Taking on a commercial or retail lease is one of the most significant financial commitments a small business owner will make. Lease terms typically run for 3 to 5 years or more, with annual rent increases and potentially significant make-good obligations at the end. Getting independent legal advice before signing is not optional — it is essential.
Retail Lease or Commercial Lease?
The first thing to understand is whether your premises falls under the Retail Leases Act 1994 (NSW) or is governed as a general commercial lease. Retail leases — covering shops, restaurants, and businesses in shopping centres or with retail frontage — have specific statutory protections for tenants, including:
- Minimum 5-year lease terms (unless you elect otherwise)
- Mandatory disclosure statement from the landlord before signing
- Restrictions on what outgoings can be charged to tenants
- Rights to a copy of the lease before signing
- Dispute resolution through the NSW Small Business Commissioner
Commercial and industrial leases outside the retail context are governed primarily by the lease contract itself, with fewer automatic protections.
Key Clauses to Review Before Signing
Rent and Rent Reviews
What is the base rent? How often is it reviewed, and by what mechanism — fixed percentage increase, CPI, or market review? Market rent reviews can result in significant increases and should be scrutinised carefully.
Term and Options
What is the initial term? Are there options to renew, and if so, on what terms? Options to renew are valuable — they give you security of tenure — but they need to be exercised correctly and within the required timeframes.
Outgoings
Are you required to pay outgoings (rates, insurance, maintenance) in addition to rent? If so, which ones, and how are they calculated? Outgoings can add significantly to the effective rent.
Permitted Use
The lease will specify the permitted use of the premises. If you plan to expand or change your business activities, you need to ensure the permitted use is broad enough — or negotiate appropriate amendments before signing.
Fitout and Alterations
What are your rights to fit out or alter the premises? Is the landlord contributing to fitout costs? What happens to the fitout at the end of the lease — does it stay or must you remove it?
Make-Good Obligations
At the end of the lease, you may be required to return the premises to its original condition. Make-good obligations can be extremely costly if not clearly defined upfront. Always negotiate what "make good" means before you sign.
Assignment and Subletting
Can you assign the lease (transfer it to another party) or sublet the premises? This is important if you plan to sell your business or if circumstances change. Many leases require landlord consent and impose conditions.
Personal Guarantee
Landlords often require the directors of a company tenant to provide a personal guarantee. This means you are personally liable for the lease obligations — even if the company fails. Understand what you are guaranteeing before signing.
Negotiation Is Always Possible
Many tenants do not realise that lease terms are negotiable. Rent, rent-free periods, fitout contributions, permitted use, make-good terms, and many other provisions can be negotiated — particularly in the current market. We negotiate commercial leases on behalf of both landlords and tenants across Western Sydney. Call us on (02) 9633 3122 before you sign.
Need legal advice? James Papas Solicitors offers free first consultations for all Business & Commercial Law matters. Our offices are in Parramatta and we serve all of Western Sydney. Learn more about our Business & Commercial Law services → or contact us today.