Understanding the different types of commercial leases in the UK is one of the most important steps a business owner can take before committing to new premises. A commercial lease agreement in the UK is not a standard document — the structure of the lease determines how much you pay, who carries the risk, who is responsible for repairs and insurance, and how much flexibility you have to exit if your circumstances change.
The term ‘commercial property lease’ covers a wide range of arrangements, from long-term full-repairing leases on standalone buildings to short-term licences in serviced office spaces. Each type carries different obligations, different costs, and different levels of security. Choosing the right one for your business at the right stage is not simply a matter of negotiating the rent — it requires a clear understanding of what each structure means in practice. This guide explains the main types of commercial leases in the UK and sets out what each one means for you as a tenant.
The two core distinctions: lease versus licence
Before exploring the different types of commercial leases in the UK, it helps to understand the fundamental distinction between a lease and a licence — because these are legally different things, even when they look similar on paper.
A commercial lease agreement in the UK grants the tenant exclusive possession of the premises for a defined period. This is a proprietary interest — it gives the tenant real rights in the property that can, subject to conditions, be transferred to a third party. A lease is protected by law and, in many cases, the tenant has statutory rights to renew at the end of the term under the Landlord and Tenant Act 1954.
A licence, by contrast, grants permission to occupy the commercial property lease without conferring exclusive possession. The occupier under a licence has fewer legal rights, cannot transfer their interest, and has no statutory renewal rights. Licences are more easily terminated by either party, which gives them flexibility but less security. It is also worth knowing that courts look at the substance of an agreement — not just what it is called. An agreement labelled a “licence” will be treated as a lease if it actually grants exclusive possession.
Full Repairing and Insuring (FRI) leases: the most common type of commercial lease in the UK
The Full Repairing and Insuring lease — universally known as an FRI lease — is the most prevalent type of commercial lease agreement in the UK for longer-term lettings. Under an FRI lease, the tenant takes on responsibility for the full cost of maintaining the property in good repair throughout the term, as well as contributing to the cost of the landlord’s building insurance.
This means that as a tenant on an FRI lease, you may be required to repair and maintain not just the interior of the premises, but also the exterior, the roof, and any structural elements — even if those were in poor condition when you took the commercial property lease on. This is one of the most significant financial risks in commercial property that many tenants fail to appreciate at the outset.
The standard protection against this risk is a Schedule of Condition — a detailed photographic and written record of the state of the property at the point you take occupation, agreed between both parties and attached to the lease. This limits your repairing obligation to returning the property to the condition recorded in the schedule at the end of the term, rather than a higher standard.
FRI leases are most commonly used for:
- Single-occupancy commercial buildings — standalone retail units, offices, warehouses, and industrial premises
- Long-term lettings of five years or more, where the landlord wants a reliable, low-management tenancy
- Larger businesses with the financial standing to take on the repairing and insurance obligations involved
Internal Repairing and Insuring (IRI) leases
An Internal Repairing and Insuring lease — or IRI lease — is a more limited version of the FRI structure and is common in multi-tenancy commercial property leases, particularly in office buildings and retail centres. Under an IRI lease, the tenant’s repairing obligations are confined to the interior of the demised premises. The landlord retains responsibility for the exterior, the structure, the roof, and common parts, usually recovering those costs through a service charge.
For tenants, an IRI commercial lease agreement in the UK is generally less financially exposed than an FRI lease because the scope of the repairing obligation is clearly defined and limited. However, service charges can be unpredictable and are a significant additional cost in some multi-tenancy buildings — particularly where major works to the building or shared infrastructure are carried out during the term.
IRI leases tend to suit:
- Smaller businesses taking space within a larger building, such as a floor of an office block or a unit within a retail development
- Tenants who want a clearer boundary between their responsibilities and the landlord’s
- Situations where the landlord wants to maintain control over the quality and timing of external and structural repairs
Gross leases and the commercial lease agreement in the UK context
A gross lease — sometimes called a full-service lease — is a commercial lease arrangement where the tenant pays a single fixed rent and the landlord is responsible for the costs of running the property: insurance, maintenance, and in some cases utilities and service charges. The landlord calculates these costs and incorporates them into the overall rent figure.
Gross leases are less common in the UK commercial property market than FRI and IRI structures, but they do exist — particularly in serviced offices, short-term lettings, and some multi-tenancy settings where the landlord prefers to retain control over property management. The advantage for tenants is simplicity: one monthly payment covers occupational costs and there are no unexpected bills for repairs or insurance.
The risk is that the landlord may build in a generous margin when calculating the all-in rent, meaning tenants can end up paying more than they would under a net lease structure where costs are passed through at actual cost. It is worth interrogating the basis of the rent calculation before committing.
Net leases: single, double, and triple net
Net leases are structured so that the tenant pays a base rent and also contributes directly to some or all of the costs of running the property. The three variants of net lease are defined by how many categories of operating cost the tenant bears in addition to rent.
Single net lease
In a single net lease, the tenant pays the base rent and is also responsible for property taxes attributable to the commercial property lease. The landlord covers insurance and maintenance costs. Single net leases are relatively uncommon in the UK commercial market.
Double net lease
A double net lease — sometimes written as “NN” — requires the tenant to pay base rent, property taxes, and building insurance premiums. The landlord retains responsibility for structural maintenance. This is a more common structure in the UK, particularly for commercial lease agreements in the UK where the tenant occupies part of a larger building and the landlord is insuring the whole structure.
