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Leasing a business premises is a major step for any growing company in Australia. Whether you’re opening your first café, renting an office space, expanding your shop, or even setting up a warehousing facility, the lease terms you agree to can have a huge impact on your bottom line and business flexibility. It’s not just about locking in a spot – it’s about making sure your business has the right foundation to thrive, avoid disputes, and grow.
But when it comes to commercial leases, there’s a lot more under the surface than simply the rent. Key issues like the period of the lease, renewal options, outgoings, special conditions, and exit terms can all make or break your business down the line. Misunderstanding or neglecting lease terms is one of the most common pitfalls we encounter at Sprintlaw when advising our clients.
If you’re unsure about what needs to be included in a business lease – or you want to make sense of what you’re about to sign – don’t worry. In this guide, we’ll break down the essential lease terms Australian businesses should include, explain what each part means, and point you towards the legal documents and protections you need to get it right. With the right planning (and a solid lease in place), you’ll set your business up for long-term success. Keep reading to learn how to make your lease work for you, not just your landlord.
What Is a Commercial Lease Term?
Let’s start with the basics. A lease term refers to the specific length of time your business is entitled to occupy a premises under a formal lease agreement. In other words, it’s the agreed period – usually measured in years – during which you have the legal right (and the obligation) to use the landlord’s property for your business activities.
Commercial leases in Australia come in many shapes and sizes:
- Short leases: Typically 6 months to 3 years, offering maximum flexibility but potentially more frequent rent reviews or relocations.
- Long term leases: Often 5 years or more, giving stability for established businesses and stronger bargaining power (sometimes preferred for retail stores or large venues).
- Fixed term lease: Has a definitive end date and does not automatically continue without agreement.
- Periodic or rolling lease: Continues month-to-month or year-to-year after a fixed term expires, until one party ends it.
The lease period (also called “term of lease”) directly influences your rent obligations, rights to renew or exit, and your business strategy. So, it’s crucial to weigh your needs and negotiate terms that reflect your plans – not just sign whatever a template lease says!
Why Are Lease Terms So Important For Business?
The terms set out in your lease agreement will dictate everything from how long you can stay, to whether you can make changes to the property, your responsibilities for repairs, how rent is adjusted, and what happens if you want to leave early.
It’s easy to focus mostly on the monthly rent – but misunderstandings about the full range of lease terms can have serious business consequences, including:
- Getting locked into a long commitment that no longer suits your business model.
- Facing unexpected rent increases or “outgoings” (like rates, utilities, and maintenance fees).
- Struggling to sell your business or assign your lease to a buyer due to restrictive clauses.
- Losing your bond or facing expensive end-of-lease makegood requirements.
- Being unable to end the lease early, even if your business needs change.
Understanding – and negotiating – the specific lease terms can help you avoid costly mistakes, ensure your business has room to grow, and give you confidence from day one.
Key Lease Terms To Include (And Understand)
Let’s walk through the most important terms that should be covered in any Australian commercial lease agreement, whether you’re the tenant (business owner) or the landlord.
1. Lease Term and Option Periods
Lease term: This is the actual period (e.g. “3 years starting on 1 July 2024”) that you’re renting the property. Typical commercial lease terms range from 3 to 10 years, but there’s no one-size-fits-all. Think about how long you’ll need to establish or grow your business – and make sure it’s long enough, but not overly restrictive. If you’re new to leasing, consider starting with a shorter term with options to renew later.
Option period: An ‘option’ is your right to extend the lease term at the end of your initial period, often for one or more further blocks (e.g. “a 3-year lease with two 3-year options”). Make sure these are written into the lease, and note the timeframes and process for exercising your options. Without them, you are not automatically entitled to stay on at the end of your lease period, even if you want to!
2. Rent, Reviews and Outgoings
- Base rent: The main cost, usually calculated as a set monthly or annual amount. Is it “plus GST” or “including GST”? Clarify this in your agreement.
- Rent reviews: These set out when (and how) your rent can go up. It might be by a fixed percentage, tied to CPI, or based on ‘market rent.’ Make sure you’re comfortable with how often reviews happen, and how increases are calculated – especially for a long term lease.
