How do commercial property leases work?

Commercial leases are formal agreements between landlord and tenant and typically set out:

• Lease term – often 5–25 years, sometimes with break options.
• Rent reviews – usually every 3–5 years, often upwards-only or linked to indexation.
• Repairing obligations – for example, full repairing and insuring (FRI) leases.
• Use clauses – how the tenant is allowed to use the property.

Understanding lease structure is critical for any commercial property investor, as it directly affects income security and long-term value.

In commercial leases, dilapidations refer to the failure of a tenant to maintain a property in the condition required by the lease, which often includes a failure to repair, redecorate, or reinstate alterations made during the tenancy. It is a breach of the tenant’s lease obligations that requires them to either carry out the necessary repairs or pay the landlord for the cost of rectifying the disrepair before the lease ends. A landlord can claim for dilapidations either during the lease term or after it has ended, typically by issuing a schedule of dilapidations.  

A schedule of dilapidations is usually a list of dilapidations served on the tenant at the end of the lease, but may occasionally refer to a list of dilapidations served on the tenant during the term of the lease.