What you need to check with commercial leases

Published 01 Mar 2019

A commercial lease dictates the relationship between landlords and tenants around the use of a business-related property. It's a legally binding contract. If you've found a property you want to rent for your business, negotiating what's included in the commercial lease is an important step in the process - knowing what to look out for is vital for making the best decisions going forward.

What's included in a commercial lease?

A commercial lease covers details around items such as:

  • Rent and any possible future increases.
  • The term of your lease.
  • Options around renewal and termination.
  • Security deposits.
  • Description of the property, laying out what you're leasing and any access you have to common areas.
  • Modifications you're allowed to make.
  • Who is responsible for expenses such as rates, repairs, and utilities.

This lease is a thorough document that seeks to outline the responsibilities of each party in different scenarios. Understanding what's laid out within it is vital. If there's legal terminology that you're struggling to decipher, bring someone on board that can help you make sense of it.

What you should look out for in a commercial lease

There's a lot to take in with a commercial lease. However, there are certain sections that you need to take a second look at to ensure you're not going to receive a nasty surprise later down the line.

1. Make Good clauses

A Make Good clause can require you to return the premise you're renting to its original condition when you terminate the lease. If you want to make improvements or modifications to the property so it meets your business's needs, this clause can cost you considerable time, effort and potentially money when you quit the lease.

2. Escalating rent increases

Generally, rent on commercial properties increases annually by a fixed percentage. When you're looking at costs moving forward it's important to understand how that stacks up. In the first year a 3 per cent increase might not impact you much. However, the following year the percentage is taken from the increased amount.

Having a grasp on this allows you to better calculate what you can afford.

3. Permitted use

Within the commercial lease you'll commonly find a clause outlining what you're allowed to use the premise for. Make sure you read this over - if there are severe restrictions in place it may prevent you operating properly, or stop you from expanding your services in future.

4. Exclusivity clause

If you're renting in a large commercial building, such as a mall, it's important to know that you won't have a direct competitor set up shop right next door. An exclusivity clause provides you with protection from this.

The team at Malouf Solicitors knows how to navigate the tricky terrain of property law. If you need assistance with your commercial lease negotiation, get in touch today.

Please call us on 02 8833 2000 to speak with a lawyer

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