:
Rent - £2,000
Service charge - £300
Insurance recharge - £100
Business rates - £600
Utilities - £700
Total premises cost-£3,700
That is £44,400 per year in premises costs alone — before wages, stock or any other business expense. Always model the full cost against actual profit and projected cash flow before deciding the business is affordable.
Repair obligations and dilapidations
Commercial leases in the UK typically impose significant repair obligations on the tenant. These are not always obvious from reading the headline terms, and they can be extremely costly.
A fully repairing and insuring (FRI) lease is the most common form. Under an FRI lease, the tenant is responsible for keeping the entire premises in good repair — including the structure, roof, external fabric and mechanical and electrical systems — and for insuring the building. Even if the premises are in poor condition when you take them on, you may be obliged to hand them back in full repair at the end.
Specific areas to check for repair obligations:
Interior walls, floors and ceilings
Shopfront and entrance
Roof and external structure (in some leases)
Heating, ventilation and air conditioning
Electrical systems
Plumbing and drainage
Windows and glazing
Signage
Fire safety equipment
Common areas (if the lease allocates responsibility to the tenant)
Plant and specialist machinery
Dilapidationsare repair claims made by the landlord — either during the lease or at the end — where the premises are not in the condition the lease requires. At the end of a lease, a landlord can serve a terminal dilapidations schedule and claim the cost of reinstatement, which can run to very significant sums.
To protect yourself:
Ask whether aschedule of conditionwas prepared at the start of the lease. This records the condition of the premises at the point the tenant took them on, and limits the tenant's repair obligation to maintaining that condition rather than improving it.
Ask for anyprevious dilapidations correspondenceor repair notices.
Ask whether the landlord has raised any repair issues during the current tenancy.
Consider commissioning abuilding surveyfrom a chartered surveyor, particularly if the premises are older or in visibly poor condition.
Have your solicitor review the repair clause carefully before you agree to take on the lease.
An unexpected dilapidations claim at the end of a lease can be financially devastating. Understanding the position before you buy is far cheaper than dealing with it afterwards.
Use, planning and restrictions
A commercial lease will specify what the premises can be used for. This is known as the permitted use clause. You need to confirm that the current business use is permitted — and that any changes you intend to make are also allowed.
Planning use classes in England were reformed in September 2020. The new Class E covers a wide range of commercial uses including retail, restaurants, cafes, offices, light industrial, gyms, health centres and some financial and professional services. However, some uses remain in separate classes (such as hot food takeaways, pubs, cinemas and live music venues), and some properties may still have pre-2020 planning conditions attached.
Ask:
What use does the lease permit?Is it restricted to a specific type of business, or is it broader?
Does the permitted use match the current business?If the seller is operating a beauty salon but the lease only permits office use, there may be a problem.
Does it match your intended use?If you plan to change what the business does, check both the lease and the planning position.
Are opening hours restricted?Some leases — particularly in shopping centres or managed buildings — specify permitted trading hours.
Are alterations permitted?If you want to refurbish or reconfigure the space, does the lease allow it? Is landlord consent required?
Is external signage permitted?Check whether signage requires landlord approval and whether planning permission is needed.
Is outdoor seating or trading permitted?For hospitality businesses, this may be essential.
Is subletting or sharing occupation permitted?If you want to bring in a partner, co-operate or share space, check whether the lease allows it.
Are there noise or nuisance restrictions?Important for hospitality, music venues, children's play areas, or any business that generates noise or footfall.
Are there exclusivity arrangements?Some shopping centre leases include exclusivity provisions preventing certain types of competing business from opening nearby — or may conversely prevent you from diversifying into certain products.
If your intended use is not currently permitted under the lease, do not assume you can simply change it. You will need the landlord's agreement to vary the use clause, and you may also need to apply for planning permission. Both take time and are not guaranteed.
Break clauses and rent reviews
Break clauses
A break clause is a contractual right for one or both parties to end the lease before the natural expiry date. Break clauses can appear in any lease and can be exercised by the landlord, the tenant or both.
From a buyer's perspective, the critical question is:could the landlord break the lease shortly after you complete the purchase?
If a landlord break is approaching — particularly within the first two or three years of your ownership — this represents a significant risk. You could buy a business, invest in it, build relationships with customers and staff, and then face a situation where the landlord terminates the lease and you have to vacate.
When reviewing break clauses, check:
Who has the right to break — landlord only, tenant only or both?
When can the break be exercised, and how much notice is required?
