Agreement For Lease: Key Terms, Risks And Next Steps

If you’re about to take on premises for your business, you’ll often hear the landlord (or the agent) say something like: “We’ll do the agreement for lease first, then complete the lease later.”

That can feel like a small, admin-style step before you get the “real” lease.

But an agreement for lease can be one of the most important documents you sign in the whole process, because it will often legally commit you to take the lease once certain conditions are met.

So, what is an agreement for lease, when do you actually need one, and what should you be watching for as a small business?

What Is An Agreement For Lease (And How Is It Different From A Lease)?

An agreement for lease (often shortened to AFL) is a contract where a landlord and a tenant agree the key terms for a lease now, but the lease itself will be granted later.

In plain English: it’s the “promise” document that sits between “heads of terms agreed” and “lease completed”.

Why Would You Sign An AFL Instead Of The Lease Straight Away?

Because there’s often something that needs to happen before it makes sense to complete the lease, for example:

• the landlord needs to finish building works or a refurbishment
• you need planning permission or landlord’s consent for your intended use
• you need to do surveys, due diligence, or secure funding
• a third party (like a superior landlord, lender, or management company) needs to consent
• the parties want to lock in terms while documents are finalised

AFL vs Heads of Terms

Small businesses often start with heads of terms (sometimes called “terms agreed” or “deal memo”). Heads of terms are commonly stated to be subject to contract, meaning they are not intended to be legally binding (though some clauses like confidentiality or exclusivity might be).

An AFL, on the other hand, is often intended to be legally binding. Once you sign it, you may be locked in.

If you’re unsure what makes something enforceable, it helps to sanity-check the basics of what makes a contract legally binding before you treat an AFL as “just paperwork”.

AFL vs Licence To Occupy

Sometimes you’re offered early access to the premises (for example, to start fitting out) before the lease completes. That access is often documented separately as a Licence to occupy.

That’s a different arrangement to an AFL:

• AFL: can commit you (subject to conditions) to take a lease later
• Licence to occupy: gives you permission to enter/use the premises in a limited way (often short-term), usually without granting lease rights

When Do Small Businesses Usually Need An Agreement For Lease?

You don’t always need an AFL. Many straightforward commercial lettings go straight to lease once the terms are agreed and the usual checks are done.

But an AFL is common where timing and risk need to be managed carefully.

Typical Scenarios

You’re more likely to see an agreement for lease if:

• You’re taking a new-build unit (e.g. a retail unit in a new development)
• The premises need work before they’re usable (by the landlord or by you)
• Your use needs approvals (planning, landlord consent, building regs sign-off)
• You need certainty while you spend money preparing (design, contractors, equipment orders)
• There’s a chain of interests (superior landlord, headlease, mortgagee consent)

Why The Landlord Pushes For It

From the landlord’s perspective, an AFL can:

• reduce the risk that you walk away after they spend money (or take the unit off the market)
• help them show lenders/investors that the property will generate rental income
• set a clear roadmap for completion

From your perspective, it can also be helpful - but only if the conditions and timelines are fair and realistic.

What Terms Should An Agreement For Lease Include?

Although every deal is different, most agreements for lease cover a familiar set of commercial and legal terms.

The key thing to remember is: if it isn’t written down clearly, it’s harder to enforce - and easier for disputes to pop up right when you’re trying to open your doors.

1) The Draft Lease (Or The Key Lease Terms)

Many AFLs attach the draft lease as a schedule. Others summarise the core terms and say the lease must be in an agreed form.

Either way, you want clarity on:

• length of term (e.g. 5 years, 10 years)
• rent, rent deposit, and when rent starts
• rent review (if any) and the mechanism
• repairing obligations (full repairing and insuring / internal only / schedule of condition)
• service charge and how it’s calculated
• alienation (assignment, underletting, sharing occupation)
• break clauses (and conditions for exercising them)
• security of tenure under the Landlord and Tenant Act 1954 (contracted out or not)

If a landlord asks for a rent deposit, it’s worth understanding how these are usually structured, because the wording can affect when you get your money back and what deductions are allowed. This commonly ties into commercial lease deposits.

