Commercial Lease

A commercial lease is a legally binding contract granting a tenant, usually a business owner, exclusive possession and the right to occupy a non-residential property in exchange for rent. The non-residential property is usually rented for business purposes such as office space, industrial facilities, warehouses, and medical or professional suites. Sometimes a commercial lease can be used for retail shops, however, in NSW, this depends on the location of the retail space and whether it is subject to the Retail Leases Act 1994 (NSW) which usually applies to retail space in shopping centres. Commercial leases in NSW are governed by other property law including the Real Property Act 1900 (NSW) and the Conveyancing Act 1919 (NSW).

Commercial leases are different to residential leases and are not usually covered by the Residential Tenancies Act 2010 (NSW). Commercial leases can be as short as month to month or much longer and often have terms allowing extensions to the lease with options. This gives businesses more stability. Terms of commercial leases are highly negotiable and much less regulated, with the rights and responsibilities of the tenant usually included in the lease contract. In addition to rent, tenants are often responsible for a proportion of the property’s ongoing expenses such as insurance, council rates, maintenance and utilities. It is not uncommon for the landlord to recover their land tax within the commercial lease. The tenant is generally also responsible for the internal fit-out of the space to suit their business needs. The lease will usually specify a “make good” clause, which requires the tenant to return the property to its original condition when the tenant moves out.

The commercial lease that the landlord and tenant sign will generally include:

The name of both the landlord and the tenant.
Description of the premises.
The terms of the lease such as commencement and expiry dates of the lease and whether there are any options to renew.
Rent rate, how rent will be paid and when the rent will be reviewed.
Operating expenses as well as any outgoing expenses.
Permitted use of the premises and any compliance requirements such as licences or regulatory approvals.
Who is responsible for maintenance, repairs and services to the building.
Who is responsible for the fit-out and any alterations, as well as the reinstatement of the premises to its original condition.
Responsibilities of the tenant.
Responsibilities of the landlord.
Insurance (public liability for the tenant and building insurance for the landlord).
If the tenant can sublet any of the premises.
The landlord’s access to the premises.
Compliance issues such as work health and safety.
Dispute resolution mechanisms.
Defaults and remedies.
Registration or execution requirements.
Any other miscellaneous arrangements.

Please note, it is not a mandatory requirement to register a commercial lease, however, for Torrens title land, a lease with terms exceeding three years (including options) needs to be registered on title so there is a legal leasehold estate. Unregistered long leases run the risk of only creating an equitable interest for the tenant. The NSW Land Registry Services requires a prescribed dealing form to register the lease. The form must be properly executed and witnessed to satisfy NSW requirements.

We recommend that you seek legal advice before entering into a commercial lease, as they are often complex and have considerable legal and financial implications for both the landlord and the tenant.

Any information on this website is general in nature and should not be taken as personal legal advice. We recommend that you speak to a lawyer about your personal circumstances.