A Commercial Lease Agreement is the contract between a Landlord and business Tenant that sets the terms on which the Tenant occupies commercial premises. Before entering the Lease, the Tenant should work through the entire occupancy commitment, including the Lease term, options, rent reviews, outgoings, permitted use, fit-out, repairs, security, assignment rights and make good obligations.
Who Is This Commercial Lease Agreement Guide For?
This guide is written for business Tenants considering, negotiating or entering into a Commercial Lease Agreement for premises such as an office, warehouse, industrial facility, consulting premises or other commercial property.
It is particularly relevant where you have found premises and are discussing the commercial deal with the Landlord or agent, have received a Term Sheet or Heads of Agreement, have been asked to sign an Agreement to Lease, or have received the proposed Lease from the Landlord’s Lawyer.
The legal documents are only part of the decision. Before committing, the Tenant also needs to work out whether the premises, Lease term, cost structure and contractual obligations are suitable for the way the business actually operates.
What Is a Commercial Lease Agreement?
A Commercial Lease Agreement is a legally binding contract under which a Landlord gives a Tenant the right to occupy premises for business purposes on agreed terms.
The Lease normally identifies the premises, commencement date, Lease term and options and then deals with the financial and operational obligations attached to the tenancy. These can include rent, rent reviews, outgoings, permitted use, security, insurance, repairs, alterations, assignment, default and what must happen when the Lease ends.
Commercial Lease terms vary considerably. The document needs to be read against the premises being leased, the commercial deal negotiated with the Landlord, the requirements of the Tenant’s business and the law applying in the State or Territory where the property is located.
What Should a Business Tenant Consider Before Entering a Commercial Lease Agreement?
| Issue | What the Tenant needs to work out | Why it affects the business |
|---|---|---|
| Lease term and options | How long the business should commit to the premises and whether further option periods are required. | A short term may not justify substantial fit-out expenditure. A long commitment can become expensive if the business grows, contracts or needs to relocate. |
| Rent and rent reviews | The starting rent, review dates and whether increases are fixed, CPI-based, market-based or calculated in another way. | The first year's rent does not show what the premises will cost over the whole Lease term. |
| Outgoings | Which property costs are payable in addition to rent and how the Tenant's share is calculated and reconciled. | Rates, insurance, maintenance and other recoverable costs can materially increase the cost of occupying the premises. |
| Permitted use | Whether the permitted use covers the business as it operates now and activities it may reasonably add later. | A narrow use clause can restrict changes to the business even though the premises remain suitable. |
| Fit-out and Landlord works | What work is required, who carries it out, who pays, when access is available and what approvals are needed. | Fit-out arrangements affect cost, opening dates and the condition in which the premises must eventually be returned. |
| Repairs and replacement | Who maintains building services and equipment and who pays when an item requires replacement rather than routine maintenance. | Air-conditioning and other building systems can involve substantial expenditure, particularly where equipment is already ageing. |
| Security and guarantees | Whether the Landlord requires a bank guarantee, cash security, personal guarantees or a combination of them. | A director who gives a personal guarantee can assume personal exposure to obligations of the Tenant company. |
| Assignment and business sale | What will be required if the Tenant later sells the business and needs the purchaser to take over the Lease. | Landlord consent requirements and continuing obligations can affect a future business sale. |
| Make good | What must be removed, repaired or reinstated when the Tenant leaves and how the starting condition of the premises is established. | Make good can create substantial expenditure at the end of the Lease, particularly after a major fit-out. |
| Exit and flexibility | Whether assignment, subleasing, surrender or any negotiated break right is available if the premises stop working for the business. | The Tenant can remain liable for premises after the business no longer needs them. |
Which Documents are Often Signed Before the Commercial Lease Agreement?
A Tenant may be asked to agree the commercial terms before the final Lease is prepared. Depending on the transaction, those terms might appear in a Term Sheet, Heads of Agreement, Offer to Lease or Agreement to Lease.
These documents commonly record matters such as rent, Lease term, options, incentives, outgoings, security, permitted use, fit-out and any work the Landlord has agreed to complete. Their legal effect depends on their terms and the circumstances, so a Tenant should not assume that a document is non-binding merely because the final Lease has not yet been signed.
An Agreement to Lease can go considerably further. In some transactions, the full proposed Lease Agreement is attached as a schedule to the Agreement to Lease. The Tenant is then dealing with both the preliminary obligations and the substantive Lease terms before the final Lease document is executed.
Rachelle Hare can assist a Tenant with the negotiation of a Term Sheet or Agreement to Lease and with the Lease terms that follow from it.
