Leasing an industrial unit: key legal considerations for tenants

Leasing an industrial unit can be a significant commitment for any business. Whether you are a start-up moving into your first premises or an established company expanding into larger facilities, it is crucial to understand the legal and practical issues that come with an industrial lease. Getting to grips with these issues at the outset helps you avoid unexpected costs and ensures the property works for your business in the long term.

In this article, our commercial property solicitors outline some of the key considerations tenants should address when leasing an industrial unit. For tailored advice on your specific lease, contact us today.

Repair obligations: internal and external

One of the most important aspects of any industrial lease is the extent of the repair obligations. Leases often require tenants to keep the property in "good and substantial repair," which can sometimes mean putting the property into a better state than when you took it on. This can be a hidden liability, especially in older properties.

Some points tenants may want to consider:

• Does the lease require you to maintain only the internal parts of the property, or also external and structural elements such as the roof or foundation?
   
• Has a schedule of condition been agreed? This is a photographic and/or written record that captures the property’s state at the start of the lease and can be vital in limiting your responsibility for pre-existing disrepair. Without it, you may face a costly dilapidations claim at the end of the term.
   
• Who is responsible for common parts such as shared access roads or service yards? These are often covered through a service charge, but the terms should be carefully reviewed.

Permitted use: lease and planning

Every lease sets out a “permitted use.” If your intended use falls outside this scope, you may be in breach of the lease. For example, a clause allowing only “light industrial use” might prevent you from carrying out storage, retail sales, or certain types of manufacturing.

It is equally important to ensure that your use is lawful from a planning perspective. A lease may allow you to operate a warehouse, but if the local authority has not granted planning permission for that use, you could face enforcement action.

Confirm that the lease wording is broad enough to cover both your current business and any likely future developments. Check planning consents with the local authority before signing the lease, or request confirmation from the landlord.

Property searches: risks from past uses

Industrial sites often have a long history, and previous uses can affect your occupation. Environmental issues are a particular concern, as under UK law, liability for contamination can sometimes fall on the current occupier, even if they were not responsible for causing it.

Some key searches tenants may consider include:

• Environmental search. This identifies risks such as contamination or flooding.
   
• Local authority search. This highlights planning issues, enforcement notices, or restrictions.
   
• Title investigations. These confirm the landlord owns the property and can lawfully grant a lease, and check for any rights of way, restrictions, or covenants that could interfere with your use.

Identifying issues early allows you to negotiate protections into the lease or walk away from a problematic property.

Sharing occupation: subletting and group companies

It is common for businesses to want flexibility to share space with others, perhaps with a group company, a business partner, or by granting part of the premises to another occupier. However, most leases strictly control subletting and sharing arrangements.

If sharing occupation is important, raise this at the outset. Landlords may allow sharing with group companies or contractors, but usually only with written consent. Without consent, you risk breaching the lease, which could lead to forfeiture. Ensure that any landlord consent cannot be unreasonably withheld or delayed.

Alterations and improvements: installing a mezzanine

Tenants often wish to carry out alterations such as installing a mezzanine floor, creating offices, or upgrading utilities. Whether you can do this will depend on the lease terms.

Most leases prohibit structural alterations without the landlord’s written consent. Even if permitted, you may also require planning permission or building regulations approval. At the end of the lease, the landlord may require you to remove alterations and reinstate the property at your expense.

Before committing to works, understand the consent process, likely costs, and reinstatement obligations.

VAT: rent and service charge

VAT is another financial consideration often overlooked. Landlords can “opt to tax” a property, meaning VAT is payable on rent and service charges. This can add 20% to your outgoings.

If your business is VAT-registered, you may be able to reclaim this expense, but it can impact your cash flow. If you are not VAT-registered, the cost will be an irrecoverable expense.

The lease should state clearly whether VAT is payable and on which sums (rent, service charge, insurance, etc.). Always request sight of the landlord’s option to tax certificate.

Frequently asked questions

Here are answers to some of the most common questions clients ask our commercial property solicitors about leasing industrial units.

1. How long does it take to agree an industrial unit lease?

   This varies depending on the complexity of the lease and whether negotiations arise, but most industrial leases take between six and twelve weeks to complete.

2. Can I share my unit with another business?

   Usually not without landlord consent. Some leases allow sharing with group companies or contractors, but any terms should be reviewed carefully.

3. What happens if I want to make alterations?

   Structural alterations typically require landlord consent, and in some cases, planning permission or building regulations approval. You may also be required to remove the works at the end of the lease.

4. Do I have to pay VAT on industrial rent?

   If the landlord has opted to tax, VAT will be charged on rent and service charges. This can usually be reclaimed by VAT-registered businesses but may cause cash flow issues for others.

Expert advice on commercial leases

The small print in an industrial lease can have a major impact on costs, flexibility, and liability. Understanding issues like repair obligations, permitted use, planning, VAT, and alterations at the outset helps avoid disputes and unexpected expenses later.

James Halpin, head of commercial property, says:

“Industrial leases can look straightforward, but the detail often catches tenants out. Repair obligations, VAT, and permitted use clauses are the issues that frequently arise. I always advise clients to go through them carefully before signing — it may feel like slowing the process down, but it often saves a business from major costs, disputes, or restrictions on how they use the property further down the line.”

Our commercial property solicitors advise tenants nationwide on all aspects of industrial and commercial leases, helping ensure agreements protect your business interests.