Triple net lease
The triple net lease — also known as an “NNN” lease — is the most extensive form of net lease, in which the tenant pays base rent plus all operating costs: property taxes, building insurance, and maintenance. This structure is in practice very similar to a full FRI lease and is one of the types of commercial leases in the UK that places the greatest financial responsibility on the tenant. In return, the base rent is typically lower, reflecting the fact that the landlord has transferred operational risk to the occupier.
Not sure which type of commercial lease is right for you?
FRI, IRI, and licence agreements all carry different costs, risks, and levels of flexibility. Speak to a commercial property solicitor before committing to a lease.
Percentage leases
Percentage leases are a specialist form of commercial property lease most commonly used in the retail sector, particularly in shopping centres and large retail developments. Under a percentage lease, the tenant pays a base rent and then pays an additional percentage of their turnover above a specified threshold — the “breakpoint” — to the landlord.
This structure aligns the landlord’s and tenant’s interests to some degree: the landlord benefits when the tenant trades well, and the tenant’s additional rent obligation reduces in quieter periods. However, percentage leases require the tenant to share detailed financial information with the landlord, and the calculation of what counts as “turnover” for these purposes needs to be carefully defined and negotiated.
Percentage leases are less standard than FRI or IRI structures and require specialist legal advice both in their drafting and in understanding the long-term financial implications.
Short-term commercial leases and licences
Licences to occupy
A licence to occupy is not a lease in the legal sense — it is permission to use the property without creating a tenancy. Licences are common in serviced offices, co-working spaces, and temporary occupations. They are typically short-term, running from month to month or for a fixed period of up to eleven months. Both the licensor and the licensee can usually bring a licence to an end by giving relatively short notice.
Because a licence does not create a commercial lease agreement in the UK context, the licensee has no statutory renewal rights under the Landlord and Tenant Act 1954. For businesses that need a flexible arrangement without long-term commitment, a licence can be appropriate. For businesses that need security and the ability to plan long-term, a licence provides an insufficient foundation.
Tenancy at will
A tenancy at will is an informal arrangement that sits outside the standard types of commercial leases in the UK. It has no fixed duration — either party can bring it to an end at any time without notice. Tenancies at will are most commonly used as a bridging arrangement while a formal lease is being negotiated and documented, allowing the tenant to occupy the premises in the interim.
Because a tenancy at will can be terminated by either party at will, it is unsuitable as a basis for running a business on a long-term basis. The tenant has no security of tenure, and the landlord has no certainty of income. They work well for short transitional periods but should not be left in place indefinitely.
Contracted-out leases
Many commercial property lease agreements in the UK are contracted out of the security of tenure provisions in the Landlord and Tenant Act 1954 — which means the tenant does not have the statutory right to request a new lease at the end of the term. Contracting out requires a formal process before the lease is granted: the landlord must serve a warning notice, and the tenant must make a declaration confirming they understand the effect.
Landlords increasingly prefer contracted-out commercial lease agreements in the UK because they retain full control of the property at the end of the term. Tenants should be aware that agreeing to contract out reduces their security, and whether to accept a contracted-out lease — and on what terms — is an important negotiating point that should be taken seriously before exchange.
Ground leases
A ground lease is a long-term arrangement — typically between fifty and 999 years — in which the tenant leases land from the landlord and then funds and constructs buildings or improvements on it. At the end of the commercial property lease, ownership of the improvements reverts to the landlord unless otherwise agreed. Ground leases are common in commercial development, particularly where landowners want to retain ownership of the land while enabling development to take place.
Ground leases are a specialist area of commercial property law and require detailed legal advice before any commitment is made. The long timescale involved means that terms agreed at the outset of the lease can have significant consequences decades down the line — including on the ability to sell or mortgage the leasehold interest.
Which type of commercial lease is right for your business?
Choosing between the different types of commercial leases in the UK involves balancing a number of factors specific to your business: the stage of growth you are at, the level of financial commitment you can make, how much flexibility you need over the term, and the nature of the premises you are taking. A start-up with uncertain revenue projections has very different needs from an established retailer committing to a flagship location.
Some practical pointers:
- If you need maximum security and plan to be in the premises for the long term: an FRI lease on a contracted-in basis — preserving your right to renew — gives you the strongest foundation, even though it carries the greatest repairing responsibility.
- If you need flexibility and want to limit your liability: an IRI lease in a multi-tenancy building, or a gross lease with clear cost controls, may be more appropriate.
- If your revenue is variable and you are entering a retail environment: a percentage lease aligns your costs with your trading performance, though it requires careful negotiation of the turnover definition and the breakpoint.
- If you need a short-term arrangement while you establish yourself: a licence or a short-term contracted-out commercial lease agreement in the UK gives you flexibility without the long-term exposure of a full lease.
In all cases, the structure of the commercial property lease matters as much as the rent. The cost implications of repairing obligations, service charges, insurance arrangements, and break clause conditions can dwarf the headline rental figure over the life of a lease. Getting specialist legal advice before you commit to any of the types of commercial leases in the UK is not just prudent — for most businesses, it is essential. At Lease Lawyer, our commercial property solicitors advise tenants across England and Wales on all types of commercial lease, helping them understand their obligations before they sign and negotiate terms that protect their interests throughout the term.
Need advice on a commercial lease before you sign?
The type of commercial lease you choose affects your long-term costs, responsibilities, and ability to exit. From full repairing leases to licences and short-term agreements, understanding the structure is essential before you commit. Our commercial property solicitors can review your lease and help you negotiate terms that protect your business.