- Outgoings: These are extra property costs that tenants often pay on top of rent (e.g., council rates, maintenance, utilities, insurance). The lease should clearly specify which outgoings you are responsible for, when they’re to be paid, and how they are calculated.
3. Permitted Use and Fit-Out
Your lease should state exactly what business activities you’re allowed to carry out on the premises (your “permitted use”). If you plan to change business activities, expand your offerings, or sub-lease to others in the future, negotiate for some flexibility.
If you want to make alterations or improvements to the premises (a fit-out), your lease should specify your rights to do so, any permissions required from the landlord, and who pays for (or keeps) the improvements when the lease ends.
4. Maintenance, Repairs and Make Good
- Repairs and maintenance: Who’s responsible for ongoing building upkeep, urgent repairs, and fair wear and tear? The lease terms should clarify this. In retail leases, there are extra protections for tenants – but don’t assume your lease says what you expect.
- Makegood obligations: At the end of the lease, will you need to return the property to its original state, or just clean and de-clutter it? “Make good” clauses are a common source of end-of-lease disputes. Make sure you know – and budget for – what’s required at the end of your term.
5. Assignment, Subletting and Early Exit
Life happens, and sometimes your business needs change. Your lease should set out the process (and any fees) for:
- Assigning your lease: Selling your business or transferring the lease to someone else. Look for any conditions, approvals, or landlord rights to veto.
- Subletting: Renting out part (or all) of your space to another person. Is it allowed? What’s the process?
- Early termination (ending the lease early): Are there break fees? What events allow you to end the lease? Are there any specific notice requirements?
Getting these terms clear can help you adapt and avoid expensive legal wrangles if your circumstances change.
6. Security (Bond/Guarantee)
- Bond: Most commercial landlords require a bond (typically 2–6 months’ rent) held as security for damage or unpaid rent. The lease should clearly spell out when (and how) you’ll get it back.
- Personal guarantee: If your business is a company, the landlord may ask directors or shareholders to “guarantee” the lease personally. This means they are legally on the hook if the company can’t pay. Make sure you fully understand what’s involved – personal guarantees are serious business.
7. Dispute Resolution
Even with the best intentions, lease disputes can arise. Strong lease terms should include a dispute resolution process, which might involve negotiation, mediation, or going to the relevant tribunal or court. Laying out the steps up-front can save time and money later.
8. Retail Lease Extras
If your premises falls under retail leasing law (such as shops in shopping centres or high streets), there are extra protections and requirements under the Retail Leases Act in your state or territory (for example, NSW or Victoria). Special rules apply to disclosure, outgoings, rent reviews, and minimum lease terms – always check whether your business is covered and ensure any lease includes all required disclosures and statements.
Do I Need To Register My Lease?
Some commercial leases (especially long-term ones, e.g. with a term of 3 years or more) can – and should – be registered with your state’s land registry office. Registration secures your legal rights, making your lease enforceable against a new landlord if the property is sold. Registration can also help with getting bank finance or selling your business. However, not all leases are legally required to be registered. Check your rights and obligations, and consider registration if you want extra peace of mind.
Common Legal Requirements For Leases in Australia
Australian commercial leases are governed by a mix of state-based law, retail lease legislation (for certain property types), and contract law. Here are the main legal considerations to keep in mind when negotiating your lease terms:
- Retail Leases Act: Applies to many shops and retail outlets. These laws provide mandatory protections for tenants and strict rules for disclosures, outgoings, and renewal rights.
- Australian Consumer Law (ACL): Even landlords must not engage in misleading conduct (e.g., failing to disclose likely future rent or outgoings increases).
- Security of tenure: Some states require a minimum lease period for certain retail leases.
- Permits and council approvals: Make sure your intended use is allowed under local government planning schemes or zoning, and check for required business licences or permits.
- Disclosure documents: Retail landlords must provide a disclosure statement and (sometimes) a copy of the proposed lease at least seven days before signing.
- Insurance: Businesses should have adequate public liability insurance (and sometimes landlord insurance), often a condition of the lease itself.
Keep in mind that legal requirements for leases are not the same in every state. If you’re unsure, consider a consultation with a leasing expert to review your specific situation.
