Key Legal Considerations for Entrepreneurs Before Signing a Commercial Lease

In Short

• Before signing a lease, confirm that the premises suit your business needs and comply with local zoning laws.
• Understand key terms, including rent, renewal options and repair obligations, to avoid unexpected costs.
• Negotiate lease terms where possible, especially around rent increases, fit-out requirements and exit options.

Tips for Businesses

Take time to review your lease carefully before signing. Check for hidden costs, clarify who is responsible for repairs, and confirm any fit-out or refurbishment obligations. Negotiating flexible terms, such as a break clause or rent-free period, can help protect your business. Seeking legal advice early can prevent costly mistakes.

Summarise with:

ChatGPT Gemini Perplexity Microsoft Copilot

Open now

---

Table of Contents

• Permitted Use 
• Term and Renewal Options  
• Rent
• Repair and Maintenance  
• Fit-Out and Refurbishment 
• Key Takeaways
• Frequently Asked Questions

Starting a business is an extraordinary feat in any one person’s professional career. There are many things an entrepreneur needs to consider to ensure their business hits the ground running. Alongside establishing the business’ brand identity, hiring employees and setting up processes and systems, the business’ location is another important factor to consider. Once you have found a location to run your business, you will want to enter into a leasing agreement with the landlord. Prior to signing the leasing agreement, there will be important legal and commercial factors to decide with the landlord. This article sets out the legal aspects you will want to consider prior to signing a commercial or retail lease. 

Permitted Use 

Whether you are using the premises to operate a cafe, a restaurant or an office, the lease must state what you are permitted to use the premises for. The landlord will often not make warranties as to the suitability of the premises for your intended use.

It is important to make enquiries with the local council about zoning regulations and ensure the lease correctly covers what you are doing on the premises. Getting this right will avoid certain violations and fines from the council as well as potential future breaches with operating outside the scope of permitted use on the premises.   

Term and Renewal Options  

There is no market standard length of tenure in a lease agreement. But it is an important factor for your business’ planning and flexibility. 

For example, if you are starting with 50 employees but are projected to grow to 150+ employees after three years, your current commercial office may not accommodate the growth in terms of space and infrastructure. You will want to relocate to a bigger location. However, you will need to consider:

• convenience and accessibility for current employees; 
• distance from public transport and retail outlets; and 
• the financial viability of operating the business at the new location/premises. 

That being said, you may want to opt for a shorter initial term which provides you with flexibility but less stability. Alternatively, you can decide on a longer initial term. The process of deciding the term and options for renewal does not have to be complicated.

How to End a Lease Factsheet

Need to exit your commercial lease early? Download this free guide to understand your options and avoid costly mistakes.

Download Now

Rent

Rent will be a major ongoing expense for your business, so understanding the potential increases over time in addition to costs under the lease, will help you budget and manage cash flow projections. For example, you should plan to pay for: 

• outgoings; 
• services;
• cleaning charges; and
• utilities.

The rental clauses in the lease will often cover:

• what happens in the event of late payments; 
• when the rent falls due; 
• how the rent is calculated;
• how it is to be paid; and 
• the rental review methods. 

Repair and Maintenance  

Often a source of major leasing disputes, this is a clause that deals with which party bears the costs of repairs. Clarity over repair responsibilities avoids unexpected costs and potential delayed disputes with the landlord. Be aware of your responsibilities for repairs and maintenance, as well as the landlord’s obligations. You will want to carefully review these clauses with a leasing lawyer and seek amendments with the landlord, if recommended, before signing the lease. 

Fit-Out and Refurbishment 

Fitting out the premises means ensuring that the rental space is suitable for your permitted use and business operations. As an entrepreneur, you may take extra steps to customise the space in a way that is suitable for occupancy and conducive to the success of your new business. 

In that sense, the fit-out clause or deed will deal with:

• the requirements for consent and certain approvals you need to satisfy; 
• when you may be permitted to access the premises to undertake such fit-out works; 
• the guide and work conditions for undertaking the fit-out; and 
• your risks and indemnities. 

Key Takeaways

Starting a new business is an exciting time, but it can also be quite tricky. Adding to the complexities of establishing a new business is the consideration of a suitable and appropriate business location. Once you have found a premises, you may be eager to take the next step and sign the leasing agreement as soon as possible. However, you should ensure you understand several sections of the lease, including: 

• permitted use; 
• rent and rental reviews; 
• term and renewal periods; 
• repair and maintenance obligations; and
• fit-out and refurbishment clauses. 

If you are an entrepreneur at the cusp of signing a new lease, our experienced leasing lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page. 

Frequently Asked Questions