June 2025 – Nicola Sharp
Navigating commercial leases: a guide for small business owners
A Commercial Lease is a legal agreement between the Lessor/Landlord and the Lessee/Tenant that details the right and obligations of each of the parties regarding the premises.
In NSW, there is a distinction between Commercial Leases and Retail Leases. Retail Leases typically apply to premises where goods are sold and they are governed by the Retail Lease Act 1994 (NSW).
If a Landlord and Tenant enter into a Retail Lease they will also both sign a Disclosure Statement. The Disclosure Statement is an important summary of the premises, the parties financial obligations, as well as any statement or representation made by either party when they entered into the Lease.
Key terms and clauses in a Commercial Lease
Several key terms will be noted in the lease including:
(a) parties – be sure these details correctly note precise names of the Landlord and the Tenant.
(b) premises – it is important that the premises are clearly detailed, particularly if the leased property is only part of the whole property. The lease should also state if there are car and/or storage spaces included and whether or not the Tenant can use any common areas.
(c) term – the lease should state when the lease commences (the Commencement Date) and when the lease ends (the Terminating Date). If a lease exceeds 3 years (including any option term) it will need to be registered with NSW Land Registry Services.
(d) options to renew – the lease may include provision to lease the premises for an additional term. It is very important to note when and how the Tenant needs to exercise the option to renew the lease. A new lease will be prepared on the same terms as the original lease except there may be an increase in rent and other specific initial term provisions may be removed (for example, a rent incentive).
(e) rent – the lease will clearly state the rent that is payable and how it is to be paid (for example, on the first of each month, by monthly instalments). It will also state whether the rent is inclusive or exclusive of GST.
(f) rent reviews – the lease will state when and how rent will increase. This will likely be each year on the anniversary of the Commencement Date and on the commencement date of the new term if the option to renew has been exercised. Rent may be increased by a fixed amount or percentage, by the Consumer Price Index or in accordance with current market rent.
(g) permitted use – the Tenant must satisfy themself that their intended use aligns with council regulations and is responsible for obtaining approvals from the local council for their proposed use of the premises and if they are making any changes to the premises.
(h) outgoings – the Tenant is often required to pay for outgoings in addition to the rent. The lease will state the share of outgoings that is payable and what outgoings are to be paid (for example, local council rates and charges, land tax, building insurance, etc.). It is important to remember that outgoings are separate from utility charges. Whether or not outgoings are inclusive of rent or paid in addition to rent, the Tenant is responsible for payment of all utility charges (being water usage, gas, electricity, telecommunication, etc.).
(i) bank guarantee / security bond – a bank guarantee or security bond provides the Landlord the security of a guaranteed payment of the Tenant’s debt. This protects the Landlord if the Tenant does not meet a rent payment, causes damage to the premises or fails to “make good” the premises when departing. The Landlord will need to return any bank guarantee / security bond to the Tenant after a certain period once the lease ends. This should also be noted in the lease.
(j) repair, maintenance and make good – the Landlord is obliged to keep the premises in a good and serviceable condition (including maintaining essential services). The Tenant is obliged to keep the premises in the same condition as at the Commencement Date and attend to any repairs (but not include improving the property, repairing structural defects or fair wear and tear) to ensure this. When the lease ends, the Tenant will generally need to return the premises to the state it was as at the Commencement Date. All make good provisions will be thoroughly detailed in the lease.
(k) insurances – the lease will state the insurances and the amount of such insurances, the Tenant is required to keep current during the lease term. At a minimum, this would include public liability insurance and plate glass insurance.
It is a good idea that you review the lease and make sure it aligns with any agreement you had previously entered into. We are always happy to assist with this review and answer any questions you may have regarding the lease.
Contact Harris Freidman today for all of your leasing needs.