What to check before signing a commercial lease

Before anything else, find out which kind of lease you are being offered. A retail shop lease and a plain commercial lease can cover identical premises at identical rent, and they sit under completely different rules. One comes with a statutory floor. The other is whatever the document says.

Almost nobody checks this first. It decides everything that follows.

First question: is it a retail lease?

You do not get to choose. The classification comes from the premises, the business and the state.

In New South Wales, the Retail Leases Act 1994 covers premises under 1,000 square metres used for a retail business listed in Schedule 1 of the Act, for a term between six months and 25 years. A business that is not on that list is still covered if the premises sit inside a shopping centre.

Every state runs its own version of that test. The shape is similar and the detail is not.

So a café in a shopping centre is almost certainly retail. A café in a standalone building on a main road may not be. Same coffee, same rent, different law.

Ask the landlord's agent directly, in writing, before you sign. The answer changes what they are obliged to tell you, and their answer in writing is worth having either way.

What changes if it is a retail lease

Retail legislation does three things a plain lease does not.

It forces disclosure before you commit. In NSW the lessor must give you a disclosure statement at least seven days before the lease starts, and you return your part within seven days of receiving it. The statement sets out the agreed terms, the outgoings, the fit-out standard and any planned disruption.

It puts a floor under the term. NSW retail leases run a minimum of five years. In Western Australia the Commercial Tenancy (Retail Shops) Agreements Act 1985 gives a retail tenant the right to a minimum tenancy period of up to five years.

It controls the money. Outgoings have to be estimated in advance and reconciled afterwards. In NSW the lessor gives an estimate by 31 May, an audited statement by 30 September, and the parties settle any shortfall by 31 October. Undisclosed outgoings might not have to be paid at all.

There are smaller protections that matter more than they sound. In Western Australia the landlord cannot make you pay their legal costs of preparing, negotiating or renewing the lease, and operating expenses have to be itemised one by one. In NSW the lessor must not take key money, and a cash bond has to be lodged with NSW Fair Trading within 20 business days.

What you get if it isn't

Much less. On a plain commercial lease — an office, a warehouse, a factory unit — there is usually no disclosure statement, no minimum term, no outgoings timetable and no statutory cap on what can be passed through to you.

The lease is the law. What you negotiate is what you get, and what you fail to notice is what you agreed to.

That is not a reason to panic. It is a reason to read the document differently. On a retail lease, a bad clause may be overridden by the Act. On a commercial lease, a bad clause is simply the deal.

Which Act applies where you are

Name the instrument before you argue about the clause.

Tasmania is the one that catches people. It runs on a code of practice rather than the retail leases statute other states have, so advice written for a NSW or Victorian tenant can point at an Act that does not apply to you.

Each state also has a small business commissioner or equivalent. In Victoria the Victorian Small Business Commission runs free preliminary assistance and low-cost mediation on retail lease disputes. Using it costs a fraction of a court proceeding and most tenants never learn it exists.

The money: rent is the smallest number in the lease

Base rent is the figure you negotiate and the one you remember. It is rarely the figure that hurts.

Outgoings are the operating costs passed through to you. In NSW the recoverable list runs to land tax, cleaning, security, promotional fund levies, council rates, water, utilities, insurance, pest control, emergency services levy, management fees and audit fees. On a multi-tenant site you pay a proportion of each. Ask for the last two years of actual figures, not an estimate, and ask what your proportion is and how it was calculated.

Rent reviews decide what you pay in year three. There are four common methods, and they do not carry equal risk.

• A fixed percentage is predictable and compounds. 4% a year is a 21% rent rise over five years

• CPI tracks inflation and is usually the mildest of the four

• A market review resets to what the premises would fetch today. It is the one that moves most

• A greater-of formula — the higher of CPI or a fixed percentage — only ever moves one way

If you and the landlord cannot agree on a market review, the retail Acts provide a process. In NSW a specialist retail valuer is appointed by the Small Business Commission and the parties share the cost equally, which can run upwards of $1,500 per party.

The clause that decides how you leave

Make-good is the sleeper. It sits at the back of the lease, it costs nothing to agree to, and it lands as a bill years later when the business is either finished or moving.

The obligation is usually to return the premises in an empty and neutral state. That is not necessarily the condition they were in when you arrived. A broadly drafted clause can require you to strip the premises back to bare shell and repaint, including work that removes a fit-out the landlord approved and benefits from.

