Comparing Lease Types for Australian Businesses

Signing a lease is one of those “big moment” steps in your business journey. It can be exciting (your own premises!) but it’s also a commitment that can be hard to unwind if the deal doesn’t fit your business.

In practice, the type of lease you choose affects almost everything: how much flexibility you have to scale up or down, what you’re allowed to use the premises for, who pays which outgoings, how rent increases work, and what happens if you want to exit early.

If you’re a startup testing product-market fit, you’ll probably want flexibility. If you’re investing heavily in a fit-out, you’ll likely want certainty. The good news is there’s usually a lease structure that matches your stage of growth - you just need to know what to look for.

Below, we’ll walk through the common lease types in Australia, when each makes sense, and the key legal and practical issues you should check before you sign.

Note: This article is general information only and doesn’t constitute legal advice. Lease terms and tenant protections can vary depending on what you sign and which state or territory you’re in - especially if retail leasing laws apply.

What Does “Lease Type” Mean (And Why It Matters)?

When people talk about “lease type”, they’re usually referring to the overall structure of the deal between a landlord and a tenant. A lease isn’t just “rent for a space” - it’s a bundle of legal rights and obligations that can vary widely depending on the arrangement.

For small businesses and startups, choosing the right lease type matters because it impacts:

• Risk: What happens if revenue dips, your product changes, or you need to relocate?
• Costs: Rent is only one part of the picture - outgoings, repairs, and make-good obligations can be significant.
• Growth: Can you expand into adjacent space, add staff, or trade longer hours?
• Control: How much can you change the premises (fit-out, signage, equipment) and your business operations?

It’s also worth knowing that “commercial lease” is often used as an umbrella term, but your agreement might fall into “retail lease” territory depending on your business and the premises. That classification can affect disclosure requirements and tenant protections.

The Main Lease Types Australian Businesses Commonly Use

There isn’t one single way to categorise leases, but most lease types you’ll see in Australia fall into a few practical buckets. Some of these overlap (for example, you might have a fixed-term retail lease that’s also a net lease).

1) Fixed-Term Lease

A fixed-term lease runs for a set period (for example, 12 months, 3 years, or 5 years), often with an option to renew.

This lease type is common when you want stability - especially if you’re investing in a fit-out, building a customer base in a location, or relying on foot traffic.

Things to check:

• Option terms: Is there a right to renew, and how do you exercise the option (and by when)?
• Rent reviews: How and when does rent increase (CPI, fixed percentage, market review)?
• Early exit: Is there a break clause or is the term “locked in” unless you assign the lease?

2) Periodic (Month-to-Month) Lease

A periodic lease continues indefinitely until it’s ended in accordance with the lease terms (and, in some cases, any applicable legislation).

This lease type can be useful if you’re trialling a location, running a seasonal business, or you’re not ready to commit long term.

Things to check:

• Notice periods: How much notice must you give, and how much notice must the landlord give? (This can vary depending on the lease and whether retail leasing rules apply.)
• Rent increases: How often can rent be increased and what process must be followed?
• Security of tenure: If your business depends on the location, the risk of relatively short-notice termination can be a real issue.

3) Licence Agreement (Not a Lease)

Some arrangements are technically a licence, not a lease. Licences are often used for shared spaces, pop-ups, kiosks, co-working, and short-term occupancy.

As a general rule, a licence tends to give you permission to occupy or use a space, but it may provide less security than a lease. Whether it’s truly a licence or actually a lease depends on the legal substance of the arrangement (not just the label on the document).

Licences can be a great startup-friendly option when you want flexibility and low upfront commitment. However, that flexibility can cut both ways.

Things to check:

• Termination: Can the licence be ended quickly? What happens to your stock, equipment, and fit-out?
• Access and exclusivity: Do you have exclusive use, or can the operator move you around?
• Fees vs rent: Are there extra fees (cleaning, marketing levy, utilities) that increase your real cost?

4) Sublease

A sublease is where you lease from an existing tenant (the “head tenant”), not directly from the landlord. This can be common in shared office arrangements, warehouses, and larger shopfronts where the head tenant has excess space.

Subleases can reduce cost and provide flexibility, but you need to understand the “chain” of obligations: your rights often depend on the head lease continuing.

