Offer To Lease: What To Know Before You Sign

If you’re about to move into your first shopfront, office, warehouse, or studio, you might be handed an “offer to lease” and told it’s just a quick formality.

But for many small businesses, the offer to lease stage is where the big commercial decisions get locked in - rent, term, options, outgoings, incentives, fit-out responsibilities, and key “deal-breaker” conditions.

And here’s the tricky part: even if the full lease hasn’t been drafted yet, an offer to lease can still be legally binding (or close to it), depending on how it’s written and what you’ve agreed to.

Below, we’ll walk you through what an offer to lease is, when it matters, the common traps we see, and what to check before you sign - so you can secure the right premises without accidentally taking on the wrong risk.

What Is An Offer To Lease (And Is It Legally Binding)?

An offer to lease is a document (sometimes called “heads of agreement”, “letter of offer”, “proposal to lease”, or “agreement to lease”) that sets out the key commercial terms for a lease before the full lease is prepared.

It’s commonly used when:

• you’ve negotiated the main terms with the landlord or agent, and you want to lock them in;
• the landlord wants some commitment before spending time and money preparing the final lease;
• there’s a tight timeframe and both parties want clarity on the deal.

So, Is An Offer To Lease Binding?

It depends on the wording and the circumstances.

In general, Australian contract law looks at whether the document shows:

• offer and acceptance (did one party make a clear offer, and did the other clearly accept it?);
• certainty (are the essential terms clear enough?);
• intention to create legal relations (did you both intend it to be binding now, or only once a formal lease is signed?).

This is why the drafting matters. Some offers to lease say they are “subject to lease documentation” or “not intended to be binding”. Others read like a final agreement with only minor details to be documented later.

If you’re unsure, it’s worth getting advice early - because you don’t want to find out you’re committed only after you’ve tried to walk away.

Offer To Lease Vs Lease: What’s The Difference?

Think of it like this:

• Offer to lease: the commercial deal (headline terms) and key conditions.
• Lease: the full legal document, usually longer and more detailed, with “fine print” obligations (insurance, repairs, make-good, default clauses, guarantees, permitted use, etc.).

Even if the offer to lease feels short, it can still have big consequences - because the final lease usually follows it closely, and the landlord may rely on it as evidence of what was agreed.

Why Landlords Use An Offer To Lease (And Why You Should Take It Seriously)

From a landlord’s perspective, an offer to lease is a way to:

• confirm you’re serious before taking the property off the market;
• lock in the main commercial terms;
• reduce negotiation later by setting expectations upfront.

From your perspective as a small business owner, it’s often the first moment you can:

• negotiate the “big ticket” items that will affect your cashflow;
• build in protections (like conditions precedent) so you can exit if key requirements aren’t met;
• avoid signing a lease that doesn’t match what you thought you agreed to.

It’s also worth remembering that your business premises decision isn’t just about rent - it can affect:

• your ability to operate legally (zoning, permitted use, approvals);
• your ability to fit out and open on time;
• your exposure if the business needs to relocate, restructure, or scale down.

What Should An Offer To Lease Include?

There’s no single standard format, but most offers to lease in Australia cover a similar set of terms. The more detail included, the less room there is for misunderstanding later - but also the more careful you need to be about what you’re committing to.

Here are the clauses and terms you’ll usually see (and should check carefully).

1. Parties And Premises

• Landlord: make sure the legal entity is correct (individual, company, trust).
• Tenant: ensure it matches your intended structure (e.g. your company name, not just your personal name).
• Premises: confirm the correct address and what is included (entire shop/office, storage areas, exclusive use areas, car parks).

If you’re still deciding your structure, it may be worth sorting that before signing. The name on the offer to lease often dictates who becomes liable under the lease.

2. Lease Term And Options

This covers:

• Initial term (e.g. 3 years, 5 years);
• Options to renew (e.g. 2 x 3-year options);
• Option exercise dates (when you must notify the landlord to renew).

Options can be valuable for stability, especially if you’re investing in branding, fit-out, and local marketing. But options also need to be exercised correctly and on time, or you can lose them.

3. Rent, Rent Reviews, And Incentives

This is where you’ll see the headline rent (weekly/monthly/annual) and the review mechanism. Common rent review types include:

• CPI increases (linked to inflation);
• fixed increases (e.g. 4% each year);
• market review (rent resets to market, usually at option time);
• ratchet clauses (rent can go up but not down, even if the market drops).

