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Are you a business owner considering entering into a commercial lease in 2025? Whether you’re expanding your operations or taking your first step into a prime business location, it’s essential to have a current understanding of the legal framework that governs commercial leasing today.
Entering into a commercial lease can be a great opportunity to take your business to the next level, but ensuring that you fully understand the key elements of a commercial lease is crucial so that you make the right decision for your business. With recent legislative updates and evolving market trends, having up-to-date advice is more important than ever.
What is a commercial lease? How do you ensure you are getting the best lease for your business in 2025? Let’s break it down.
What Is A Commercial Lease?
A commercial lease is a legally binding contract that sets out the rights and obligations of the property owner and the party that will occupy the premises.
The owner of the property is typically known as the landlord or lessor, while the occupier is the tenant or lessee.
Generally, the term ‘commercial lease’ is used to differentiate these agreements from residential leases. In some contexts, the term also distinguishes them from “retail leases”, even though both are commercial in nature.
What’s The Difference Between A Commercial Lease & A Retail Lease?
There is a legal distinction between commercial and retail leases. Typically, you’re dealing with a commercial lease when the premises do not involve a traditional retail activity – such as warehouses, industrial spaces, or office environments.
Retail leases specifically apply to premises from which goods are sold. Examples include:
- Shopping centres
- Restaurants
- Grocery stores
- Clothing stores
In NSW, retail leases are governed by the Retail Lease Act 1994 (NSW). It’s always wise to check for any recent amendments or updates, as the regulatory landscape can change, reflecting market trends observed in 2025.
Can Some Retail Shops Have A Commercial Lease?
In short, yes.
If a retail store is located within a larger commercial premises, a commercial lease will generally be in place.
While commercial and retail leases are distinct, the boundary between them can sometimes blur. In such cases, a retail store might come under a commercial lease agreement. For more guidance on this topic, you can read our insights on commercial lease legal advice.
For example:
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Example One: Annie leases a space in a commercial building. Annie’s business is a cafe located at the ground level of this building. Although a cafe typically falls under the retail category, because Annie’s business operates within a commercial building, her lease is deemed a commercial lease. |
What Are The Elements Of A Commercial Lease?
1. Lease Duration And Options To Renew
When entering into a commercial lease, it’s paramount that the lease duration is well-aligned with your business’s long-term plans. A well-negotiated term can significantly contribute to the success and stability of your business.
For instance, having your business in a consistent location over an extended period builds trust with your clients and offers operational stability. A longer lease often allows you to better capitalise on your investment, which can translate into a stronger profit margin over time.
So, What Are Options?
Typically, a commercial lease will comprise an initial term accompanied by an option for renewal. For example, you might sign a lease for a total of 25 years, with an initial term of five years followed by an option to renew the lease for an additional 20 years.
An option provides your business with the continuity needed to remain in the same location beyond the initial term. It’s best practice to exercise your option by informing your landlord in writing, usually between three to six months before the end of the initial term. Failing to exercise your option within this timeframe may result in the lease expiring without renewal.
2. Rent and Rent Reviews
Setting the right rent is crucial. When negotiating your commercial lease, you must ensure that the rent level suits the financial forecasting for your business. It is also important to discuss the frequency and basis for rent reviews.
Rent reviews typically adjust your rent to reflect current market conditions. For example, while you might start at $1,000 per week, subsequent reviews could increase this amount. In 2025, many leases incorporate provisions to moderate sudden increases. For more detailed advice on navigating these reviews, refer to our deed of variation guidelines.
It’s wise to negotiate less frequent reviews if possible, and to understand precisely how increases are calculated before committing.
3. Permitted Use
Your commercial lease will clearly define the ‘permitted use’ of the premises. It is essential that the agreement explicitly states that your current business activities-and any foreseeable future ventures-are permitted.
This gives you the flexibility to expand your business activities over time without breaching your lease conditions.
4. Tenants And Competition
Before signing a commercial lease, consider the presence of other tenants and potential competition within the same premises. To protect your business interests, it is often advisable to negotiate an ‘exclusivity of trade’ clause.