Things to check:

• Landlord consent: Many head leases require landlord consent for a sublease.
• Consistency with head lease: Your sublease should align with the head lease, especially on permitted use, hours, and insurance.
• What happens if the head lease ends: You may lose the premises even if you’ve complied with your sublease.

If you’re considering a sublease, it’s often worth having a lawyer review the documents so you understand what you’re actually stepping into, and whether a different structure (like an assignment) makes more sense.

5) Assignment of Lease

An assignment is where an existing tenant transfers their lease to you. You step into their shoes under the current lease terms.

This lease type is common when you “take over” a premises from another business, sometimes with an existing fit-out in place.

Things to check:

• Condition of premises and fit-out: Are you inheriting issues or repairs?
• Make-good obligations: You might be responsible at the end of the lease, even if the fit-out was installed by the prior tenant.
• Lease term remaining: Is there enough time left to make the location worthwhile?

Gross vs Net vs Percentage: Lease Types That Change Who Pays What

Another way “lease type” is commonly used is to describe how the money flows - not just the term.

In other words: beyond base rent, who pays for what?

Gross Lease

In a gross lease, the rent is typically more “all-in”, with the landlord usually covering some building outgoings (and the rent priced accordingly). Exactly what’s included depends on the drafting, so it’s important not to assume everything is covered.

This lease type can be simpler for budgeting, especially for startups watching cash flow.

However, don’t assume it’s truly all-inclusive. Some gross leases still pass on certain costs, so you’ll want to check the fine print.

Net Lease

In a net lease, you pay rent plus some or all outgoings (for example, council rates, insurance, common area maintenance, or utilities). There are different variations (single net, double net, triple net), but the key point is that more costs shift to you.

This lease type can appear cheaper on the headline rent, but it can be more expensive overall if outgoings are high or unpredictable.

Key checks:

• What counts as “outgoings” and how they are calculated
• Whether there’s an estimate and reconciliation process
• Caps or limits on certain outgoings (where you can negotiate)

Percentage Lease

A percentage lease is often seen in shopping centres or retail environments. Typically, you pay base rent plus an additional amount calculated as a percentage of turnover (sometimes only after a threshold).

This lease type can align rent with performance, but it also means:

• you may need to provide sales reporting, and
• you should understand how “turnover” is defined (for example, whether online sales connected to the premises are included).

For growth-focused businesses, the definitions here matter a lot - especially if you’re omni-channel and your sales come through multiple platforms.

Retail Lease vs Commercial Lease: How Your Lease Type Affects Your Rights

One of the most important “hidden” issues is whether your lease is treated as a retail lease under your state or territory legislation (for example, if you operate a shopfront or provide retail services to the public from the premises).

This matters because retail leasing laws can impose additional requirements on landlords (and sometimes give tenants extra protections). This isn’t automatic - it depends on your location, premises, business activity, and sometimes size or turnover thresholds.

Even if you think you’re “just signing a standard commercial lease”, it’s worth checking the classification early, because it can affect things like disclosure documents, timing, and what terms are enforceable.

Also, if you’re negotiating a lease with renewal or expansion in mind, notice periods can become critical. For example, if you’re approaching renewal, the lease renewal notice periods can be a major risk area if you miss a key date.

Permitted Use: The Issue People Forget

Regardless of the label, almost every lease has a “permitted use” clause. It says what you’re allowed to do in the premises.

This is a practical business issue, not just a legal technicality. If your startup pivots (which is common), your permitted use might become too narrow.

Examples:

• If your lease says “beauty therapy” and you later add retail product sales or training workshops, you may need consent.
• If your lease says “office use” and you start storing inventory or doing light manufacturing, you might breach the lease (and potentially other rules like zoning).

If you’re not sure how your business might evolve, it’s often worth negotiating a broader permitted use from the start.

How To Choose The Right Lease Type For Your Business Stage

There’s no “best” lease type for every business. The right choice depends on your stage, your risk tolerance, and how dependent your revenue is on a specific location.

If You’re Pre-Revenue or Testing a New Concept

In the early stage, flexibility is usually the priority. You may not know yet:

• what your customer flow will look like,
• whether the area suits your offering, or
• how quickly you’ll need to hire, scale, or relocate.

Lease types that can suit this stage include:

• short fixed-term leases (with an option),
• licence agreements, and
• subleases with clear exit terms.