What Commercial Lease Terms Should Be Discussed Before the Tenant Commits?
The earlier discussions should deal with more than rent and the length of the Lease. The Tenant needs enough information to understand what occupying the premises is likely to cost and whether the Lease will accommodate the business over the proposed term.
The principal commercial terms usually include the premises, commencement date, Lease term, options, rent, rent review mechanism, outgoings, security, permitted use, incentives, fit-out arrangements and any Landlord works. Depending on the property, parking, storage, loading areas, vehicle access, signage, operating hours and services may also need to be resolved.
For industrial and warehouse premises, operational details can be particularly significant. Hardstand areas, loading access, door heights, electrical capacity, drainage, yard areas and restrictions on storage or vehicle movements can affect whether the premises can actually be used in the way the Tenant expects.
How Long Should a Commercial Lease Be?
The appropriate Lease term depends on the business, the premises and the cost of establishing operations there. A Tenant investing heavily in specialised fit-out may need sufficient tenure to justify that expenditure, while a business expecting rapid growth may place more value on retaining flexibility.
Options can give the Tenant a right to continue occupying the premises without committing to the whole potential occupancy period at the outset. The usefulness of the option depends on its drafting, including the exercise period, any conditions applying to exercise and the rent review mechanism for the new term.
The Tenant should also consider what happens if its requirements change before the initial term expires. A long Lease can become a substantial liability where the business has outgrown the premises, needs less space, relocates or changes its operating model.
How Much Will the Commercial Premises Cost Over the Lease Term?
The starting rent provides only part of the answer. A Tenant should understand the base rent, the method and timing of future rent reviews, the outgoings payable in addition to rent and any incentive arrangements that change the effective occupancy cost.
Commercial Leases can use fixed percentage increases, CPI adjustments, market reviews or different mechanisms at different stages of the Lease. Market review provisions need particular attention where they apply at the beginning of an option term because the review process can materially change the cost of remaining in the premises.
Outgoings can include rates, water charges, insurance, common area costs, maintenance expenditure, management charges and other property costs permitted by the Lease and applicable law. The Lease should make clear what the Tenant is required to pay, how its share is calculated and how estimates and annual reconciliations are dealt with.
The Queensland Small Business Commissioner has identified outgoings as a recurring source of Commercial Lease disputes and reported that outgoings were raised in 22% of its mediations during the 2024–25 financial year. See the Queensland Small Business Commissioner’s guidance on understanding outgoings in a non-retail lease.
How Do Commercial Lease Incentives Work?
A Landlord may offer a rent-free period, rent abatement, fit-out contribution or another incentive as part of the commercial deal. The value of the incentive needs to be considered together with the Lease term, face rent, future rent reviews and any conditions attached to receiving or retaining it.
The documents should state how the incentive operates, when any contribution is paid and what happens if the Lease ends early or the Tenant defaults. If the incentive is documented separately from the Lease, both documents need to be considered together.
A substantial incentive can make a proposed Lease more attractive, but it should not obscure the cost of the premises after the incentive period has finished.
Does the Permitted Use Cover Everything the Business Needs to Do?
The permitted use should reflect the activities the Tenant expects to conduct from the premises. A description that is too narrow can become restrictive if the business later adds services, products or ancillary activities that were not contemplated when the Lease was signed.
The Lease should also be considered alongside planning, building, licensing and other regulatory requirements. A Landlord agreeing to a particular permitted use does not itself establish that the Tenant has every approval required to conduct that activity from the premises.
The Queensland Small Business Commissioner recommends checking whether the intended business activity is permitted at the premises before entering the Lease. See its tips when entering a Commercial Lease.
What Should the Lease Say About Fit-Out and the Condition of the Premises?
Fit-out provisions need to deal with what work the Tenant can undertake, what approvals are required, when access will be available and whether the Landlord has agreed to carry out or contribute to any work before occupation.
The condition of the premises when the Tenant takes possession is also relevant. Existing damage, ageing equipment and unfinished Landlord works can become difficult to establish years later if the original condition was not properly recorded. A condition report supported by photographs can provide useful evidence when maintenance and make good obligations later need to be assessed.
The fit-out provisions should also be read with the make good provisions. Improvements installed at considerable expense at the beginning of the Lease may have to be removed or reinstated when the Tenant leaves.
Who Pays for Repairs, Maintenance and Replacement?
Repair and maintenance provisions can allocate substantial costs between the Landlord and Tenant. The drafting should be considered against the actual building systems and equipment serving the premises rather than treated as a general housekeeping clause.
