Leasing a commercial property? Before you sign, it’s important to know what you’re committing to. Key terms like rent reviews, maintenance responsibilities and renewal options can have a big impact on your business in the long term.
Here are our tips on what you should focus on, common pitfalls and where you are likely to have more negotiating power than you might think.
1. Understand the parties and the premises
First things first: the lease must clearly identify who is leasing the property (the tenant) and who is leasing the property to you (the landlord). It should include any guarantors and describe precisely what you’re leasing including the property address, the size of the area, any storage, parking or common‐area rights.
You should check:
- Is the area measurement accurate and how is it calculated? For example, does it include the useable area plus a share of common areas?
- Does the lease include rights to parking, storage, signage or other facilities you expect?
- Are there exclusions (for example, parts of the property you can’t access or use)?
Getting clarity at the outset prevents nasty surprises later.
Negotiation tip: Ask for air-conditioning, signage rights, parking or other ‘extras’ if these are important to your business.
2. Lease term and renewal rights
The length of your tenancy and what happens at the end of it can have a big impact on your business stability. In Australia, commercial leases often run for three to five years for smaller tenancies or ten or more years for major tenancies, often with options to extend.
Key things to check are:
- What is the initial term and when does it start?
- Is there an option or multiple options to renew and if so, under what terms?
- What notice must you give to exercise a renewal option, understanding that if you miss the window, you might lose the option?
- Are you required to register the lease so your rights are protected?
Negotiation tip: If your business may grow, ensure you negotiate the renewal terms early (for example, by including the same rent review structure) and give yourself flexibility. A shorter initial term can help if you’re uncertain, but an option to renew gives you security.
3. Rent, rent reviews and outgoings
One of the most critical parts of a commercial lease is the financial commitment. You must know what you’re paying, how often and how it may change. This includes:
- Amount payable, frequency (monthly, quarterly) and the start date.
- Are there rent-free or concession periods (especially for fit-out)?
- How is rent review handled? Is it a fixed % increase, CPI-linked, market review or a combination?
Outgoings (common area maintenance, utilities, rates, insurance etc):
- What outgoings will you pay? How are they allocated?
- Are you paying a ‘gross’ lease (where the landlord covers everything) or a ‘net’ lease where you cover outgoings?
- Check for ambiguity. For example, the term ‘outgoings’ may be broadly defined and you could end up paying unexpected costs so check exactly what’s included.
Common pitfalls:
- A rent review clause with ‘no less than’ a certain % increase may push the amount payable up higher than you expect.
- Outgoings might include ‘capital’ works or major repairs so you might want to exclude or limit these.
- You might inherit liability for large bills such as structural repairs if the lease is heavily in the landlord’s favour.
Negotiation tip:
- Ask for the rent review to be CPI only (or cap it), rather than market value reviews.
- Seek a cap on outgoings increases or exclusion of major capital works.
- Request a rent-free fit-out period if you have to spend on improvements.
4. Use, alterations and make-good obligations
The lease should clearly state what you can and can’t do in the premises (i.e. the ‘permitted use’). If you stray outside that use you risk being in breach of the lease.
Permitted use:
- Is the use listed broad enough for your business now and future expansion?
- Is it restricted so much that your business flexibility is curtailed?
Alterations and fit-outs:
- Can you alter the premises to suit your needs e.g. install signage, change internal layout? Do you need landlord consent?
- Who bears the cost of works? What approvals are required?
- Are you required to reinstate the premises at lease end (‘make good’)? This can be a substantial cost if you need to remove fit-out and reinstate the premises to the original condition.
Negotiation tip:
- Negotiate the right to make alterations (subject to reasonable consent) and ensure you have clarity on fit-out obligations.
- Limit the make-good requirement (for example, allow you to leave the interior as is rather than full reinstatement).
- If you are paying for a fit-out, ask the landlord to waive certain make-good obligations or amortise them.
5. Assignment, sub-letting and exit options
Businesses evolve and you should ensure the lease provides flexibility. How does the lease handle assignment (transfer of the lease) or sub-letting?
Key provisions:
- Can you assign or sub-let the premises? What conditions apply?
- Does the lease state that the landlord’s consent cannot be unreasonably withheld (or is it broad and arbitrary)?
- Are you responsible for costs of assignment such as the landlord’s legal/assessment costs?
