Introduction
Commercial leases are a key part of many business transactions. Commercial property is also a popular investment choice. Whether you are a tenant or a landlord, you need to understand the lease before you sign.
Some commercial leases are classified as retail leases and are governed by specific legislation in each state. These laws were introduced to improve the position of tenants in retail settings, which often favour landlords.
Landlords of retail premises must meet specific obligations. These include providing disclosure documents and complying with legislative requirements. The law also regulates minimum lease terms, rent reviews, and lease assignments.
Most disputes arise when parties do not understand their rights. Issues also occur when there is no written lease or when the terms are unclear.
This article explains common commercial lease terms and highlights key risks. It is general information only. You should seek legal advice before entering into any lease.
Defining the Premises
You must clearly define the area being leased to avoid confusion later.
- Shop or unit numbers
- Street address
- Building name
- Legal property description
If the lease covers part of a larger space, attach a floor plan. Clearly mark the leased area and include measurements.
Also confirm use of shared areas, including car parks, storage spaces, and common facilities.
Lease Term and Renewal Options
The lease term must suit both parties.
For tenants, the term should align with business plans. If you operate a franchise, the lease and franchise agreement should ideally match.
Renewal options must be clearly stated. Tenants must exercise options within strict time limits. Missing a deadline can mean losing the right to renew.
Landlords should consider long-term strategy, including finance commitments and future sale plans. A long lease may increase value, while a shorter lease may suit a planned sale.
All key dates should be diarised to avoid missed deadlines or vacant periods.
Permitted Use
The lease should clearly state how the premises can be used.
However, tenants must also check council rules and licensing requirements. A permitted use in the lease does not guarantee approval from authorities.
Broad use clauses can help tenants if they later assign the lease or change business direction.
Outgoings
Outgoings often cause disputes, so clarity is essential.
The lease should clearly state who pays for what. Tenants often pay for utilities, cleaning, maintenance, and certain property costs. They may also pay rates, taxes, and security services.
Always confirm estimated outgoings before signing the lease.
Retail leases may restrict the types of costs landlords can pass on.
Rent and Rent Reviews
Rent is a core obligation under the lease.
The lease should clearly set out how often rent is reviewed and the method used.
Common methods include CPI increases, fixed percentage increases, or market reviews.
Landlords often require security, such as a bond, bank guarantee, or rent paid in advance.
Fitout and Refurbishment
Fitout arrangements should always be agreed in writing.
- Who pays for the fitout
- Approval of plans and standards
- Whether a rent-free period applies during works
- End-of-lease restoration obligations
Clear documentation helps avoid disputes at the end of the lease.
Title Checks and Consents
Both parties should confirm who they are dealing with.
A lawyer will usually review title searches, property plans, and company searches.
These checks confirm ownership and identify restrictions such as mortgages. If a mortgage exists, lender consent may be required before the lease is valid.
Key considerations
All leases should be clearly written and reflect the full agreement between the parties. Taking time to review a lease before signing or taking possession can prevent disputes and financial loss.
If you need advice or more information, contact us on (03) 9422 5439 or email [email protected].
Our Lawyers in Warrnambool and South Morang are here to help.