2) Conditions Precedent (The “Triggers” For Completing The Lease)

The heart of most AFLs is the list of conditions precedent (sometimes called “conditions” or “pre-conditions”). These are events that must happen before the parties are obliged to complete the lease.

Common conditions include:

• planning permission for the intended use
• superior landlord consent
• landlord’s works being finished to a defined standard
• your fit-out plans being approved
• vacant possession (if relevant)
• your board approval or funding approval (less common, and landlords often resist this)

These conditions need careful drafting. If they are too vague (e.g. “landlord to complete works to a satisfactory standard”), you can end up arguing about what “satisfactory” means when you’re trying to move in.

3) Longstop Dates And Completion Mechanics

A well-drafted AFL should say:

• when the lease must complete once conditions are satisfied
• a longstop date (a final deadline if conditions aren’t met)
• what happens if the longstop date passes (termination rights, deposit refunds, cost consequences)

For small businesses, the longstop date is a big deal. If you’ve already committed to staff hires, marketing, or equipment orders, delays can be painful.

4) Access, Fit-Out And Works Obligations

AFLs often deal with who does what works (and who pays):

• landlord’s works (base build, utilities, shopfront, compliance works)
• tenant’s works (fit-out, signage, specialist equipment installation)
• access rights for contractors and surveys
• approvals process for drawings and specs

If you’re going into a managed building or shopping parade, you may also see rules about how works are done (hours, noise, waste removal, insurance requirements).

5) Costs, Deposits And Incentives

An AFL can cover money issues like:

• reservation fees or holding deposits (and whether they’re refundable)
• rent-free periods and when they start
• contributions to fit-out costs
• who pays legal costs (each party, or tenant pays landlord’s, or capped)

Even when the commercial terms “look fine”, the mechanics matter - especially around when payments become non-refundable.

What Are The Risks Of Signing An Agreement For Lease?

An agreement for lease can be a smart way to secure premises - but it can also create exposure if you sign it too early, or if the conditions are stacked against you.

Here are the risks we commonly see for small businesses.

1) You Can Be Legally Committed Before You’re Ready

If the AFL is binding, you may have to take the lease once the conditions are satisfied - even if your business situation changes (for example, funding falls through, your timeline shifts, or the location turns out to be less suitable than expected).

While you can negotiate “get-out” rights, landlords often resist broad termination rights unless there’s a clear commercial reason.

2) Vague Conditions Can Turn Into Costly Disputes

If conditions are unclear, you may face disputes like:

• is the landlord’s work actually complete?
• was planning “obtained” if it’s granted with conditions?
• did you act reasonably in approving plans (or refusing approval)?
• can the landlord claim you delayed completion?

These disputes often come at the worst time - right before opening - when you’re already under pressure.

3) You Might Incur Costs Before You Have A Lease

Even before the lease completes, you might be spending money on:

• architects and fit-out design
• equipment orders
• professional fees (survey, planning consultant)
• staff recruitment and marketing

If the AFL ends without a lease being completed (for example, the longstop passes), you need to know what you can recover - if anything.

4) Deposit Traps And “Non-Refundable” Payments

Some AFLs include deposits that become non-refundable if you don’t complete, even where the reason is complicated (for example, delays, third-party consents, or disagreements about works).

Make sure you understand:

• when a deposit becomes non-refundable
• what “default” means (and whether you might accidentally default)
• what evidence is needed for deductions

5) You Could Be Restricted From Assigning Or Subletting Later

The lease terms are often effectively “locked in” through the AFL. If you later need flexibility - for example, to bring in a concession partner, share space, or sublet - you could be stuck if the lease is strict.

It’s worth thinking ahead about how subleases and assignments might fit your business plan before you commit.

How Do You Protect Your Business Before You Sign?

The good news is that most AFL problems are preventable - if you slow down, ask the right questions, and get the document reviewed properly.

Here’s a practical approach that works well for small businesses.

1) Treat The AFL Like The Lease (Because It Often Is, In Practice)

If the lease terms are attached to the AFL, you should review them with the same care you would a final lease: rent review, repairs, break clause conditions, and whether the Landlord and Tenant Act 1954 is being excluded.

