A practical guide to reading your commercial lease before signing

Signing a commercial lease is one of those moments where the document in front of you looks dull, the agent is keen, and the clock seems to be ticking. For anyone renting a shopfront on a strip in Parramatta, a studio above a café in Fitzroy, or a warehouse out near the Port of Brisbane, the lease will be the biggest overhead most small operators carry. The trouble is that these agreements are written to protect the lessor first and the tenant second, so it pays to read every page before you commit to a five or ten year obligation.

What follows is a plain-English walk-through of the sections that matter, the wording to watch for, and the practical questions worth putting to the landlord or their solicitor before you put pen to paper. None of this is legal advice, but it should give you a sensible framework for going in prepared.

Why the fine print matters in a commercial lease

A commercial lease is not like a residential tenancy agreement. In most Australian states, retail leases above a certain size are covered by specific legislation, including the Retail Leases Act in NSW and Victoria and the Retail Shop Leases Act in Queensland, but those Acts set minimum standards rather than dictate every term. Anything the Act does not cover is open for negotiation, which is why the contract ends up being so long. The agent handing you a fifty-page PDF is not trying to be difficult; that is just the level of detail needed to govern the relationship between lessor and lessee for the entire term.

The other reason to slow down is that cooling-off rights under Australian Consumer Law do not apply once you have signed. Once the ink is dry and the holding deposit has been cashed, the only realistic ways out are assignment to a new tenant, mutual termination, or running out the clock. That makes the pre-signing window your one real chance to reshape the deal.

Key clauses to flag before you commit

The first sections to read closely are the definitions, the term, and the permitted use clause. Permitted use sounds harmless but is one of the most fought-over parts of an Australian commercial agreement. If you are opening a roastery and the lease says "retail and food", you may struggle to run roasting equipment on site because that could be classified as light industry. If you plan to trade as a different entity or under a franchise, check that the permitted use covers the brand you will actually operate.

The next cluster to look at is the rent review and options to renew. A rent review every twelve months is common, with increases tied to either the Consumer Price Index, a fixed percentage, or a market review. A market review sounds reasonable but can lead to a sharp jump if comparable rents along your strip, say Gertrude Street or King Street, have moved. Make sure the method is spelled out, not left to a future "agreement between the parties". Renewal options should sit in the lease itself rather than in a side letter, and they should state how the renewal rent is calculated.

Rent, outgoings and how they are calculated

Outgoings are the line item that catches most first-time tenants off guard. In Australia, "rent" and "outgoings" are usually quoted separately but paid together. The base rent is your figure per square metre per annum; the outgoings are the lessor's recoverable costs: council rates, water and sewerage charges, insurance, building management fees, air-conditioning servicing in a multi-storey building, and in a strata-titled block, the levies from the owners corporation. These are typically charged as a proportionate share based on the lettable area of your premises.

Ask for an outgoings estimate for the next twelve months and a copy of the previous year's actuals if the agent has them. Some lessors provide an audited statement; others do not. Be wary of wording such as "all costs and expenses incurred by the lessor in connection with the building", because that can pull in legal fees for tenancy disputes, marketing for vacant premises, and even the salary of an in-house building manager. None of those should sit with the tenant.

A small but important Australian quirk is that stamp duty on a commercial lease is payable in NSW, Victoria, Queensland, South Australia and the ACT, and it is the tenant who usually has to pay it. The cost can run into thousands on a medium-sized shopfront and should be factored into your setup budget.

Make-good, fit-out and end-of-term obligations

Make-good is the Australian shorthand for the work you must do at the end of the lease to return the premises to their original condition, or to a condition set out in a separate schedule. It sounds simple yet is the source of more disputes than almost any other part of a lease. The trap is that "original condition" depends on what was agreed at the start. If the landlord handed you a bare shell and you built a kitchen, a cool room, and a bathroom, the make-good could involve stripping all of it out, which is expensive and disruptive. Make sure the lease, or a fit-out schedule annexed to it, clearly states what you must remove and what you can leave.

The rent-free or fit-out period is another area where terms vary. Some landlords in busy precincts such as Brisbane's James Street, Melbourne's Cremorne, or Sydney's Surry Hills will offer four to eight weeks of rent-free access to fit out the space before trade begins. Others offer nothing. Whatever is offered, push for it to be written into the lease rather than left to goodwill. And remember that outgoings often start running from the lease commencement date, not from the day you open the doors, so clarify whether they apply during the fit-out window.

Assignment, subletting and what happens if you sell

Most lessors will require their written consent before you assign the lease or sublet the premises, and the clause will usually say consent must not be unreasonably withheld. That sounds balanced, but many leases also give the lessor the right to charge an assignment fee, require a deed of variation, and take the new tenant through a full financial vetting. None of that is unreasonable, yet it should be priced and time-framed so you know what you are walking into if your circumstances change.

If you operate through a company, check whether you are required to give a personal guarantee. This is standard for many small business leases in Australia and means that if the company cannot meet its obligations, the directors can be pursued personally. If the guarantee is unlimited, ask whether it can be limited to the term of the lease and to a defined amount, and whether it falls away once you assign to a financially strong incoming party.

Negotiating amendments and getting help

A surprising number of tenants never ask for changes because they assume the lease is non-negotiable. That is rarely true. Items worth raising include the length of the rent-free period, the outgoings cap, the make-good schedule, the assignment provisions, and the personal guarantee. Put your proposed changes in writing, ideally as a marked-up copy of the lease, and ask the agent to table them. Even where the lessor refuses, you may end up with useful concessions on side issues.

For anyone running or starting a small business in Australia, the state Small Business Commission networks offer free or low-cost advice on lease matters. The NSW Small Business Commission, the Victorian Small Business Commission, and their interstate counterparts will review a lease, attend a meeting with you, and flag unusual terms. They cannot give legal advice but can tell you whether a clause is out of step with what is normal for your type of premises. Pair that with a short review from a property lawyer and you will have caught most of the things that later turn into expensive disputes.

Questions worth asking before you sign

• What is the permitted use, and does it cover everything I plan to do on the premises?
• How are rent reviews calculated, and is the renewal option in the lease itself?
• Can I see a current estimate and last year's actuals for outgoings?
• What does the make-good clause actually require, and is there a schedule attached?
• Will I be asked to give a personal guarantee, and can it be time-limited?

The single most useful step is to pull the latest draft of the lease, highlight every clause you do not fully understand, and book a thirty-minute review with a property lawyer or a state Small Business Commission clinic before you exchange. Once the document is signed, the room to negotiate largely disappears.