commercial lease

What is a Commercial Lease?
Commercial lease is a legally binding contract between a business owner (tenant) and the commercial property owner (landlord). A tenant under a lease has a right to exclusive possession, meaning they can exclude all third parties including the landlord from enjoying the benefits of the property until the lease is terminated.​ ​Commercial lease agreements are generally more complicated than residential leases, because commercial leases are usually heavily customised to the individual situation. The lease terms and conditions need to be very carefully reviewed. Any mistakes could break your new business.

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Retail leases

Retail leases are a type of commercial lease, however they are governed by the Retail Leases Act 2003 (Vic). Properties will generally have a retail lease if they are primarily used for retail purposes such as the sale of goods and services. The legislation enhances the fairness and certainty of the arrangements made between landlords and tenants for retail leases. It also provides the tools and mechanisms needed to resolve disputes relating to retail leases.

 

Commercial leases

Commercial leases generally apply to buildings that are used for a commercial use such as a warehouse, office, or any building that is used primarily for a business. Unlike retail leases, commercial leases are not regulated by legislation, thus the terms of the contract vary, are negotiable and often favour the landlord.

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​Licence

A Licence is not a lease. A Licence does not offer exclusive possession, instead a licence grants permission to third parties to enter onto property for a specific purpose, where without the licence, entry onto the property would usually be considered trespass. This also means that unlike a lease, the licensor has the right to remove the licensee from the premise at any time. Licences are sometimes used when a purchaser wishes to move into the property they have purchased before the settlement date, or to allow the vendor to stay on the property after the settlement date.

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Can I negotiate the terms?
Yes, lease terms are often negotiable. The specific terms or restrictions which may be up for negotiation include the rent amount, rent increases, the duration of the lease, the modifications you can make to the property and whether you can transfer or assign the lease.

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What else should I look for?
Some of the common things we find we need to discuss with clients include:​

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• If you’re a new business, check that the length of the lease suits you, as many landlords prefer to lock in a longer lease.

• There are several ways to calculate rental increases so make sure you understand and agree to the one chosen by your lessor.

• Read the section on property improvements very carefully as it should set out who can make changes, who pays for the modifications and whether you have to return the property to it’s original condition at the end of the lease.

• Make sure the lease includes all of the areas you expect to use including bathrooms, parking areas and common areas.

• Be careful that the lease doesn’t stop you from erecting signs in certain areas.

 

Please seek legal advice before you make any commitments, including signing an offer, paying a deposit or moving into the property.

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