What payments are tenants obliged to pay under a commercial lease?

In addition to rent, tenants are obliged to pay other payments under a commercial lease. The following is a list of additional costs to take into consideration;

Buildings insurance

Tenants are required to contribute to the buildings insurance arranged by the landlord. If the tenant is leasing a whole property, they will usually need to reimburse the entire premium. However, if the tenant is only renting part of a property (i.e. the ground floor of a two storey premises), then they will only pay some of the premium. In more complex properties, for example in situations where different parts are let to different tenants, the proportion of the premium each tenant is responsible for is usually worked out using the square footage of the area of the building they are renting. 

Service charge

It is worth keeping in mind that a service charge may also be payable if a tenant is leasing only the interior of the premises, or if the tenant is leasing only part of a larger building or business park/industrial estate. Service charges apply in these situations because the exterior, structure and/or any common parts (i.e. shared access ways, hallways, corridors or stairs) need to be maintained by the landlord. The cost of the maintenance is then divided between the tenants. Again, similarly to buildings insurance, this is usually calculated using the floor area of the various let premises. 

VAT

Beware also of VAT. If the Landlord is registered for VAT and has ‘opted to tax’ the property, then VAT will be payable on the rent, service charge and insurance.

Legal and surveyor costs

Finally, on any proposed assignment (transfer or sale) of a lease, subletting* or alterations carried out by a tenant, the tenant is also required to meet the landlord’s legal and surveyors’ costs (including VAT).

For more information on any of the above issues, call our Commercial Property team on 0113 201 4900 or email commercial.property@emsleys.co.uk for a free, initial consultation.

*This can be defined as the granting of a further lease out of a tenant’s lease to someone else who will also occupy the premises.
Kelly Sanderson

Written by

Kelly Sanderson

Head of Commercial

Kelly has many years of experience in dealing with all aspects of commercial property law; acting for individuals, companies, pension funds, partnerships and their lenders in the purchasing, selling and leasing of commercial property.  Kelly also specialises in business sales and purchases (whether by way...

Back to Blog