Renting business premises

1. The advantages and limitations of renting premises

For many businesses, renting your premises can make good business sense.

• Lower upfront costs. Although you may need to pay a premium to purchase the lease and have to provide a refundable deposit, generally renting ties up much less capital than buying, freeing up cash that could be used elsewhere in the business.

• Greater flexibility. It’s easier to change premises as your business grows or your requirements change. You will usually be able to agree the length of the lease with your landlord or include a break clause in the lease to allow for relocation. 

• Reduced financial risk. You are not as exposed to interest rate fluctuations, property valuation, capital gains tax or large-scale building maintenance (depending on the terms of your lease).

• Access to prime locations. You may be able to access prime locations  - such as town centres or high footfall areas - which would otherwise be too expensive to buy.

• Faster to set up. Your business can be up and running more quickly - especially if the premises are already set up for your needs such as a serviced office space or premises with a kitchen.

However, renting can have some drawbacks:

• Less security. Your landlord may decide to sell the premises or not renew your lease.

• Less control. You may not be permitted to make the changes you would like if you want to alter or extend the premises.

• Potential cost increases. Including rent increases and service charges.

It’s important to weigh up whether renting your premises or buying your premises is right for your business.

2. Finding the right premises to rent

The location of your business premises can make or break your business. Our article on how to choose the right premises for your requirements covers how to:

• specify your requirements

• choose the right location

• search for premises yourself or use a commercial estate agent or surveyor.

3. Types of property rental agreement

There are two ways to rent business premises:

• leasing - generally used if you are looking for premises for several months or years

• licence to occupy - if you require premises for a shorter term of weeks or months - for instance, to complete a large order.

Leasing

Leases typically have agreements of between one and 25 years, with terms agreed between you and the landlord. You may be able to negotiate this with your landlord before entering the lease. Before signing the contract, ensure the terms meet your needs for future growth, stability vs flexibility, costs and capacity for adaptation. If your business is new, you may want to consider a short lease of three years or less or ask for a break clause.

Licence to occupy

A licence to occupy is a contract that permits a business to use a premises on a short-term basis, often for a few months. It is not a lease and does not provide any legal interest in the premises, and licensees have fewer legal rights than tenants. 

This type of agreement could be of benefit to a small business looking for a short-term property solution of up to one year. Licences to occupy generally offer more flexibility and can usually be terminated at short notice on both sides. You do not have an automatic right to renew a licence and it is always advisable to seek professional advice, e.g. from a chartered surveyor or solicitor.

5. Practicalities of renting premises

Contracts can be complex, so consider professional help from a solicitor or chartered surveyor to help you understand the practicalities. While this can be expensive, mistakes can be much more costly to remedy.

You can search the Law Society of Scotland to find a solicitor.

Planning

Make sure the premises is permitted to be used for your class (type) of business and if you are changing its use in any way, check with your local authority if planning permission is needed (for example changing a retail shop to be used as a cafe). 

Restrictions

Find out if there are any restrictions or covenants in the lease or imposed by the local authority that may affect your business. This could include restrictions on delivery or loading times, or other restrictions on rubbish disposal, parking, noise, lighting, litter, etc.

Insurance

The lease will state whether you or the landlord need to arrange insurance for the premises. If the landlord arranges this, you will pay the premiums as part of the service charges. Therefore, you may need to take out additional cover (in addition to your business insurance) for risks to the property, such as loss or damage to contents, which may not be covered in the building policy.

Energy Performance Certificates (EPCs)

All landlords of commercial buildings are obliged to provide prospective tenants with an EPC. An EPC indicates how energy efficient a building and its services are and can act as a good indicator of likely energy costs.

In particular, air conditioning systems and boilers can have a significant effect on your overall energy bills. You could make savings by keeping these well maintained and having them regularly inspected by a qualified engineer.

The Energy Performance of Buildings (Scotland) Regulations 2025 are in force from 31 October 2026, bringing new energy efficiency requirements.

5. Financial considerations when renting premises

Your financial commitments when renting can include:

• Premium to purchase the lease. An upfront payment made to the landlord on the granting of a lease on the premises.

• Rental costs. The amount you pay in rent will depend on various factors, including location and premises type. Rent is usually paid quarterly in advance. However, you may be able to pay monthly depending on your agreement. This can form part of negotiations with your landlord. 

• Service charges. Service charges are passed from landlord to tenant and cover the cost of running and maintaining the building and any communal areas. They are paid in addition to your rent and will generally be detailed as a separate cost in your lease agreement. Check how much these are and what services they cover (such as maintenance, cleaning and heating). Also establish what facilities you may be sharing with other tenants. You have the right to challenge service charges.

• Utility bills and insurance. Businesses are generally responsible for paying their utility bills direct to the suppliers, and also for paying for insurance.

• Maintenance and repair bills. Businesses are generally responsible for ‘ordinary’ repairs - the routine maintenance and minor repairs to the property to keep it in good condition, whilst landlords are generally responsible for ‘extraordinary repairs’, for example those involving major structural or external elements of the property. However this all depends on the terms of your lease agreement.  

• Deposit. A deposit is generally payable upfront, and typically equivalent to three or six months' rent.

• Dilapidations. As part of the lease agreement, tenants generally have the obligation to repair the property, comply with statute, and reinstate works before their lease ends. Landlords can claim for damages based on these obligations as set out in a commercial lease at the end of a tenancy if there has been a breach of obligation. Review this part of your contract and discuss with your advisers.

• Land and Buildings Transaction Tax (LBTT). This is payable on some commercial leases.

• Business rates. These are taxes on your business property to help pay for local council services and don't reflect the turnover or profits of your business. It's also worth investigating any grants or incentive schemes available to you, such as non-domestic rates relief.

• Business Improvement Districts. Business Improvement Districts are a set area (e.g. a part of a town or a commercial district), in which businesses work together to invest in local improvements. In these districts, businesses agree to pay an additional levy on their business rates to fund local improvements. This can increase ongoing costs, however, businesses will benefit from improvements to the local trading area.

• Costs of compliance. You are responsible for the health and safety of employees and visitors and must comply with all applicable building and fire regulations. You also need to provide a suitable working environment for employees, including:

• maintaining a reasonable temperature

• providing enough space, ventilation and lighting

• providing toilets, washing facilities and drinking water.

Note that normally, the landlord will request references to confirm you are able to pay your rent and rates liability. You may find it beneficial to have a guarantor for your rent and other liabilities under the lease.

You can search the Law Society of Scotland to find a solicitor.

6. Alterations to the property

Planning permission is generally required if you want to extend, convert or change the external nature of the premises - though it's not always needed if you want to make alterations. Check (at the proposal stage) with your local planning authority whether the development will require planning permission. You should also check with the building control section at your local council that the work conforms to building regulations.

Before you start any alteration work, you should check the details of the lease. You may need to get permission from the landlord. Unless the lease expressly prohibits improvements, the landlord may not unreasonably withhold consent to tenants' improvements. Also, you should clarify whether you will be required to reinstate the property to its original condition before the agreement expires, as per your dilapidations.

You should also check whether the works you are planning will alter your rateable value. The rateable value of business premises is based on their open market rental value. Changing your premises may affect this and the amount you pay in business rates.