What to check before you sign a commercial lease

A commercial lease is usually a long-term commitment with significant financial consequences. Once it is signed, the terms are difficult to change, so it is worth understanding what you are agreeing to before you do.

Is it a retail lease?

In NSW, leases of retail shops are generally covered by the Retail Leases Act 1994, which gives tenants additional protections, including a disclosure statement from the landlord before the lease is signed. Whether the Act applies depends on the type of premises and business, so check this first.

The clauses to read carefully

• Term and options. How long is the lease, and do you have a right to renew? Options to renew usually have to be exercised within a set window.
• Rent and rent reviews. Check the starting rent and how it will increase: a fixed percentage, CPI or a market review. Market reviews can lead to large increases.
• Outgoings. Many leases require the tenant to pay a share of council rates, insurance, strata levies and maintenance. Ask for a history of actual outgoings.
• Security. Bonds, bank guarantees and personal guarantees can put your personal assets at risk. Understand exactly what you are guaranteeing and for how long.
• Permitted use and exclusivity. Make sure the lease allows your intended business and, where relevant, whether the landlord can lease nearby premises to a competitor.
• Repairs and make good. Check who is responsible for repairs and what you must do to restore the premises when the lease ends.
• Assignment and subletting. If you may sell your business, you will usually need the landlord's consent to transfer the lease.
• Default and termination. Look at when the landlord can terminate and what notice and opportunity to fix a breach you receive.
• Incentives. If you were promised a rent-free period or a fit-out contribution, make sure it is written into the lease.

Before you sign

Don't rely on verbal promises. Anything important, including promises made by a leasing agent, should appear in the lease. Ask for a copy of the lease and any disclosure statement early, and have it reviewed before you sign, particularly if there are guarantees or a long term.

Frequently Asked Questions

Can I negotiate a commercial lease?

Yes. Many terms, including rent, incentives and options, are negotiable, particularly before you sign.

What is a personal guarantee?

A promise by a director or owner to pay the company's lease obligations personally if the company cannot.

What does make good mean?

An obligation to restore the premises, often to their original condition, at the end of the lease.

Do I need a lawyer to review a lease?

It is strongly recommended, because the consequences of a lease can last for years.