How Do I Negotiate Lease Terms That Suit My Business?
Negotiating a commercial lease can be daunting, especially if it’s your first time or you’re unsure about industry standards. Here are some practical tips to help you achieve balanced lease terms:
- Know your needs: Consider your business growth plans, likely changes, and what flexibility you might need – both now and in future years.
- Do your research: Find out what similar businesses in your area are paying and what typical lease periods and renewal options are available.
- Don’t rush: Take the time to review each lease term carefully and seek clarification from the landlord or their agent. Get all agreements in writing.
- Negotiate key clauses: If you’re not happy with a term, ask for it to be changed or clarified – for example, you might want a cap on rent increases or a more generous makegood clause. You have more power than you might think, especially if you’re a good tenant for the landlord.
- Get legal advice before signing: Lease agreements are legally binding and can be complex. Having a lawyer review or draft your lease can save you trouble later. Sprintlaw’s lease review services are designed for just this purpose.
What Legal Documents Do I Need For My Business Lease?
Entering into a lease for your business also means making sure you have suitable legal paperwork in place to protect your rights and meet your obligations. Here are the key documents to consider:
- Commercial Lease Agreement: The main document that sets out the terms between you and the landlord. This should be tailored to your business, not just a generic template.
- Deed of Assignment of Lease: Required if you intend to transfer the lease to a buyer when selling your business.
- Property Licence Agreement: Used if you plan to allow third parties to use your space under a different type of arrangement (e.g., co-working).
- Sublease Agreement: If you expect to sublet part or all of your premises to another party.
- Rent Abatement Agreement: To temporarily reduce rent in agreed situations (e.g., during renovations or business downturns).
- Heads of Agreement or Lease Proposal: Sometimes landlords and tenants prepare a preliminary document that outlines the agreed key terms before the “full” lease is drafted. Make sure it’s clear whether this is binding or not.
- Personal Guarantee or Bond Agreement: If you’re using a personal guarantee or providing a bond, get it in writing with clear terms about repayment and liability.
Not every business needs every one of these documents, but many will require at least a tailored lease and related agreements to manage key risks. If you’re not sure what you need, speak with a commercial lease lawyer for guidance before you sign.
What Should I Watch Out For In Long Term Leases?
Committing to a long term lease (typically 5+ years) can provide stability, especially for businesses investing in significant fit-outs or looking to build a loyal local customer base. But, long leases also come with certain risks:
- You may be exposed to bigger market swings – if rents in the area drop, you’re stuck paying your agreed amount unless you can renegotiate.
- Your business needs could change (expansion or contraction), but you’re locked in for a lengthy period. Make sure you have fair exit, assignment, or subletting rights.
- Make sure rent escalation clauses (the way rent increases over time) are reasonable and transparent.
- Check that you have adequate renewal options or break clauses if you outgrow the space or your business model changes.
Think carefully before signing a long lease, and if in doubt, seek independent legal advice to help balance risk and reward.
Can I Negotiate My Lease Terms?
Absolutely! Despite what a landlord or agent might suggest, almost every term of a business lease is open to negotiation. It’s a commercial contract – so don’t be afraid to ask for what you need. Some parts are governed by law (especially in retail leases), but plenty of other items (including lease period, renewal options, fit-out rights, and the scope of permitted use) are up for discussion.
If you’d like support negotiating or updating your lease agreement, Sprintlaw can provide legal negotiation support to help you achieve a fair and workable deal for your business – not just your landlord.
Key Takeaways
- Lease terms (especially the lease period and renewal options) will impact your financial and operational future in a big way – always review them carefully before signing.
- Essential terms to include are: lease term and options, rent and reviews, permitted use, outgoings, maintenance, assignment rights, security, and clear dispute resolution pathways.
- Retail leases and commercial leases may have different legal requirements – check whether special laws apply to your situation.
- Negotiate terms that align with your business plans: don’t accept a template lease if it isn’t suitable for your needs.
- Use tailored legal documents (lease agreement, assignment deed, sublease, and more) to protect your interests from day one.
- Seeking early legal guidance can prevent disputes and costly mistakes as your business grows.
If you would like a consultation on reviewing your lease terms or preparing a commercial lease agreement, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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