A premises can look right for your business, the rent may appear manageable, and the landlord may be ready to move quickly. But a commercial lease review often reveals that the real cost and risk sit well beyond the headline rent. Before you commit, you need to understand what you are promising to pay, maintain, repair, insure and do for the full term of the lease.
For NSW tenants, signing a lease can be one of the largest financial commitments a business makes. For landlords, a carefully reviewed lease is equally valuable: it helps set clear expectations, protects the property and reduces the prospect of expensive disputes later. The aim is not to make every lease complicated. It is to ensure the document reflects a fair, workable agreement and that there are no unpleasant surprises after the keys change hands.
What a commercial lease review should uncover
A lease is more than permission to occupy a shop, office, warehouse or industrial unit. It allocates financial responsibility and operational risk between landlord and tenant. The wording can affect your business for years, including if trading conditions change, the premises need repairs or you want to sell the business.
A proper review considers the whole lease package, not simply the lease document. That can include the disclosure statement, incentive deed, fit-out requirements, plan of premises, bank guarantee or security bond, make-good provisions and any side agreements. A favourable clause in one document can be undermined by an obligation elsewhere.
The key question is practical: can you comply with this lease, at the expected cost, for the entire term? The answer depends on the nature of the premises, your industry, the length of the commitment and whether the lease is a retail lease governed by the Retail Leases Act 1994 (NSW).
The financial commitments behind the rent
Rent is only the starting point. A lease review should identify how rent is calculated, when it is due and how it will increase. Annual increases may be fixed, linked to CPI, based on market rent or use another formula. Each approach has different consequences. Fixed increases provide certainty, while CPI or market reviews can move in ways that are harder to predict.
Outgoings deserve close attention. These are the property expenses the tenant may be required to contribute towards, such as council rates, water rates, strata levies, building insurance, land tax where permitted, cleaning, security or centre management costs. The lease should clearly state which outgoings are recoverable, how they are calculated and whether the tenant receives an estimate and later reconciliation.
For a retail lease, disclosure obligations are particularly significant. A tenant should receive the relevant disclosure information early enough to make an informed decision. The details can expose costs or operational requirements that are not obvious from the rent figure. If the premises are part of a shopping centre, promotional levies, trading hours, relocation rights and centre rules may also matter greatly.
Incentives also need careful treatment. A rent-free period, fit-out contribution or reduced rent can assist with start-up costs, but the conditions attached to it are critical. Some incentives must be repaid if the tenant defaults, assigns the lease or leaves before a specified date. The repayment formula should be clear and proportionate rather than an unexpected debt hanging over the business.
Key terms to examine in a commercial lease review
Term, options and renewal rights
The lease term needs to match the business plan. A short term may offer flexibility, but it can leave a tenant without security once the business has built a local customer base. A longer term may provide stability, yet it also increases exposure if the location no longer suits the business.
An option to renew can be valuable, but it is only useful if it is exercised correctly. Review the notice period, method of notice, conditions for exercising the option and how rent will be set for the further term. Missing an option deadline can be costly. A tenant should also check whether the option is lost if there has been even a minor breach of the lease.
Landlords should ensure the term and options are expressed precisely. Ambiguous renewal provisions can create uncertainty at the point both parties need clarity most.
Permitted use and approvals
The permitted use clause must be broad enough to cover how the business will operate now and, where sensible, how it may develop. A tenant operating outside the permitted use risks breaching the lease, even where the activity seems closely connected to the original business.
The lease does not replace planning approval, development consent, licences or strata approval. Before committing, a tenant should check that the intended use is legally permitted and that the premises can accommodate necessary equipment, signage, ventilation, accessibility requirements and trade waste arrangements. For hospitality, beauty, medical and food businesses, these checks are often fundamental.
Repairs, maintenance and make-good
Repair obligations are frequently underestimated. The lease should distinguish between structural repairs, base building services, the tenant’s fit-out, air conditioning, glass, plumbing and damage caused by the tenant. A tenant may be required to maintain some items, but should be cautious about accepting responsibility for pre-existing defects or major structural issues outside its control.
Make-good is the obligation to return the premises at the end of the lease. It may require removal of fit-out, reinstatement to a bare shell, repainting, carpet replacement or repair of damage. These works can cost many thousands of dollars. The starting condition of the premises should be documented with photographs and a condition report, so there is a reliable reference point when the lease ends.
For landlords, a clear make-good clause protects the condition and future lettability of the property. For tenants, the scope should be specific. Broad wording such as returning the premises to the landlord’s satisfaction can create avoidable disagreement.
Security, guarantees and personal exposure
Most landlords require security, commonly a bank guarantee, security deposit or personal guarantee. The amount, expiry date, release process and circumstances in which the landlord can call on the security all require review.
Business owners should take personal guarantees seriously. If the tenant company defaults, a director or guarantor may become personally liable for rent, outgoings, damages and legal costs. It may be possible to negotiate a cap, a limited guarantee period or release following an assignment. The result will depend on the bargaining position of the parties and the landlord’s assessment of risk, but it is a conversation worth having before signing.
Clauses that affect change and uncertainty
Businesses do not always stay the same. A tenant may need to sell, bring in a new partner, relocate or close a particular site. The assignment and subletting provisions determine whether, and on what conditions, those changes can happen. A landlord will reasonably want to assess the incoming party, but consent processes should not be unnecessarily restrictive or delayed.
A lease should also be checked for demolition, relocation and redevelopment clauses. In some circumstances, particularly in retail settings, these rights are regulated and may require notice or compensation. Even so, the prospect of being moved or required to leave can have serious operational consequences. A business that relies on visibility, customer parking or specialised fit-out needs to know where it stands.
Default clauses are another area where small problems can escalate. Review what counts as a default, the time allowed to remedy it, the landlord’s rights to re-enter, and whether legal and administrative costs can be claimed. The goal is not to assume the worst. It is to make sure a late payment or technical breach does not create a disproportionate outcome.
When to arrange a lease review
The best time is before an offer becomes binding or, at the latest, before execution of the lease documents. Early advice gives you room to negotiate rent review provisions, outgoings, fit-out periods, guarantees and make-good terms while the parties are still working towards a deal.
A review is also worthwhile when renewing an existing lease, exercising an option, taking over a business, assigning a lease or agreeing to a deed of variation. Existing tenants sometimes assume a renewal is routine, only to find that a new document introduces changed outgoings, fresh guarantees or a more demanding make-good obligation.
Both parties benefit from dealing with issues early. Tenants gain a realistic view of their commitment, while landlords can start the relationship with clear documentation and fewer future points of dispute.
Clear advice before a long-term commitment
Commercial leasing decisions involve more than legal wording. They affect cash flow, business flexibility and personal financial exposure. Sarah Walsh Conveyancing & Leasing provides practical, fixed-fee guidance for NSW tenants and landlords who want the important terms explained clearly and their interests properly protected.
A lease should support the business or property investment you are building, not become an obligation you only fully understand when something goes wrong. Taking the time to obtain advice before signing can give you the confidence to move forward with your eyes open.