Reading time: 4 minutes

Commercial leases are binding agreements that set out obligations between business owners (tenants) and owners of leased property (landlords), allowing the tenant to occupy the leased property (premises). Commercial tenant rights are the terms and clauses of a commercial lease that pertain to the tenant. It is critical that before entering into a lease, a tenant reviews the agreement for certain terms which may affect them. This article unpacks the five key clauses you need to consider as a tenant when negotiating your commercial lease.

1. Lease Duration and Extension of Term

The lease duration is the length of time you are allowed to remain on the premises. It is important to review this particular term in your agreement to ensure it is suitable for your needs.

Once your lease has expired, the landlord will be under no obligation to renew it, and you will, therefore, need to find alternative premises. You might consider including a notice term should your lease have no chance of renewal.

There is no “one size fits all” approach to a lease duration – it mainly comes down to business planning.

For example, it is common for early-stage businesses only to require a short-term lease as they may wish to move on to larger premises after its expiration. Similarly, other tenants may need a longer lease with fixed option periods to ensure their tenancy is secure.

2. Rent, Outgoings and Review

As a prospective Tenant, it is important you are clear on the following:

  • The starting rent for the premises;
  • The outgoings and any other fees payable on top of the rent;
  • The way in which the rent will increase upon review (rent review);
  • When the rent review is due to take place;
  • The method that will be used for rent review (i.e. is it a review by way of a Consumer Price Index (CPI) or fixed percentage or will it be a review to market); and
  • The method of payment as well as dates for rent, outgoings and any other payments under the lease.

Most leases include clauses that will address when a landlord will review and increase the rent. Usually, a rent review will take place annually on the anniversary of the lease, using the method specified in the lease. It is prudent to seek legal advice on rental provisions and if possible, negotiate a rent reduction.

3. Insurance

The majority of commercial leases impose insurance requirements on tenants, such as:

  • Public liability;
  • Worker’s compensation; and
  • Plate glass.

The tenant will be required to take out an insurance policy and provide the landlord with a certificate of currency of insurance. Insurance is an important consideration in commercial agreements. A breach of an insurance provision could mean a violation of the lease and result in the landlord being able to re-enter and take possession of the premises.

4. Inspection When Reviewing a Commercial Lease

As a lessee, you will want to enjoy exclusive possession and use of the property. You will have a right implied under the common law to “quiet enjoyment” of the property. This quiet enjoyment will be subject to the terms of the lease and any rights expressly reserved by the landlord.

However, the landlord will not be able to interfere substantially with your use and enjoyment, provided you observe the terms of the agreement and your obligations under the lease. Accordingly, any inspection clause in the lease should be limited to certain situations and be subject to reasonable notice at reasonable times.

5. Heads of Agreement

Once the parties’ complete negotiations of the commercial terms of the lease, the first step is to enter into a “heads of agreement” (otherwise known as an “offer to lease”).

It is crucial this document accurately captures all commercial terms agreed between the landlord and tenant. It should also be specified as “non-binding” until the lease has been prepared, reviewed and signed to protect the parties.

The basis of your commercial tenant rights will subsist within the heads of agreement, lease and any other ancillary documents. It is important to review these to ensure that your rights are protected as a tenant.

Key Takeaways

In signing a commercial lease, you are signing up to a binding agreement between you and your landlord. It is essential your commercial lease is clear and reflects your needs. A clear and concise lease, setting out all matters agreed upon, will minimise risk or any unwelcomed surprises. This will help avoid future liabilities or dispute issues between you and the landlord. Lastly, it is always prudent to obtain legal advice before you commit to a long term contract such as a lease.

Questions? Get in touch with our commercial leasing lawyers on 1300 544 755.

Webinars

Construction Contract Essentials

Thursday 12 August | 11:00 - 11:45am

Online
Understand how construction contracts are drafted and how to protect your construction business.
Register Now

Startup 101: Understanding Cap Tables and ESOPs

Thursday 19 August | 11:00 - 11:45am

Online
Cap tables and employee share option plans are essential for fast-growing startups. Learn more with this free webinar.
Register Now

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • 2020 Excellence in Technology & Innovation – Finalist – Australasian Law Awards 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice – Winner – Australasian Lawyer 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards 2021 Law Firm of the Year - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer