A premises can be the making of a business – or a costly commitment that keeps draining cash long after the excitement of opening day has passed. This Sydney commercial lease guide is for business owners who want straight answers before signing: what you are agreeing to, where the real risks sit, and which terms are worth fighting for.
A lease is not just a document that gives you the keys. It allocates risk between landlord and tenant for years at a time. Rent is only one part of that bargain. Outgoings, repairs, rent reviews, personal guarantees, make-good obligations and assignment rights can all affect whether a site supports your business or restricts it.
Start with the right question: retail or commercial lease?
The name of the document is not decisive. In New South Wales, some arrangements are governed by the Retail Leases Act 1994, while others sit outside it under general contract and property law. The distinction matters because retail tenants may have statutory protections concerning disclosure, minimum terms and certain costs.
A shop selling goods or services to the public will often be a retail lease, but the position can depend on the premises, use and surrounding circumstances. An office, warehouse, industrial unit or professional suite may be a commercial lease. Do not assume that calling a premises a commercial space removes retail lease protections, or that a prominent shopfront automatically gives you every protection available.
Before you negotiate terms, establish what regime applies. This affects the disclosures you should receive, the costs that can be recovered and the options available if there is a dispute. It is a legal question worth resolving early, not after you have committed money to a fit-out.
The Sydney commercial lease guide to the clauses that matter
Rent is only the starting number
Ask how the rent is structured and when it changes. A lease may provide for fixed annual increases, CPI increases, market reviews, or a combination of these. Fixed increases give certainty, but can become expensive if trading conditions weaken. Market reviews can be fair in a rising or falling market, yet they introduce uncertainty and can create room for disagreement.
For retail premises, percentage rent may also apply once turnover reaches an agreed threshold. Make sure the turnover definition is clear. Online sales, refunds, GST, delivery fees and sales generated from another location can materially change the calculation.
Also check whether the stated figure is exclusive or inclusive of GST. A surprisingly common problem is treating a quoted annual rent as the total occupancy cost, only to receive separate demands for GST, outgoings and management charges.
Outgoings need a hard look
Outgoings can include council rates, water charges, strata levies, insurance, land tax where permitted, security, cleaning, air-conditioning, utilities and centre management costs. The list may be long, but that does not mean every item should be accepted without scrutiny.
You should know exactly what is recoverable, how your share is calculated, whether there is a budget, and how frequently the landlord can reconcile actual costs against estimates. A vague clause allowing the landlord to recover all expenses connected with the building gives little certainty.
Pay particular attention to capital expenditure. A landlord may try to pass through major works, upgrades or compliance costs. There are situations where a tenant contribution is reasonable, particularly where work directly benefits the premises or results from the tenant’s use. But a tenant should not casually accept responsibility for improving or repairing the landlord’s long-term asset.
Term, options and break rights determine your flexibility
A longer term can justify the expense of fitting out a café, medical practice or specialist retail site. It may also give a landlord confidence to contribute to works. The trade-off is obvious: if revenue falls, you remain bound.
Options to renew can protect the value you build at a location, but only if the exercise conditions are practical. Missing an option deadline by a few days, failing to give notice in the required form, or being in technical breach can put an otherwise valuable renewal right at risk. The lease should clearly state when and how the option is exercised, and how the new rent will be set.
Break clauses are less common, but worth pursuing where the business model is new, the site is untested or expansion plans are uncertain. A break right may require notice, payment of all amounts due and satisfaction of repair obligations. Those conditions must be achievable. A right that can be lost over a minor dispute is not much protection.
Repairs and make-good can become an end-of-lease shock
Tenants often focus on the fit-out and overlook the exit. The repair clause may require you to keep the premises in good repair, even if it was already worn when you moved in. A condition report, photographs and a schedule of existing defects should be agreed before occupation. Without that record, proving that damage was pre-existing becomes much harder.
Make-good clauses commonly require removal of fit-out, signage, cabling, partitions and equipment, then reinstatement to a base-building condition. For a restaurant, gym or heavily fitted medical premises, this can cost tens of thousands of pounds equivalent in Australian dollars. The landlord may retain the right to decide at the end of the term what must be removed, creating uncertainty when you most need a clear exit budget.
Negotiate the make-good scope now. If particular fixtures will stay, record that agreement expressly. If the landlord wants a bare shell returned, include that cost in your financial modelling before the lease is signed.
Do not sign a personal guarantee lightly
Landlords frequently require directors or business owners to guarantee a company tenant’s obligations. This can mean that if the company cannot pay rent or repair costs, the guarantor’s personal assets may be exposed.
A guarantee may extend beyond the initial term, cover renewals, survive assignment, and include legal costs. These are serious obligations. Where possible, negotiate limits such as a capped amount, a defined time period, or release on assignment to a financially sound incoming tenant. The outcome depends on the strength of your bargaining position, but asking the question is far better than discovering the exposure during a dispute.
Protect your ability to sell, relocate or grow
Businesses change. You may need to sell the business, bring in a partner, move to a larger site or close a location that no longer works. Your lease should not make every change unnecessarily difficult.
Review assignment and subletting provisions carefully. Landlords are entitled to protect the quality of their building and assess a proposed incoming tenant. But consent should not be withheld or delayed without proper reason, and the process should be clear. Consider whether you remain liable after assignment, whether the landlord can require a new guarantee, and who pays the legal and administrative costs.
Exclusive-use clauses may matter if your business depends on being the only operator of its kind in a centre. Conversely, a permitted-use clause that is too narrow can prevent sensible expansion of your offering. A bakery that later wants to add light meals, catering or online collection should not discover that its lease only permits the sale of bread.
Treat the heads of agreement as a real commitment
Many tenants view a heads of agreement as informal. It may be subject to contract, but it often sets the commercial position that drives the final lease. By the time the full document arrives, the landlord may regard the major points as settled.
Use the heads of agreement to address rent, incentives, fit-out contributions, term, options, rent reviews, outgoings, permitted use, exclusivity, guarantees, assignment and make-good. If an incentive is offered, establish whether it is paid as a rent-free period, a contribution to works or a cash payment, and whether it must be repaid if the lease ends early.
Never let urgency replace proper review. A landlord’s deadline, a planned opening date or pressure from a selling agent does not change the legal and financial consequences of a poor clause.
Before signing, match the lease to the business plan
Read the lease alongside your cash-flow forecast, fit-out proposal and insurance requirements. Confirm that planning approval, council requirements, fire safety rules and any required licences support your intended use. A lease can bind you to pay for premises that cannot lawfully operate in the way you expected.
It is also wise to inspect the premises with the right experts. A building issue, inadequate power supply, restricted ventilation or unapproved existing works can turn an attractive site into an expensive problem. Legal review cannot replace commercial due diligence, but it should bring the findings together and allocate responsibility clearly.
A strong lease negotiation is not about winning every clause. It is about identifying the risks that could seriously damage your business and refusing to leave them to chance. For Sydney business owners, clear advice before commitment can preserve capital, protect personal assets and leave room to build with confidence. If the terms are complex or the stakes are high, El Baba Lawyers can provide direct, commercially focused advice before the agreement becomes binding.
