Key considerations for hospitality & leisure fit-outs

Carmen Lui, Solicitor

The fit-out stage is usually the most expensive phase for any business, and represents a significant financial commitment. For leisure and hospitality operators, there is an added level of complexity, as several lease provisions can have a long-term impact on operations and costs.

It is particularly important to consider the fit-out, yielding up, and rent review clauses during the lease negotiation stage. These provisions can significantly affect costs from the beginning to the end of the lease term. Getting them right from the outset can save considerable time, money, and stress later on.

Fitting Out

In most leases, landlord’s consent is required before any fit-out works can begin. This consent cannot usually be unreasonably withheld or delayed where alterations are not of a structural nature.  If possible, you should also seek a deemed approval mechanism after a reasonable period to avoid unnecessary delays.

As fit-out works represent a major investment, tenants should consider negotiating a capital contribution from the landlord or securing a rent-free period to complete the works.

While the lease will outline the tenant’s alteration obligations, it is the licence to alter that formally documents the landlord’s consent to the works. The landlord will usually want to approve all plans and specifications and attach them to the licence.  These should be prepared as early as possible in the process to avoid delays at the end. The licence will also set out the timeframe for completion and the tenant’s obligations before, during, and after the works.

It is essential that the fit-out period specified in the licence allows sufficient time to complete the works and obtain all necessary approvals. For leisure operators, this often includes licences relating to sound insulation, fire safety, and capacity layouts, as these are typically regulated by local authorities.

The key objective is to align the fit-out period and landlord incentives (such as rent-free periods or contributions) with the time needed to complete the works, ensuring that rent is not payable until the premises is ready for trading.

Yielding Up

At the end of a lease term, most leases include an obligation for the tenant to reinstate the premises by removing any fit-out works or alterations carried out during the lease, returning the property to a “shell” condition.

This can create a significant financial liability for leisure operators, particularly if the original fit-out was extensive and costly. To reduce reinstatement obligations and minimise exit costs, consider:

1. Negotiating a clause that removes the obligation to reinstate landlord-approved fit-out works—especially where the works add value to the property or could benefit an incoming tenant.
2. Agreeing a photographic schedule of condition at the start of the lease, to limit disputes later about the property’s condition.

Rent Review

Most leases contain provisions for periodic rent reviews, often based on the property’s open market rental value.

If a tenant invests heavily in fit-out works, these improvements can inadvertently increase the property’s rental value, leading to higher rent at review. To avoid this, ensure that tenant’s improvements and fit-out works are expressly disregarded when determining rent on review. You should not be paying more because of the investment you have made in the premises.

However, if the landlord has provided a capital contribution or rent concession to support the fit-out, they may seek to exclude those items from the disregard—this is common and should be clearly documented.

It is equally important to ensure that any goodwill or brand value generated by the tenant’s business is disregarded at rent review. The revised rent should reflect only the true open market value of the property, not the success or reputation of the operator’s brand.

Conclusions

By addressing these issues at the outset, leisure and hospitality operators can protect their investment, maintain operational flexibility, and avoid unexpected costs throughout and at the end of the lease term. Careful negotiation at the beginning can ensure smoother operations, reduced risk, and greater financial stability for the business.

Here at Kuits, we have a team of solicitors who have expertise in negotiating commercial leases and can provide the guidance you need. If you have any questions, please do not hesitate to get in touch with our commercial property solicitors, or with any of our leisure & hospitality team.