A recurring issue is the distinction between maintaining equipment and replacing it. A Tenant may expect to service an air-conditioning system during the Lease but not expect to fund replacement of an ageing unit that reaches the end of its useful life. The Lease wording, the condition of the equipment and the allocation of replacement responsibility should be checked before the Tenant commits.
Similar questions can arise with electrical equipment, plumbing, automatic doors and gates, lifts, fire systems and other plant associated with the premises.
What Security Can a Landlord Require Under a Commercial Lease?
A Landlord may require a bank guarantee, cash security, personal guarantees from directors or another agreed form of security. The amount and form should be established during the commercial negotiations rather than first appearing when the formal Lease is circulated.
Personal guarantees require particular attention where the Tenant is a company. A director who guarantees the Tenant’s obligations can become personally exposed to liabilities that would otherwise sit with the company.
The Tenant should also check when security can be used, whether its amount increases as rent changes and how it is returned. A Lease that carefully sets out how security is provided but says little about its eventual release can create problems when the Lease ends or the business is sold.
How Can a Commercial Lease Affect a Future Sale of the Business?
Where the premises are important to the business, the Commercial Lease can become an important part of a later business sale. The purchaser may need the existing Lease assigned, require a new Lease from the Landlord or need certainty that an option can be exercised after completion.
The original Lease can determine what information must be supplied to the Landlord, whether consent is required, what conditions apply to consent and whether the outgoing Tenant or its guarantors remain liable after assignment.
Those provisions can affect a sale negotiated years after the Lease was first entered into. A Tenant expecting that the business may eventually be sold should consider the assignment provisions before signing rather than waiting until a purchaser has already been found.
What Happens if the Premises Stop Working for the Business?
A Tenant’s space requirements can change during a multi-year Lease. Growth can make the premises too small, a change in operating model may make part of the space unnecessary, or the business may decide to relocate.
The Lease should be checked for the Tenant’s ability to assign the Lease, sublease part or all of the premises, negotiate a surrender or rely on any expressly agreed break right. These mechanisms have different legal and financial consequences and may require Landlord consent.
A Tenant should not assume that moving out ends the financial commitment. Unless the Lease or an agreed arrangement releases the Tenant, contractual liabilities can continue after the Tenant has stopped using the premises.
What Is a Commercial Lease Make Good Obligation?
Make good provisions deal with the condition in which the Tenant must leave the premises when the Lease ends. Depending on the drafting, this can involve removing fit-out, reinstating alterations, repairing damage, repainting, cleaning or returning the premises to an agreed earlier condition.
The starting condition therefore needs to be established properly. Requiring the Tenant to return premises to their “original condition” can create disagreement years later if there is no reliable evidence of what that condition was.
The Queensland Small Business Commissioner recommends dealing with make good before entering the Lease and recording the condition of the premises at the beginning of the tenancy. Its guidance is available in Tips When Entering a Commercial Lease.
What Happens When a Commercial Lease Ends?
The position at expiry depends on the Lease and what the parties do before the end date. The Tenant may exercise an option, negotiate a new Lease, leave the premises or remain temporarily under a holding-over provision.
Option clauses often require notice within a defined period and can impose conditions that need to be satisfied. A Tenant planning to remain in the premises should check those requirements well before the option deadline rather than assuming renewal can be dealt with close to expiry.
Make good, final outgoings, return of security and possession of the premises also need to be dealt with. These obligations can continue after trading from the premises has stopped.
How Do Commercial Lease Laws Differ Between Australian States and Territories?
Commercial Lease law differs between Australian States and Territories because property law and legislation regulating particular business and retail tenancies is largely jurisdiction-specific. The Lease therefore needs to be considered under the law applying where the premises are located.
Retail leasing legislation is one of the clearest examples. Qualifying business premises can be subject to additional statutory requirements concerning disclosure, Lease terms, outgoings, dispute processes and other aspects of the tenancy.
| Jurisdiction | Relevant legislation may include |
|---|---|
| Queensland | Property Law Act 2023 (Qld) and Retail Shop Leases Act 1994 (Qld) |
| New South Wales | Retail Leases Act 1994 (NSW) and applicable property legislation |
| Victoria | Retail Leases Act 2003 (Vic) and applicable property legislation |
| Western Australia | Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) and applicable property legislation |
| South Australia | Retail and Commercial Leases Act 1995 (SA) and applicable property legislation |
| Australian Capital Territory | Leases (Commercial and Retail) Act 2001 (ACT) |
| Northern Territory | Business Tenancies (Fair Dealings) Act 2003 (NT) and applicable property legislation |
| Tasmania | Applicable Tasmanian property and leasing law |
A national Commercial Lease template or precedent therefore cannot be assessed only by looking at the commercial terms. The applicable jurisdiction and the nature of the premises also need to be identified.