This clause can prevent the landlord from leasing space on the same floor or within the same centre to direct competitors. For example, if you operate a cafe, an exclusivity clause can ensure that no other cafe is allowed on the premises. Learn more about negotiating such clauses by checking our contract review services.
5. Costs
In addition to rent, there are various other costs associated with a commercial lease. These may include:
- Operating expenses or outgoings
- Insurance
- Legal costs
- Security bonds
- Fit outs (fixtures, fittings, walls, floorboards, cupboards)
- Refurbishments
- Marketing and promotional funds
These additional costs can add up quickly. It’s a good idea to determine which of these expenses might be negotiable. For instance, you might negotiate that any essential refurbishments or fit outs are covered, or at least capped, by the landlord. To better understand how to mitigate such costs, review our contract review and redrafting recommendations.
6. Repair And Maintenance
Your lease should clearly define who is responsible for repairs and maintenance. Typically, the landlord is responsible for maintaining the structural integrity of the building-such as the roof, walls, and main air-conditioning systems-while you may be liable for day-to-day internal repairs.
It’s recommended to have a third-party inspection before moving in to identify any existing issues. This can help avoid disputes later on. For further tips, our drafting a commercial lease guide offers valuable insights.
7. Compensation For Disruption Caused By Landlord’s Works
Your lease should stipulate that if the landlord carries out works that disrupt your business operations, you are entitled to compensation. For example, if major repairs or renovations cause significant business interruptions and losses, you should be adequately compensated.
8. Assignment And Sub-Leasing
Many commercial leases include clauses that allow you to assign your interest or sub-lease the premises. Assigning means transferring your lease to another party, while sub-leasing allows you to rent out part of the space.
Keep in mind, even if you assign or sub-lease, you might remain liable if the new tenant defaults. It’s important to negotiate fair terms for assignment or sub-leasing. Our assignment and sub-lease guidance can help you understand the implications.
9. Defaults and Breaches
If you fail to meet the lease obligations-such as paying rent on time-you will be in breach of the lease, which may allow the landlord to take action against you. In some cases, this could include entering the premises with minimal notice.
To protect your business, negotiate reasonable default clauses, such as requiring the landlord to provide at least 14 days’ notice to remedy any breach before taking further action. For additional advice, see our page on commercial lease default advice.
10. Redevelopment And Relocation
Many commercial leases include redevelopment clauses that allow the landlord to terminate the lease early for redevelopment purposes. This can be highly disruptive and detrimental to your business.
In such cases, it is advisable to negotiate these clauses out of the lease or, if that isn’t possible, to secure compensation for any relocation expenses and business disruptions. Understanding how to protect yourself in these situations is crucial.
11. Termination
Some leases contain clauses that allow the landlord to terminate the lease early. These are typically more favourable to the landlord and can be very harmful to your business if not carefully managed.
Where possible, negotiate these termination clauses to be more balanced or have them removed altogether. Ensuring you have clear termination rights can help safeguard your long-term business interests.
Emerging Trends In Commercial Leases (2025)
In 2025, commercial leases are adapting to the evolving needs of businesses. Many modern agreements now include provisions for sustainability, flexible working spaces, and more equitable risk-sharing between the landlord and tenant. For example, green lease clauses that promote energy efficiency and environmentally friendly practices are becoming more common.
Additionally, with the shift towards remote and hybrid work models, some landlords are offering flexible termination rights and shorter lease terms to cater to varying business models. Staying informed about these emerging trends can help you negotiate a lease that aligns with your business interests. For further insights, consider visiting our regulatory compliance section.
Need More Help?
Understanding commercial leases can be quite complex, especially with the recent changes in commercial property law for 2025.
It is vital that you thoroughly understand all aspects of your lease so you can make informed decisions that protect your business. Whether you need help negotiating terms or simply want guidance on your lease documentation, our team is here to assist. For more customised advice, check out our online legal services and contract review options.
We’re here to help. Reach out to our team for a free, no-obligations chat at team@sprintlaw.com.au or call 1800 730 61. Stay informed, stay protected, and let us help secure the optimal lease for your business in 2025 and beyond.
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