- Is there an exit strategy if the business must vacate early (negotiated surrender, break clause)?
Common pitfalls:
Some leases lock you in without realistic exit paths so you might be liable for full rent, outgoings and costs even if you vacate early.
Negotiation tip:
- Negotiate the right to assign or sub-let, subject to landlord’s consent not unreasonably withheld.
- Consider the inclusion of a break clause so you can exit early under certain conditions.
- Limit your liability for the landlord’s costs on assignment (for example, cap them).
6. Maintenance, repair and insurance responsibilities
Who pays for what? This is a major area where tenants often find unexpected costs.
Key issues include:
- Structural repairs: Is the landlord responsible or are you? Some leases make the tenant responsible for everything.
- Who pays for routine maintenance, cleaning, heating, ventilation and air-conditioning (HVAC) servicing, electrical and fire safety compliance?
- Insurance: Which party takes out which policy? Are you required to take out landlord’s preferred policy at your cost?
- ‘Quiet enjoyment’ clause: you should have the right to use the premises without unreasonable interference from the landlord.
Common pitfalls:
- The tenant is made responsible for ‘all repairs’ including major items like roof or structural walls.
- The tenant must take out multiple insurances at their cost.
- The tenant is obliged to maintain the premises at a standard which is unreasonable (e.g. commercial grade upgrade every few years).
Negotiation tip:
- Clearly define which repairs are the landlord’s responsibility vs the tenant.
- Ask for structural repairs to be excluded from tenant obligations.
- Limit tenant obligations to ‘fair wear and tear’ and reasonable maintenance.
- Negotiate insurance obligations: ideally each party covers their part. Avoid the landlord dictating a premium insurer at the tenant’s cost.
7. Default, termination and landlord rights
A lease will include what happens if you default (fail to pay rent, breach other terms) and what rights the landlord has in those situations. It’s critical you understand your exposure.
Consider:
- What constitutes a ‘default’ and what remedy period do you have (eg 14 days to rectify)?
- Does the lease allow the landlord to terminate for redevelopment or demolition? This is more common in retail leases.
- Are you liable for the remainder of lease term if you vacate early?
- What are the landlord’s rights to enter, inspect or make works? Would your business be interrupted?
Negotiation tip:
- Negotiate a reasonable remedy period (not immediate termination).
- Clarify the landlord’s rights of entry so business isn’t unduly interrupted.
- If the landlord wants redevelopment rights, ask for compensation or reduced liabilities for you.
8. Make-good and end-of-lease obligations
Many tenants underestimate the cost and obligation that comes at lease end. ‘Make-good’ means you may have to return the premises in an agreed condition.
Key questions:
- Exactly what condition must you leave the premises in with regard to the carpet/flooring, paint and fixtures?
- Are you obliged to remove your fit-out and pay for reinstatement?
- Are there any penalties for failing to comply?
Negotiation tip:
- Limit make-good obligations (eg return to ‘good tenantable condition’ rather than original fit-out.
- Negotiate the cost and timeframe for work or ask for a cap on cost.
- Consider negotiating a partial forgiveness of make-good if you leave early due to a break clause.
9. Legal compliance, disclosure and retail leasing considerations
Depending on your premises type, there may be legislative overlays, especially in retail leases (eg Retail Leases Act 1994 (NSW)).
You should be alert to:
- Whether the lease is a ‘retail lease’ which triggers disclosure statements, information to tenant obligations, definitions of outgoings and special termination rights.
- Whether you have the required permits, licences and approvals for your business and fit-out.
- Whether the Heads of Agreement (or Letter of Offer) you signed is binding or non-binding.
Negotiation tip:
- Ask for copies of any disclosure documents early.
- Make sure you covenant to comply with licences, permits and planning approvals and check the landlord has done the same.
- Retain your rights and obligations clearly in the final lease - don’t rely on verbal commitments.
At Aubrey Brown Lawyers, we understand that your business space is more than four walls — it’s the platform from which you build your brand, serve your customers, employ your staff and grow your legacy. That’s why our Property & Commercial Law team is ready to review your lease, negotiate terms that work for you and make sure you have clarity, confidence and a legally sound agreement.
For professional assistance with your commercial lease, call us today on (02) 4350 3333 or contact us here.