State-specific Commercial Lease Agreement guides will be added separately so that the legal requirements and leasing practices for each jurisdiction can be dealt with properly.
Commercial Lease Agreements in Queensland
Queensland Commercial Leases need to be considered under Queensland property law and, where the premises fall within the statutory retail leasing regime, the Retail Shop Leases Act 1994 (Qld).
The Retail Shop Leases Act 1994 (Qld) imposes additional requirements on qualifying Retail Shop Leases. Whether the Act applies depends on the premises, the use and the statutory definitions rather than simply what the parties call the document.
Those requirements are dealt with separately in our Retail Shop Leases Act guide so that the Commercial Lease Agreement page can remain focused on the broader contractual and commercial issues affecting business Tenants.
Is a Commercial Lease the Same as a Retail Lease?
A Retail Lease is a type of business lease that falls within specific retail leasing legislation in the relevant State or Territory. A Commercial Lease outside that statutory regime can still cover premises used for substantial business activities, including offices, warehouses, industrial premises and other non-retail property.
The statutory test differs between jurisdictions, so the description placed on the Lease does not determine the position by itself. The premises, location, business activities and legislation need to be considered.
In Queensland, qualifying Retail Shop Leases are regulated by the Retail Shop Leases Act 1994 (Qld). The Act contains requirements that do not apply in the same way to every non-retail Commercial Lease.
Does a Commercial Lease Need to Be Registered?
Whether a Commercial Lease should or must be registered depends on the jurisdiction, Lease term, options, property and the legal requirements applying to the transaction.
Registration can affect the protection of the Tenant’s leasehold interest, particularly where the property is later sold or other dealings are registered against the title. Longer Lease terms require particular attention because the protection available to short-term tenancies may not apply in the same way.
For Queensland premises, the registration position should be considered under Queensland property and land title law. The detailed requirements belong in the separate Commercial Lease Agreement Queensland guide.
Commercial Lease Review
If the Landlord, agent or Landlord’s Lawyer has already provided the Lease documents, Rachelle Hare can review the Commercial Lease Agreement and advise the Tenant on the legal obligations, unusual provisions and commercial issues that should be considered before signing.
The review can include the Lease itself and related documents such as a Term Sheet, Agreement to Lease, incentive deed, disclosure material or other documents forming part of the proposed arrangement.
Commercial Lease Negotiation
Rachelle Hare can assist business Tenants with Commercial Lease negotiations, including negotiations concerning a Term Sheet, Heads of Agreement, Agreement to Lease and proposed amendments to the Lease.
Negotiations can address both legal drafting and the commercial allocation of risk between the Landlord and Tenant. The issues requiring negotiation depend on the proposed Lease, the premises and the way the Tenant intends to operate its business.
Commercial Lease Negotiation is provided as a separate Legal Service.
Commercial Lease Drafting
Commercial Lease Drafting may be required where the Lease or another leasing document needs to be prepared rather than reviewed in a form already produced by the Landlord’s Lawyer.
The drafting needs to record the commercial arrangement accurately and address the premises, financial terms, use, security, repairs, alterations, assignment, default, expiry and other terms relevant to the particular transaction.
Commercial Lease Drafting is provided as a separate Legal Service.
Commercial Lease Lawyer Brisbane
Rachelle Hare is a Brisbane Commercial Lawyer with more than 25 years’ experience across Commercial Law, Construction Law, General Counsel, Commercial Management and business ownership.
That experience includes dealing with contracts from both the legal and business side. Commercial Lease advice therefore includes consideration of how the proposed obligations are likely to operate for the Tenant’s business rather than reviewing provisions in isolation from the commercial arrangement.
Rachelle has also operated businesses from leased commercial premises. Issues such as fit-out expenditure, premises suitability, options, operational restrictions, occupancy costs and the ability to leave or transfer the Lease have practical consequences well beyond the wording of an individual clause.
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FAQs About Commercial Lease Agreements
1. What is a Commercial Lease Agreement?
A Commercial Lease Agreement is a legally binding contract between a Landlord and a business Tenant that sets the terms on which the Tenant occupies commercial premises. A Commercial Lease Agreement commonly deals with the Lease term, rent, rent reviews, outgoings, permitted use, security, repairs, insurance, assignment and obligations when the Lease ends.
2. Who are the parties to a Commercial Lease Agreement?
The parties to a Commercial Lease Agreement are generally the Landlord that owns or controls the premises and the Tenant that will occupy them. The Commercial Lease Agreement may also involve guarantors where directors or other parties guarantee the Tenant’s obligations.
