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Setting up a restaurant or cafe is an exciting yet daunting step. While it may be your culinary flair or people skills that sparked the idea, it’s your business acumen that will help ensure it’s a success. If you aren’t purchasing an existing business premises, one of your key considerations is the lease for your establishment.
The lease is not only your legal protection but also your assurance to the landlord that your rights will be upheld and the property maintained. It serves as a safeguard for both parties by detailing clear expectations and responsibilities. For practical advice on navigating complex lease agreements, you might want to check out our Commercial Lease Agreement guide.
It’s a legally binding agreement that defines a relationship which can ultimately be either incredibly profitable or potentially costly. That’s why getting it right from the start is crucial to avoid headaches down the line.
You need to be aware of exactly what’s in your lease to steer clear of common pitfalls. We’ll explore some of these issues and explain how you can negotiate the best possible terms for your exciting new restaurant or cafe venture.
Term
The term of your lease is agreed upon with your landlord upfront. You should consider both the potential for business success and the possibility of unforeseen challenges. If your business thrives, you might want to renew your lease without the hassle of renegotiating new terms. Conversely, if you need to exit early, you could be liable for the rent for the remainder of the term unless you arrange for a replacement tenant or negotiate a break clause.
For example, a practical approach for 2025 might be a lease with an initial term of three years, coupled with an option to extend for a further two or three years. Landlords often prefer longer leases and may even offer financial incentives for an extended term. However, if your chosen location is less proven, a shorter term might be wiser. Always weigh the trade-offs carefully – and if you’re not sure, our Contract Review and Redraft service can help you assess your options.
Before finalising any decisions, it’s also a good idea to consult resources like What Makes a Contract Legally Binding to fully understand the implications of your agreed term.
Rent
Rent is naturally one of your major expenses and it’s essential that it remains a fixed or predictable amount so you can manage your cash flow effectively. In 2025, given the ongoing evolution of property markets across Australia, ensure that your lease specifies clear terms regarding rent adjustments.
Commercial leases are frequently calculated on a per-square-metre basis. Your landlord or real estate agent should provide a detailed plan with accurate dimensions of all areas for which you’ll be paying – this can include even auxiliary spaces such as stairwells. If you’re unsure whether the proposed rent is competitive, it’s a good idea to shop around locally and compare with similar properties.
The lease should clearly set out how rental increases will be determined—typically a fixed percentage (for example, 4% per annum) or adjustments in line with the Consumer Price Index (CPI). Alternatively, a periodic market review may be negotiated, where an agreed valuer assesses the current market rent and the rent is subsequently adjusted. Rent reviews are usually conducted annually or at other pre-agreed intervals.
You will usually be required to pay a bond or provide a bank guarantee equivalent to about three to six months’ rent. Even if it’s secured by a bank guarantee, the bank will generally require you to set aside those funds, representing a significant outlay that you must plan for.
Also, consider the frequency of rent payments – whether weekly, fortnightly, or monthly – and ensure the payment schedule aligns with your cash flow. If you can negotiate a rent-free period to cover the fit-out phase or account for seasonal closures (such as during public holidays), it could significantly reduce your upfront costs. For further guidance on negotiating fair rental terms, our resources on commercial lease agreements may prove invaluable.
Other Outgoings
The lease should clearly specify which outgoings or common costs you’re liable for. These can include maintenance of common areas, cleaning, security, and capital improvements—similar to strata fees. Some costs, like electricity, may be the lessee’s responsibility and need to be factored into your overall budget. Additionally, taxes or rates might be passed on to you or already incorporated into the rental figure, so it’s vital to establish your obligations clearly from the outset.
Be aware that some landlords may use a maintenance cost segmentation approach, whereby costs are apportioned based on the size of your premises relative to similar tenants. This could be advantageous or potentially unfair depending on the efficiency with which other tenants maintain their spaces. It’s important to weigh the pros and cons based on your specific circumstances, and consider having the lease reviewed by legal experts—our contract review service is a great resource for this.
The lease should also include provisions for an annual reconciliation of these costs so you know exactly where your money is going.
Insurance Obligations
As the tenant, you will be responsible for obtaining public liability insurance as a minimum. This cover reassures the landlord and protects you in case of injuries or damage on the premises. Often, landlords will specify that your policy includes cover for high-cost items, such as plate glass. While building insurance is the landlord’s duty, other policies like professional indemnity aren’t typically required under the lease. However, you will almost certainly want to have contents insurance to protect your assets.
Fit Out, Fixtures And Refurbishment
Your cafe or restaurant’s distinctive look is often achieved through careful fit out, which is usually the tenant’s responsibility. While there may be a preexisting finish, you will likely want to customise the space to reflect your brand. Occasionally, landlords offer a fit-out incentive to secure a lease, but remember that a shorter lease term generally means you might hesitate to invest too heavily in a bespoke fit out.
Most leases include a make-good covenant requiring you to return the premises to its original state at the end of the lease. It’s important to negotiate these terms carefully. In some cases, you might be able to agree on a make-good payout instead, allowing you to remove only specific items like loose equipment and furniture. If fixtures such as lighting or security systems are installed by the landlord, you may be responsible for their upkeep during your lease. Likewise, any machinery—whether kitchen equipment or air conditioning units—must be maintained in good working order. Always conduct a thorough inspection of these items before signing, and if needed, get a jointly signed inventory report. For more tips on ensuring your obligations are fair, take a look at our insights on contract review.
In addition, some refurbishment clauses may require you to perform periodic cosmetic maintenance (such as painting) in areas like toilets or alfresco dining spaces. Make sure any such requirements are clearly defined to avoid unexpected expenses later on.
Permitted Use
The lease must explicitly permit you to run a restaurant or cafe on the premises, now and in the future. This includes ensuring there are no undue restrictions on operating hours or noise levels that could hamper your business. If you plan to introduce an alfresco dining area, check that it is not only permitted in your lease but also free from any conflicting local council or zoning restrictions.
Exclusivity Clause
If your premises are within a shopping centre or larger building, it might be beneficial to negotiate an exclusivity clause. This clause can prevent other cafes or restaurants from setting up nearby, protecting your market share and helping to maximise your sales. For more detailed negotiations, our team can offer advice tailored specifically to your situation.
Looking Ahead in 2025
In 2025, commercial leasing trends continue to evolve with greater emphasis on flexibility and digital integration. Landlords are increasingly offering digital platforms for rent payments and lease management, which can help streamline your administrative duties. Additionally, some incentives may now be available through state government schemes designed to support small business tenants. Keep an eye on these changes and discuss them with your landlord to secure the best possible lease terms. For an in‐depth discussion on adapting to these trends, our Commercial Lease Agreement resource is a great place to start.
The Takeaway…
Remember, a restaurant or cafe lease may seem like a daunting document, but it’s designed to protect both you and your landlord. The consequences of not getting it right can be significant, so it’s essential to read through every clause carefully. We recommend that you consult with a legal expert—our team at Sprintlaw is here to help you review or draft your lease to secure the best outcome for your exciting new business. To understand more about your rights and obligations, check out our article on What Makes a Contract Legally Binding.
Whether you’re uncertain of what terms to include or not sure where to start, you can reach out to team@sprintlaw.com.au or contact us on 1800 730 617 for a free, no obligation chat. We’re here to help you secure a lease that works for you in today’s dynamic market.
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