Three things to do at signing, and they cost nothing at the time.

Photograph everything. Date-stamped, every room, before your fit-out starts. This is the evidence of the condition you have to return the premises to.

Attach a condition report to the lease. An agreed schedule at signing beats an argument at the end.

Push for a cap or a carve-out. A dollar cap on make-good, or a clause saying approved fit-out items can stay, changes the size of the final bill more than anything you negotiate on rent.

What you are personally on the hook for

A lease signed by your company is not automatically limited to your company.

A personal guarantee makes you personally liable for the lease if the company cannot pay. It does not end when you sell the business, unless it says so. It does not shrink as the lease runs down. It is the single clause most likely to follow a director out of a failed business.

A bank guarantee is a promise by your bank to pay the landlord up to an agreed limit. The money is real — your bank will hold it as security — but the exposure is capped at the amount, and it is capped in writing.

If you are asked for both, ask why one is not enough. If you cannot avoid a personal guarantee, ask for it to be capped in amount, limited in time, or released once a payment record is established. None of those is unusual. They are just rarely offered.

The dates that cost you the premises

An option to renew is a right you can lose by saying nothing.

The deadline to exercise an option is usually some months before the lease ends, not the last day. Miss it and the option is gone, along with your negotiating position, because the landlord now knows you have nowhere to go.

Put three dates in the calendar the week you sign:

1. The option exercise window — open and close, with a reminder two months before it opens 2. The rent review dates — so a market review is not the first you hear of it 3. The lease expiry — twelve months out, which is when a relocation actually has to start

In NSW the lessor has to tell you whether the lease will continue at least six months before expiry and not more than twelve months before. That notice is useful. It is not a substitute for your own diary.

Unfair terms reach leases too

This is newer than most lease advice accounts for.

The unfair contract terms rules in the Australian Consumer Law apply to standard form contracts, and a grant of an interest in land is within their scope. A lease handed to you unchanged, on the landlord's standard document, with a take-it-or-leave-it position, has the shape the test is looking for.

That does not make a hard clause unfair. The test asks whether the term creates a significant imbalance, whether it is reasonably necessary to protect the landlord's legitimate interests, and whether it would harm you if enforced. A one-sided termination right or an unlimited variation power is the kind of term worth asking about — and we have written separately on what that regime now costs.

What to do before you sign

Six things, in order.

1. Get the classification in writing. Retail or not, and under which Act.

2. Ask for the disclosure statement. If it is a retail lease you are entitled to one. If it is not, ask for the same information anyway and see what comes back.

3. Get two years of actual outgoings. Not the estimate. The invoices.

4. Model the rent at year three and year five. Apply the review method in the draft. If it is a greater-of formula, model it at the higher branch.

5. Read the make-good clause and price it. A quantity surveyor's rough number before signing is cheaper than the argument afterwards.

6. List every personal exposure. Guarantee, bank guarantee, bond, indemnity. One page. If you cannot fit it on one page, that is the finding.

When to call a lawyer

Three situations where reading carefully is not enough.

A fit-out you are paying for. Once you are spending capital on someone else's building, the make-good, the term and the option all have to work together, and that is a drafting job.

A lease you are taking over or handing on. Assignment brings its own disclosure duties and its own traps, and the liability does not always travel with the premises.

A dispute that has already started. Go to your state's small business commissioner first — mediation there is cheap and fast — but get advice before the first letter.

What this doesn't cover

Leases over 25 years and leases outside the retail definitions in each state. Licence arrangements and shared workspace agreements, which are not leases at all and carry none of this. Stamp duty, land tax and GST treatment, which turn on your own position. And the exact per-state tests for what counts as retail — this guide names the instrument for each state, not the full test, and the test is where the argument usually is.

Verified 16 September 2026, against the retail tenancy guide on smallbusiness.nsw.gov.au, the commercial leases guidance on smallbusiness.wa.gov.au, the retail tenants pages on vsbc.vic.gov.au, the retail tenancy page on cbos.tas.gov.au, and the current Acts on legislation.qld.gov.au, legislation.sa.gov.au and legislation.act.gov.au.

A lease is the longest contract most businesses ever sign, and the least read. Upload the draft before you sign it. Every clause is scored, the outgoings, review, make-good and guarantee clauses are checked against the Act that governs the premises, and the ones that fail come back rewritten.