3. What should a Tenant check before signing a Commercial Lease Agreement?
A Tenant should check the Commercial Lease Agreement against the commercial deal, the condition and suitability of the premises and the way the business will use them. The review should include rent, outgoings, rent reviews, Lease term, options, permitted use, fit-out, repairs, security, assignment, make good and the circumstances in which the Tenant can leave or transfer the Lease.
4. Can the terms of a Commercial Lease Agreement be negotiated?
The terms of a Commercial Lease Agreement can generally be negotiated before the Tenant commits to them, subject to the Landlord’s willingness to agree and any statutory requirements. Negotiations can involve rent and incentives as well as outgoings, guarantees, repairs, options, fit-out, assignment, make good and other Lease provisions.
5. Is a Term Sheet or Agreement to Lease legally binding?
Whether a Term Sheet or Agreement to Lease is legally binding depends on its wording and the circumstances in which it is entered into. A Tenant should not assume that a preliminary leasing document has no legal effect simply because the final Commercial Lease Agreement has not yet been executed.
6. What costs can a Tenant pay in addition to rent under a Commercial Lease?
A Tenant may be required under a Commercial Lease to pay specified outgoings in addition to rent. Depending on the Lease and applicable law, those costs can include rates, water charges, insurance, common area costs, maintenance expenses, management charges and other property expenditure.
7. How do rent reviews work in a Commercial Lease Agreement?
Rent reviews in a Commercial Lease Agreement determine how rent changes during the Lease term or an option period. The Lease may use fixed percentage increases, CPI adjustments, market reviews or different mechanisms at different review dates.
8. How long should a Commercial Lease Agreement be?
The appropriate length of a Commercial Lease Agreement depends on the Tenant’s business, fit-out investment, need for location certainty and expected future requirements. A longer term can provide security of tenure, while a shorter commitment can provide greater flexibility if the business is likely to grow, contract or relocate.
9. What is an option to renew a Commercial Lease?
An option to renew a Commercial Lease gives the Tenant a contractual right to take a further Lease term if the option requirements are satisfied. The Commercial Lease should be checked for the exercise period, conditions attached to the option and the rent review applying to the new term.
10. What is a make good obligation in a Commercial Lease?
A make good obligation in a Commercial Lease sets out what the Tenant must do to the premises when the Lease ends. The obligation can include removing fit-out, reinstating alterations, repairing damage, repainting, cleaning and returning the premises to a specified condition.
11. Can a Tenant assign a Commercial Lease when selling the business?
A Tenant can assign a Commercial Lease where the Lease and applicable law permit the assignment and the required process is followed. The Landlord’s consent may be required, and the Lease may set conditions concerning the proposed purchaser, documentation, costs and continuing liability.
12. Can a Tenant end a Commercial Lease before the expiry date?
A Tenant may be able to end or transfer its obligations before expiry through mechanisms such as assignment, subleasing, surrender or an express break right if one has been negotiated. Leaving the premises by itself does not necessarily end the Tenant’s financial obligations under the Commercial Lease.
13. Does a Commercial Lease Agreement need to be registered?
Whether a Commercial Lease Agreement needs to be registered depends on the jurisdiction, Lease duration, options and property involved. The registration position should be checked under the law applying where the premises are located.
14. Is a Commercial Lease Agreement different in each Australian State?
A Commercial Lease Agreement is affected by the law of the State or Territory where the premises are located. Property legislation and statutory regimes governing Retail Leases differ between jurisdictions, so the same Lease wording can require different legal consideration depending on location.
15. What is the difference between a Commercial Lease and a Retail Lease?
The difference between a Commercial Lease and a Retail Lease depends on the statutory retail leasing regime in the relevant jurisdiction. A Retail Lease is a business lease that falls within that legislation, while many offices, warehouses, industrial premises and other commercial properties fall outside the retail leasing regime.
16. Should a Lawyer review a Commercial Lease Agreement before it is signed?
Having a Lawyer review a Commercial Lease Agreement before signing allows the Tenant to identify contractual obligations, unusual provisions and issues that may need to be negotiated before the Tenant becomes bound. Rachelle Hare can provide a Commercial Lease Review where the proposed Lease documents have already been provided.
About This Commercial Lease Agreement Guide
This guide is for Australian business owners and decision-makers considering premises for their business and wanting to understand the commercial and legal issues that should be worked through before entering a Commercial Lease Agreement.
It provides general information about Commercial Lease Agreements and does not replace legal advice on a particular Lease, property or jurisdiction. Rachelle Hare can advise on the specific documents and proposed commercial arrangement before the Tenant commits.
