Key Takeaways
- An agreement for lease is a binding contract committing both sides to enter into a lease in the future, or once agreed conditions are met.
- It’s not the lease itself. Until the conditions are satisfied and the lease completes, the tenant has no right to occupy.
- It’s commonly used where premises are still being built or refurbished, or where planning, funding or consents are still to come.
- A longstop date matters. It sets a deadline for the conditions, so neither party is tied in indefinitely.
- If you want to exclude the tenant’s statutory renewal rights, the contracting-out procedure has to be done before the agreement is entered into.
So, you’ve agreed the deal in principle. The tenant wants the unit, the landlord wants the tenant, and the rent and term are broadly settled. But what do you do if the building work isn’t finished, planning is still pending or an existing tenant hasn’t yet moved out? Nobody wants to sign a lease for premises that aren’t ready, but both sides want the deal locked in so it doesn’t fall through. That’s exactly the gap an agreement for lease fills.
It’s a useful and common tool in commercial property, but it’s also frequently misunderstood. People sign one thinking they have a lease, or they leave out the protections that stop the deal dragging on forever. Getting it right at this stage saves a lot of trouble later.
This guide explains what an agreement for lease is and when you need one, along with the key terms to get right. If you’re negotiating one, Osbourne Pinner offers a free 30-minute consultation with a commercial property solicitor. You can also read our guide to what a commercial lease is.
What is an agreement for lease?
An agreement for lease is a contract between the parties to enter into a lease. It places a binding obligation on both sides to grant and take the lease, either on a fixed future date or once certain conditions have been satisfied.
The crucial thing to understand is that it isn’t the lease. Until the conditions are met and the lease is formally completed, the tenant has no right to go in and occupy the premises. What the tenant has instead is a legally binding promise that a lease on the agreed terms will be granted when the trigger events happen. To avoid any argument about what will eventually be signed, the agreed form of the lease is normally attached to the agreement.
When do you need one?
An agreement for lease earns its place whenever the deal is agreed but something has to happen before the lease can sensibly start. Common situations include:
- The premises are still being built or refurbished, and the tenant wants certainty the unit will be theirs when it’s ready.
- Planning permission is needed, for example for a change of use, and the deal depends on it being granted.
- An existing tenant hasn’t vacated yet, so the landlord can’t grant the new lease immediately.
- The tenant needs time to arrange funding, carry out its own due diligence or obtain a superior landlord’s or lender’s consent.
In each case, the agreement holds the deal together and commits both parties, while giving the space needed to get everything in place before the lease itself begins.
Conditions: the heart of the agreement
Most agreements for lease are conditional, meaning the lease only completes once specified conditions are satisfied. Typical conditions include:
- Practical completion of building works
- The grant of planning permission
- Obtaining a third party’s consent
A well-drafted agreement doesn’t just list the conditions. It says who’s responsible for satisfying each one, and by when. That clarity is what prevents finger-pointing later if something stalls. If the tenant is relying on the landlord completing works to a particular standard, for instance, the agreement should spell out that standard and how completion is verified.
Why the longstop date matters so much
This is the single most important protection to get right, and the one most often overlooked. A longstop date is a deadline by which the conditions must be met. If that date passes and the conditions still aren’t satisfied, one or both parties can walk away and terminate the agreement.
Without a longstop date, you could (in theory) be tied into the agreement indefinitely, waiting on a condition that never gets met. If you’re the tenant, pay close attention to how key terms like practical completion are defined.
Remember, a vague definition can be used to stretch things out. A clear longstop (with sensible provisions for genuine delays) keeps everyone honest.
Security of tenure: deal with it before you sign
Business tenants in England and Wales usually have a statutory right to renew their lease at the end of the term. That’s known as security of tenure, under the Landlord and Tenant Act 1954. The parties can agree to exclude this (often called contracting out) but only by following a set statutory procedure involving a warning notice and a declaration from the tenant.
The important point with an agreement for lease is timing. If the lease is going to be contracted out of the 1954 Act, that procedure has to be completed before the agreement for lease is entered into. Miss that step and the tenant may end up with renewal rights the landlord never intended to give. For more on how those renewal rights work, see our guide to commercial lease renewal under the 1954 Act.
Other things worth getting right
- Registration: An agreement for lease can be protected by a notice on the landlord’s registered title, so a buyer of the property takes subject to it. A tenant making a real commitment will usually want this protection.
- Insolvency: The agreement should let a landlord terminate if the tenant becomes insolvent before completion, since chasing obligations against an insolvent tenant is rarely worthwhile.
- Assignment before completion: In some cases, the benefit of an agreement can be transferred to a different tenant entity before the lease is granted. If a landlord wants to prevent that, it needs careful drafting.
- Tax: Entering into an agreement for lease can have Stamp Duty Land Tax and other tax consequences, so it’s worth taking advice before you commit.
Talk to a commercial property solicitor at Osbourne Pinner
Whether you’re a landlord or a tenant, an agreement for lease is a binding commitment that needs to reflect your position. Our commercial property solicitors can help you negotiate and draft one that protects your interests. We’re a multi-office firm with solicitors in London (Piccadilly and Canary Wharf), Harrow and Manchester, acting for landlords and tenants on commercial lease transactions.
We offer a free 30-minute consultation with a commercial property solicitor, Monday to Friday, with no obligation. It costs nothing to make sure an agreement works for you before you sign it. We do not offer Legal Aid.
Call us on 0203 983 5080, message us on WhatsApp, or email [email protected] to arrange your consultation.
Please note that this article is for informational purposes only and does not constitute legal advice. We always recommend speaking to a qualified solicitor for advice tailored to your specific circumstances.
