Before You Sign That Commercial Lease… Read This First
You’ve found the perfect premises. The location is ideal. The fit-out looks right. The agent says, “It’s a standard lease.”
There is no such thing as a standard commercial lease.
A commercial lease is one of the most financially significant documents your business will sign. Unlike residential leases, commercial tenants in NSW do not receive the same statutory protections. What you agree to at the beginning can impact your cash flow, flexibility, risk exposure and even the future sale of your business.
At Renee Roumanos Legal, we regularly act for business owners who come to us after signing — when the risks have already materialised. The better time to seek advice is before you commit.
Here are the key issues every business owner should carefully review.
1. Is It a Retail Lease or a Commercial Lease?
In NSW, some premises are governed by the Retail Leases Act 1994, which provides additional protections for tenants.
If your business falls within the Act:
The landlord must provide a Disclosure Statement.
There are restrictions on recovery of certain costs.
Minimum five-year lease terms may apply (unless waived).
Specific rules apply to rent reviews and outgoings.
If it is not a retail lease, you will largely be governed by the terms of the lease itself and the general law.
Understanding which regime applies is critical before signing.
2. Rent Structure and Rent Reviews
It is not just the starting rent that matters — it is how it increases.
Check:
Is the rent review fixed percentage, CPI, market review or a combination?
Are there “ratchet” clauses preventing rent from decreasing on market review?
How often does rent increase?
Small percentage increases compounded over a 5-year term can significantly affect profitability.
3. Outgoings – What Are You Really Paying For?
Commercial tenants often contribute to outgoings such as:
Council rates
Water rates
Land tax
Insurance
Strata levies
Management fees
Land tax in particular can be a substantial cost. Retail leases have restrictions around land tax recovery; commercial leases often do not.
We carefully review outgoing clauses to ensure they are properly defined and not open-ended.
4. Personal Guarantees
Many landlords require directors to provide personal guarantees.
This means:
You are personally liable for unpaid rent and damages.
Your personal assets may be exposed.
Liability can extend beyond the lease term if not properly drafted.
Personal guarantees should never be signed without legal advice.
5. Make Good Obligations
“Make good” clauses are one of the most litigated areas in commercial leasing.
You may be required to:
Remove fit-out.
Reinstate the premises to original condition.
Repair fair wear and tear.
Redecorate or repaint.
If the clause is broad, you could be facing tens of thousands of dollars at the end of the lease. Clarity at the outset avoids costly disputes later.
6. Assignment and Exit Flexibility
Businesses evolve. You may wish to:
Sell the business.
Bring in a partner.
Assign the lease.
Sublease part of the premises.
Some leases make assignment difficult or allow the landlord wide discretion to refuse consent.
If your exit strategy is not considered at the beginning, you may find yourself locked into obligations that no longer suit your commercial reality.
7. Options to Renew
Options must be exercised strictly in accordance with the lease.
Missing the notice period — even by a day — can result in losing your option entirely.
We recommend diarising option dates and ensuring clear processes for renewal.
8. Default and Termination Clauses
What constitutes a default?
How much notice must be given?
Can the landlord terminate immediately?
These clauses determine how vulnerable your business is if cash flow tightens or disputes arise.
Strong legal drafting can significantly shift the balance of power.
9. Fit-Out and Incentives
If the landlord is contributing to fit-out or offering rent-free periods:
Are the conditions clear?
Is there a clawback if you terminate early?
Are bank guarantees required?
Incentives are not always “free”.
10. Bank Guarantees and Security Deposits
Security may be required by way of:
Bank guarantee.
Cash bond.
Personal guarantee.
We assess whether the amount is commercially reasonable and ensure release mechanisms are clearly drafted at the end of the term.
Why This Matters
A commercial lease is not just a tenancy document. It is a risk allocation document.
It determines:
Your financial exposure.
Your flexibility.
Your personal liability.
The future value of your business.
At Renee Roumanos Legal, we take a risk-first approach. We do not just “read the lease”. We identify issues, explain them in plain English, and negotiate where appropriate so that your lease supports your business — rather than restricts it.
Thinking of Signing a Commercial Lease?
Before you sign, have it reviewed properly.
The cost of early advice is small compared to the cost of a poorly drafted lease.
Contact Renee Roumanos Legal today to ensure your commercial lease protects you, your business and your future.
Your business deserves more than “it’s standard”.
