A commercial lease is one of the most significant contracts a business will sign. Understanding the key terms can save you thousands of dollars and years of frustration.
A commercial lease is a legally binding agreement between a landlord and a business tenant for the rental of commercial premises -- offices, retail shops, warehouses, or industrial spaces. Unlike residential leases, commercial leases are largely unregulated in terms of content, which means almost everything is negotiable.
However, most states have Retail Leases Acts that provide additional protections for retail tenants, including disclosure requirements, minimum lease terms, and dispute resolution mechanisms.
Always have a commercial lease reviewed by a solicitor before signing. The cost of legal review (typically $1,500-$3,000) is negligible compared to the financial commitment of a 3-5 year lease.
The annual or monthly rent payable, excluding outgoings and GST. Usually subject to annual CPI or fixed percentage increases, with a market review at each option period.
Operating costs passed to the tenant proportionally. Can be gross (landlord absorbs) or net (tenant pays their share). Always request an outgoings estimate before signing.
The initial lease period plus any options to renew. A typical structure is 3+3+3 (three-year initial term with two three-year options). Options must usually be exercised 3-6 months before expiry.
Defines what the tenant can use the premises for. This clause interacts with council zoning and may restrict your ability to change business activities during the lease.
Fit-out defines what changes the tenant can make. Make-good defines what must be restored at lease end. Both have significant cost implications that should be negotiated upfront.
Whether the tenant can transfer the lease to someone else (assignment) or sublet part of the premises. Typically requires landlord consent, which cannot be unreasonably withheld.
Rent review clauses determine how your rent changes over the lease term. The three most common mechanisms in Australia are:
3-4%
Rent increases by a fixed percentage annually. Predictable but can compound above market rates over a long lease.
CPI
Rent adjusts by the Consumer Price Index. Tracks inflation but CPI can be volatile in some years.
MR
Rent is reset to current market value by an independent valuer. Common at option exercise points. Can go up or down.
Key points to negotiate before signing a commercial lease.
Rent-free period (typically 1 month per year of lease term)
Fit-out contribution from the landlord
Cap on annual outgoings increases
Rent review mechanism (CPI vs fixed vs market)
Make-good scope and exclusions
Option to renew terms and conditions
Assignment rights if you sell the business
Early termination or break clause
Signage and branding rights
Parking allocation and cost
After-hours access and HVAC availability
Exclusivity clause (retail -- no competing tenants)
SignAndGo's template library includes a commercial lease agreement template that covers the essential terms. Upload your own lease or start with our template, then send it to all parties for electronic signing.
Key terms include: parties, premises description, lease term, base rent and review mechanism, outgoings, permitted use, fit-out obligations, make-good requirements, options to renew, assignment and subletting rights, insurance requirements, and dispute resolution.
Outgoings are the operating costs of the building that the landlord passes on to the tenant, typically on a proportional basis. They can include council rates, water rates, land tax, building insurance, management fees, and maintenance costs.
Yes, for most commercial leases. The Electronic Transactions Act 1999 permits electronic signatures on commercial contracts. However, leases that must be registered (typically over 3-5 years depending on the state) may require additional formalities.
A make-good clause requires the tenant to restore the premises to its original condition at the end of the lease. This can be a significant cost, so tenants should negotiate the scope upfront and budget accordingly.