At this stage, it’s also worth getting your internal structure right before you lock in a premises. For example, if you’re operating through a company, having a Company Constitution that matches how you make decisions (and sign contracts) can prevent messy co-founder disputes later.

If You’re Investing in a Fit-Out or Equipment

If you’re spending real money on the space (think: café build, clinic rooms, custom joinery, a production setup), certainty is often worth paying for.

Lease types that can suit this stage include longer fixed-term leases, ideally with renewal options. You may also want to negotiate:

• rent-free fit-out periods,
• fit-out approvals and clear processes, and
• reasonable make-good terms at the end.

This is also where your other contracts should “match” your lease risk. For example, if you’re signing long-term supplier or service commitments, make sure they align with your ability to operate from the premises.

If You’re Scaling (Or Planning Multiple Locations)

If your growth plan includes additional sites, you’ll want lease terms that don’t trap you operationally.

That might mean:

• clear assignment rights (so you can sell or restructure),
• the ability to sublease part of the space, or
• options to expand into neighbouring premises.

If you have co-founders or investors, it’s also smart to align your premises strategy with your governance documents. A Shareholders Agreement can set clear rules on who approves major commitments like entering a long-term lease or guaranteeing obligations.

Key Terms To Review Before You Sign Any Lease Type

Once you’ve narrowed down the lease type that suits you, your next job is checking the clauses that tend to create the most risk for small businesses.

Rent, Increases, And Reviews

Ask yourself:

• How much rent is payable, and when?
• Are increases fixed, CPI-linked, or market reviews?
• Are there incentives (rent-free periods, fit-out contributions) and are they documented properly?

Outgoings And Hidden Costs

Make sure you understand:

• which outgoings are payable,
• how they’re estimated and adjusted, and
• whether there are any “admin” or management fees.

Repair, Maintenance, And Make-Good

This is where costs can blow out. Clarify:

• who repairs what (especially HVAC, plumbing, and electrical),
• what condition you must return the premises in, and
• whether you must remove the fit-out or “make good” to base building.

Personal Guarantees

Many landlords ask directors (or business owners) to personally guarantee the tenant’s obligations. This can put your personal assets at risk, even if you trade through a company.

If you’re presented with a guarantee, it’s worth slowing down and understanding what you’re agreeing to, how long it lasts, and whether it can be limited.

Insurance

Leases usually require specific insurance (for example, public liability) and may specify minimum amounts or require the landlord to be noted as an interested party.

Check that you can actually obtain the required insurance on commercial terms before signing.

Exclusivity, Restraints, And Trading Hours

Depending on the premises (especially shopping centres or shared spaces), your lease may control:

• trading hours,
• signage, branding and marketing, and
• restrictions on what you can sell or how you can operate.

If your business depends on flexibility (events, classes, launches, extended hours), these clauses can matter as much as rent.

Data, CCTV, And Monitoring In Premises

Many premises have CCTV, access fobs, visitor logs, and other monitoring in place.

If you’re a business that handles sensitive information (for example, health, finance, or HR services), you’ll want to think about privacy and confidentiality implications as part of your premises decision. If you collect personal information (even just customer contact details), having a Privacy Policy is often a practical baseline for compliance and customer trust.

Depending on your state and what you’re doing, recording and surveillance laws can also be relevant. If your premises includes CCTV or audio, it’s worth understanding the CCTV laws in Australia and what you can (and can’t) do in a workplace setting.

Key Takeaways

• Your lease type impacts your costs, flexibility, growth options, and risk profile - it’s not just about the weekly rent.
• Common lease types include fixed-term leases, periodic leases, licence agreements, subleases, and assignments, and each comes with different levels of security and complexity.
• “Lease type” can also describe who pays what (gross vs net vs percentage leases), so always look beyond base rent to outgoings and maintenance obligations.
• Make sure you understand whether your arrangement falls under retail leasing rules, as that can affect your rights and the landlord’s obligations.
• Before signing, focus on the clauses that tend to cause the biggest problems: permitted use, rent reviews, outgoings, make-good, guarantees, and assignment/subleasing rights.
• Strong business foundations (like a Company Constitution, Shareholders Agreement, and a Privacy Policy) help your lease decision fit your broader growth and risk strategy.

If you’d like help choosing the right lease type or reviewing a lease before you sign, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.