You may also negotiate incentives, such as:

• rent-free periods (e.g. 4–12 weeks);
• fit-out contributions (landlord pays a lump sum or reimburses costs);
• reduced rent during fit-out.

If incentives are agreed verbally but not clearly written into the offer to lease, it’s much harder to enforce them later.

4. Outgoings (And What You’re Really Paying For)

Outgoings are the costs of operating and maintaining the building or property, often charged to the tenant in addition to rent.

Common outgoings include:

• council rates;
• building insurance;
• land tax (depending on the lease and state);
• cleaning, security, waste services;
• common area maintenance (for a shopping centre or commercial complex);
• management fees.

Outgoings can materially change the affordability of the premises. If you’re budgeting based on base rent alone, you could be in for a shock.

Tax note: GST treatment can vary depending on the arrangement and the parties. This article is general information and isn’t tax advice - if you’re unsure about GST on rent, outgoings, or incentives, it’s worth checking with your accountant or tax adviser.

5. Security (Bond, Bank Guarantee, Or Personal Guarantee)

Most landlords will require security, such as:

• bond (cash held as security);
• bank guarantee (a bank-backed promise to pay);
• director’s/personal guarantee (you personally guarantee the tenant’s obligations).

Personal guarantees are common for startups and small businesses, but they’re high risk - they can expose your personal assets if the business can’t meet the lease obligations.

If the tenant is a company, it’s also worth understanding what execution and authority looks like. For example, signing may be done under section 127 of the Corporations Act, depending on who is signing and how your company is structured.

6. Permitted Use (And Why It Can Make Or Break Your Business)

The “permitted use” clause describes what you’re allowed to do in the premises (for example, “cafe and takeaway food”, “office”, “beauty therapy”, “warehouse and distribution”).

This needs to be:

• broad enough to cover how you actually operate (including ancillary sales/services);
• aligned with zoning and planning approvals;
• compatible with any exclusivity provisions in shopping centres (some centres restrict competing uses).

If your use is too narrow, you can end up in breach simply because your business evolves - for example, you start selling retail products alongside your services, or you expand into new offerings.

7. Fit-Out, Make-Good, And Repairs

Offers to lease often say something like “tenant responsible for fit-out” or “make-good required at end of lease” without much detail.

These items can be expensive and should be clarified early:

• Fit-out approvals: do you need landlord consent for plans, contractors, signage?
• Who owns the fit-out: can you remove it at the end, or does it become the landlord’s property?
• Make-good: are you returning it to “base building”, “bare shell”, or just “good condition”?
• Repairs and maintenance: who looks after air-conditioning, grease traps, plumbing, electrical?

If you’re taking over a site previously used for a similar business, don’t assume the previous fit-out reduces your make-good. The lease (and offer to lease) will govern what you must do when you leave.

Key Risks And Common Traps In An Offer To Lease

When you’re eager to secure a location, it’s easy to treat the offer to lease as a quick step before the “real lease”. But these are the issues that regularly cause disputes or expensive surprises.

“Subject To Lease” Doesn’t Always Protect You

Many small business owners think a line like “subject to formal lease” means nothing is binding until the full lease is signed.

Sometimes that’s true. Sometimes it isn’t - especially if the document includes all essential terms and shows both parties intended to lock in the deal.

The safest approach is to make sure the offer to lease clearly states whether it is intended to be binding or not, and exactly what conditions must be met before either party is committed.

Unclear Conditions Precedent (Finance, Approvals, Board Sign-Off)

A well-drafted offer to lease can include conditions that must be satisfied before the deal proceeds, such as:

• your finance being approved;
• council or liquor approvals being granted;
• you obtaining franchisor consent (if applicable);
• you completing due diligence on the premises (e.g. services, compliance, access);
• your solicitor reviewing and approving the final lease.

If these conditions are missing, vague, or have unrealistic timeframes, you may be forced to proceed even when something important isn’t in place.

Outgoings And Hidden Costs Are Often Understated

Outgoings can be described in a very general way in an offer to lease. If you don’t get clarity early, you may sign up to costs that weren’t in your model.

As a practical step, ask for:

• an outgoings estimate (itemised) for the most recent year;
• details about any upcoming major works or capital expenditure that might be passed on (where permitted);
• confirmation of whether GST applies to rent and outgoings (and check the tax treatment with your accountant or adviser if you’re unsure).

Incentives Can Disappear If They’re Not Drafted Properly

Rent-free periods and fit-out contributions should be clearly documented, including:

• when the rent-free period starts and ends;
• whether it applies to outgoings too (often it doesn’t);
• what happens if you default (does the landlord claw back the incentive?);
• how the fit-out contribution is paid and what evidence is required.