What conditions must be met for the break to be valid? Many break clauses require the tenant to be fully up to date with rent and in compliance with lease obligations — if you miss a payment, you may lose the right to exercise your own break.
If you want to use the tenant's break to exit a lease that turns out not to work for you, make sure you understand the conditions and notice period.
Rent reviews
Rent reviews are contractual mechanisms that allow the rent to be renegotiated at set intervals during the lease. Most commercial leases include rent reviews every three or five years. Understanding the rent review mechanism is important because it can materially change what you pay.
Check:
When is the next rent review?A review in six months' time could significantly increase your rent before you have had time to build the business.
What is the review mechanism?Open market rent (compared to what comparable properties are letting for), fixed percentage increases, or indexation to RPI or CPI?
Is the review upward-only?Most UK commercial leases are upward-only, meaning rent can go up at review but never down below the passing rent, even if the market has fallen.
What was the rent at the last review?Has the rent already been reviewed recently and increased, or is this the first review in some time?
What might the rent become after the next review?Ask your solicitor or a commercial surveyor to give you a realistic estimate based on comparable rents in the area.
A significant rent increase after completion can quickly erode the profitability that made the business attractive in the first place. Factor the potential rent review outcome into your financial modelling before making an offer.
Deposits, guarantees and security
When you take on a lease — whether by assignment or through a new lease — the landlord may require various forms of financial security. These can represent a meaningful cost or personal risk, and should be understood before you agree to proceed.
Common requirements include:
Rent deposit— a sum (typically three to six months' rent) held by the landlord as security against non-payment. This money is tied up for the duration of the lease or until you can demonstrate sufficient trading history to warrant its release.
Personal guarantee— the landlord may require you personally to guarantee the company's obligations under the lease. If the company defaults on rent, the landlord can pursue you personally. This is a serious commitment and should be taken with the advice of your solicitor.
Company guarantee— if you are buying through a limited company, a parent company or holding company guarantee may be requested. Less common for smaller deals.
Authorised Guarantee Agreement (AGA)— in an assignment, the seller (outgoing tenant) may be required to sign an AGA, guaranteeing your performance as the incoming tenant. This protects the landlord but also means the seller retains some risk until you either assign again or the lease ends. Sellers sometimes push back on AGAs or try to negotiate them out.
References— bank references, accountant references and trade references from previous landlords are standard for any assignment or new lease.
Landlord's legal and surveying fees— it is standard for the incoming tenant to pay the landlord's reasonable legal costs in connection with a licence to assign or a new lease. Budget for this.
If you are a first-time business buyer without a trading history, landlords may be more cautious about accepting you as a tenant and may require higher deposits or stronger guarantees. This is worth discussing early in the process so it does not delay completion unexpectedly.
Lease red flags
The following situations should prompt you to pause, seek advice and be very cautious about proceeding:
The lease is not available.If the seller cannot produce the lease, something is wrong. You cannot assess the business properly without it.
Very short remaining term with no renewal rights.Less than two to three years on a lease that is contracted out of the 1954 Act is a serious concern unless the price reflects this.
Assignment is prohibited under the lease.If the lease cannot be assigned and the landlord will not grant a new one, the premises cannot transfer to you.
Landlord consent is uncertain or unlikely.Some landlords are known to be difficult. Find out early whether there are likely to be obstacles.
Rent is too high relative to profit.If rent consumes more than a third of net profit, affordability is marginal and any rent increase could make the business unviable.
An imminent rent review.A rent review in the next six to twelve months adds uncertainty to your financial planning.
Heavy full repairing obligation with a building in poor condition.This can mean very significant costs during and at the end of the lease.
Dilapidation risk is real and unquantified.If the premises have deteriorated and there is no schedule of condition limiting liability, the end-of-lease position could be expensive.
Use restrictions that don't match the actual business.The seller may have been operating in breach of the lease without realising it. You would inherit that risk.
Rent arrears on the current lease.Arrears can block an assignment and suggest the current business is already financially struggling.
An unresolved landlord dispute.Ongoing disputes with the landlord create delay and uncertainty.
A landlord break clause approaching.If the landlord can break the lease in the next year or two, your security of tenure is very limited.
The seller says "don't worry, the landlord is fine with it" without written evidence.Never accept verbal assurances about landlord consent. Get it documented.
You are asked to complete before the lease is resolved.This should not happen. The lease position must be clear before money changes hands.
Buyer lease checklist
Use this checklist when reviewing the lease on any business you are considering buying:
Full copy of the lease obtained and read
Remaining lease term calculated from today
Security of tenure status confirmed (inside or outside the 1954 Act)
Assignment clause reviewed — is it permitted?