This is where a commercial lease review can pay for itself, because changing terms after you’ve signed the AFL can be difficult (and sometimes impossible without the landlord’s consent).

2) Make The Conditions Objective And Measurable

Where possible, conditions should be drafted so they’re clear and provable. For example:

• instead of “works completed to tenant’s satisfaction”, consider “works completed in accordance with Schedule X, certified by ”
• instead of “planning permission obtained”, consider “planning permission granted for Class X use (or the specific use) and not subject to conditions that materially affect trading”

This reduces grey areas and helps keep the deal moving.

3) Lock In A Realistic Programme And Longstop Date

Delays happen. The AFL should reflect that reality, while still protecting you from a deal that drags on indefinitely.

Ask yourself:

• What’s the absolute latest date we can open and still make this viable?
• What happens if the landlord misses the programme?
• Do we have the right to walk away (and get our money back) if there are long delays?

4) Be Careful With Early Access And Insurance

If you’ll be accessing the premises before completion, make sure the documentation is consistent (often a licence to occupy sits alongside the AFL) and that you understand:

• who is responsible for health and safety on site
• what insurance you need (public liability, contractors’ all risks)
• who pays utilities during fit-out

5) Make Sure Signing And Formalities Are Done Properly

Commercial property documents often come with strict signing requirements, especially if the final lease is completed as a deed.

Before you sign anything, confirm:

• who in your business has authority to sign
• whether the document needs witnessing
• whether signing needs to be “as a deed”

For a practical overview, it helps to understand legal signature requirements and, where relevant, executing contracts and deeds.

Next Steps: A Simple Checklist Before You Commit

If you’re currently negotiating premises and an AFL is on the table, here’s a straightforward set of next steps to keep you protected.

Step 1: Confirm What You’re Being Asked To Sign

• Is it heads of terms, an agreement for lease, or the lease itself?
• Is it “subject to contract” or binding?
• Are there any side documents (licence to occupy, rent deposit deed, guarantees)?

Step 2: Pressure-Test The Deal Against Your Business Plan

• Is the rent affordable if trade is slow for the first 3–6 months?
• Do you need a break clause in case the location doesn’t perform?
• Will repair/service charge obligations create unpredictable costs?

Step 3: Clarify Conditions And Timelines In Writing

• What exactly must happen before completion?
• Who is responsible for each condition?
• What evidence is required to show a condition is satisfied?
• Is there a longstop date and a clear exit route?

Step 4: Get The Documents Reviewed (Not Just The Commercial Terms)

It’s very common for small businesses to focus on rent and lease length, but the “legal mechanics” often create the biggest surprises later.

Getting the AFL and draft lease reviewed early gives you the best chance of negotiating changes while the landlord is still motivated to do the deal.

Step 5: Plan For Completion Day

Before completion, make sure you’re ready for the practical parts:

• insurance is in place
• your company details are correct (and the right signatory is available)
• funds are ready for rent, deposit, and any VAT (if applicable)
• your fit-out timeline aligns with handover and any rent-free period

VAT treatment can vary depending on the property and the landlord’s tax position, so it’s worth getting tailored accounting or tax advice on how VAT will apply to your payments.

Doing this upfront helps you avoid last-minute delays - which can be expensive if contractors and staff are lined up.

Key Takeaways

• An agreement for lease is often a binding contract to grant (and take) a lease later, once the agreed conditions are satisfied.
• Small businesses often see AFLs where premises are new-build, need landlord works, or require planning/third-party consents before the lease can complete.
• The most important AFL clauses are the conditions precedent, longstop date, deposit mechanics, and the attached draft lease terms.
• The biggest risks include being committed too early, unclear conditions leading to disputes, and losing money on deposits or pre-opening costs if the deal falls over.
• You can protect yourself by making conditions measurable, locking in realistic timelines, checking assignment/subletting flexibility, and getting the AFL and lease reviewed before you sign.

If you’d like help reviewing an agreement for lease or negotiating your commercial lease terms, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.