Signing As The Wrong Entity (Or Too Early)

It’s common for founders to negotiate a lease personally and only later form a company. But if you sign the offer to lease in your personal name, it can be difficult to “swap” the tenant later without the landlord’s consent.

If you’re still setting up, it can help to understand the structure options early - sole trader, partnership, company - because it affects liability and how the lease will be enforced. If you’re deciding between names, it also helps to understand business name vs company name so you don’t accidentally sign under the wrong details.

Offer To Lease Checklist: What To Do Before You Sign

Before you sign an offer to lease, it helps to slow down and treat it like a deal document (because it is). Here’s a practical checklist you can use.

1. Confirm The Premises Actually Works For Your Use

• Does the permitted use match what you plan to do now and in 12–24 months?
• Are there any council or building approvals you’ll need?
• Is there adequate access (deliveries, customer parking, disability access where relevant)?
• Are there any building services you rely on (ventilation, grease trap, cold room capacity, internet) and are they included?

2. Check The Total Occupancy Cost (Not Just Rent)

• Base rent + outgoings + utilities + insurance + any centre fees.
• Fit-out cost and who pays for what (including approvals).
• Make-good cost at the end of the term.

If the numbers don’t work on a conservative forecast, it’s better to find that out now, before you’re committed.

3. Negotiate Your “Must-Haves” Now

In many cases, it’s easier to negotiate at the offer stage than after the lease has been drafted.

Common “must-haves” for small businesses include:

• a rent-free period to cover fit-out and opening;
• an option to renew to protect your location investment;
• a cap on certain outgoings or clarity on what’s excluded;
• a fair make-good obligation;
• clear timing for when you can access the premises for fit-out.

4. Make Sure Any Special Conditions Are Actually Written In

If something is important, it should be in writing - preferably in the offer to lease and then carried through into the lease.

Examples include:

• signage rights (including building signage);
• exclusive use (especially in a retail centre);
• landlord works (repairs, upgrades, compliance items);
• handover condition (e.g. “freshly painted”, “air-conditioning serviced”).

5. Get The Lease Reviewed Before You’re Locked In

Even if the offer to lease is short, the impact can be long-term.

A Commercial Lease Review can help you confirm what you’re agreeing to, spot high-risk clauses early, and ensure the final lease matches the commercial deal you negotiated.

What Happens After You Sign An Offer To Lease?

Once an offer to lease is signed, the usual next steps are:

1. Lease drafted: the landlord’s lawyer prepares the full lease document based on the offer.
2. Negotiation and amendments: you (or your lawyer) review, negotiate, and request changes.
3. Disclosure and compliance: if it’s a retail lease (depending on your state or territory and the type of premises), there may be specific disclosure requirements and timing rules. Retail leasing laws vary materially across Australia, so it’s worth getting advice that’s tailored to where the premises is located.
4. Signing and payment: you sign the lease, provide security (bond/bank guarantee), pay initial rent and/or outgoings, and meet any pre-conditions.
5. Access and fit-out: you get access to start fit-out and prepare to trade.

What If You Need To Pull Out?

This is where the “binding” question becomes very real.

If you’ve signed an offer to lease and later want to walk away, your ability to do so depends on things like:

• whether the offer to lease is binding;
• whether it includes conditions precedent that haven’t been satisfied;
• whether there’s a termination mechanism (and any break fee);
• whether you’ve already taken possession or started fit-out works.

This is also why it’s important to be careful with how your agreement is documented. In commercial dealings, it’s common for documents outside the “final lease” to carry legal weight - including emails and signed forms. (If you’re ever unsure whether something informal might be binding, it can help to understand whether an email can be legally binding in Australia.)

Key Takeaways

• An offer to lease sets the key commercial terms of your tenancy and can sometimes be legally binding, even before the full lease is signed.
• Before signing, check the essentials: lease term and options, rent and rent reviews, incentives, outgoings, security (including personal guarantees), permitted use, and fit-out/make-good obligations.
• Build in protections where you can, especially clear conditions precedent (finance, approvals, due diligence, and lease review) so you’re not forced into a deal that doesn’t work.
• Make sure every important promise is written into the offer to lease - incentives and special conditions can be hard to enforce if they’re only verbal.
• A lease is a long-term commitment, so it’s worth getting advice before you sign anything that could lock you in.

If you’d like help reviewing an offer to lease or negotiating your commercial lease, reach out to us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.