Landlord consent process understood and timeline estimated
Authorised Guarantee Agreement requirement identified
Current rent confirmed in writing
VAT on rent checked
Service charge reviewed (current level and how it is calculated)
Business rates confirmed with local council if necessary
Utility arrangements confirmed
Any rent arrears confirmed as nil or understood
Rent deposit position confirmed
Rent review clause reviewed — dates and mechanism understood
Break clause reviewed — who can break and when
Repair obligations reviewed in detail
Schedule of condition obtained or absence noted
Dilapidation risk assessed (surveyor engaged if appropriate)
Permitted use clause reviewed against current and intended use
Alterations, signage and opening hours restrictions reviewed
Subletting and sharing restrictions reviewed
Deposit or personal guarantee requirements identified
Commercial property solicitor engaged to advise
Licence to Assign confirmed before completion
FAQs
Can I buy a business without taking over the lease?
In theory, yes — but if the premises are central to the business, you need to either take over the lease, negotiate a new lease with the landlord, or have an alternative premises plan in place. Without guaranteed access to the premises, you may be buying goodwill and equipment but no viable business. This is particularly true for retail, hospitality and service businesses where the location is a core part of the value.
Does the landlord have to approve me as the new tenant?
Usually yes. Most commercial leases require landlord consent for an assignment, and the landlord can impose reasonable conditions — such as references, a rent deposit or an AGA. However, under the Landlord and Tenant Act 1988, landlords must not unreasonably withhold or delay consent to an assignment. If they do, there are legal remedies available.
What is a rent review?
A rent review is a contractual provision allowing the rent to be reset at specified intervals during the lease. Most UK commercial leases use open market rent reviews, meaning the new rent is assessed by reference to what comparable properties are letting for at the time of the review. Most reviews are upward-only, meaning rent can only go up, not down below the current passing rent.
What are dilapidations?
Dilapidations are claims by the landlord that the tenant has failed to maintain the premises in the condition required by the lease. They can arise during a lease (if the landlord serves an interim schedule) or, more commonly, at the end. A terminal dilapidations claim can involve the cost of reinstating the premises to the required condition, which can be very substantial in older or larger properties.
What is a schedule of condition?
A schedule of condition is a photographic and written record of the state of the premises at the point a tenant takes them on. If attached to the lease, it limits the tenant's repair obligation to maintaining the premises in no worse condition than recorded — rather than having to bring them up to a higher standard. It is a valuable protection for tenants but is not always available.
Should I use a solicitor for the lease?
Yes, always. A commercial property solicitor should review the full lease, advise on your obligations and rights, handle the licence to assign, and make sure you understand what you are committing to before you sign anything. The cost of this advice is a fraction of the potential cost of getting it wrong.
Key takeaways
The lease can make or break the purchase.A business is only as secure as its right to occupy the premises it trades from.
Assignment is not automatic.Most leases require landlord consent, and this takes time and can come with conditions.
Rent is only one occupancy cost.Service charge, business rates, insurance recharge and utilities can add substantially to the headline rent figure.
Repair obligations can be expensive.Understand what you are committing to before you take on a full repairing lease, particularly in older premises.
Dilapidation risk is real.If there is no schedule of condition and the premises are not in perfect repair, you may face a significant claim at the end of the lease.
Use restrictions matter.Make sure the lease permits both the current business use and anything you intend to do differently.
Never complete before lease issues are resolved.The lease position must be clear, confirmed and documented before money changes hands.
Related resources
Important disclaimer
Buy a Business Ltd is a marketplace, not a broker, corporate finance adviser, M&A adviser, law firm, accountant, tax adviser, lender, valuation firm, surveyor, insolvency practitioner or investment adviser. Information, guides, checklists and examples on this site are for general guidance only and do not constitute legal, tax, financial, investment, lending, valuation, property, employment, data protection, brokerage, corporate finance, M&A or regulated advice.
Buying a business involves risk. You should seek independent professional advice before making an offer, paying money, signing documents, taking over a lease, employing staff, relying on accounts or completing a business purchase.
Sources and useful references
GOV.UK: Renting a business property — tenant responsibilities
GOV.UK: Business transfers, takeovers and TUPE
HMRC / GOV.UK: Transfer a business as a going concern and VAT Notice 700/9
Landlord and Tenant Act 1954 (England and Wales)
Landlord and Tenant Act 1988 — landlord's duty not to unreasonably withhold consent to assignment
Town and Country Planning (Use Classes) Order 1987 as amended (Class E introduced September 2020)