Reading time: 6 minutes

As you likely know, a commercial lease is a serious financial commitment. When tenants sign a lease agreement, they generally agree to pay the rent for the whole term. For this reason, committing to a commercial space involves many considerations, regardless of whether you are looking for a new office space or another retail site. To help guide your decision-making before you sign a commercial lease, you should consider:

  • hiring a lawyer to review the lease terms;
  • the difference between commercial leases and retail leases;
  • whether the lease is assignable; and
  • what insurance policies you should obtain during the lease period.

By keeping these considerations in mind, you can make a better-informed decision before signing a commercial lease.

Have You Obtained Legal Advice About The Lease Terms? 

As mentioned above, both parties are committed to the terms and conditions of the leasing contract once they sign it. For this reason, it is essential that you:

  • negotiate strategically with the landlord;
  • ensure that the lease agreement reflects what you had agreed; and
  • you subsequently comply with the terms of the lease.

Since a tenant typically has less bargaining power when negotiating a lease relative to a landlord’s power, having a lawyer review the draft lease teams can help you identify whether terms are standard practice or an anomaly in your business context. For example, your commercial lease might make you responsible for certain structural repairs to the premises when this might be unreasonable in the circumstances. Subsequently, an expert lawyer can identify any clauses you should renegotiate. They can also help you understand what the renegotiated term should look like to suit your business arrangement.

Is Your Lease Commercial or Retail? 

Whilst a lease may be headed as a ‘commercial lease’ or a ‘retail lease’, the substance of the lease terms might reflect otherwise. If you end up litigating a dispute over the lease, the court will not take the lease agreement at its face value. That is to say, if the agreement is headed as a ‘retail lease’, but its content reflects a commercial lease, the court will consider it to be a commercial lease. For this reason, it is important to note the difference between a commercial and retail lease. This can impact your rights and duties under the agreement.

The main difference is that commercial leases usually apply to premises used for office spaces, warehousing, or industrial spaces. On the other hand, a retail lease usually applies to premises used for selling goods in shopping centres.

If you are signing a retail lease instead of a commercial lease, different rules will apply to how it operates. For example, under a retail lease, your landlord is required by law to disclose certain details about the premises. If the landlord fails to disclose the details relevant to the premises fully, the tenant has the right to terminate the lease within six months after commencement.

Ultimately, if you are unsure whether your commercial lease might be considered a retail lease, you should seek legal advice. This will help to clarify your rights and obligations under the agreement.

Managing a Lease When Purchasing a Business

This guide will help you to understand your options when you purchase a business with leased premises.

Download Now

Is the Commercial Lease Assignable?

Another main point of consideration for many business owners is whether their commercial lease is assignable. Put simply, when you assign a lease, you transfer all your obligations as a tenant under the commercial lease to a new tenant that was likely not a party to the original lease agreement. Subsequently, the new tenant becomes responsible for paying rent, any outgoings and fulfilling the repair and maintenance obligations.

Having the option to assign a commercial lease can provide security for businesses when entering into a commercial lease agreement. This is because if their business fails to succeed or they need a more suitable space for their expanding operation, they might find it necessary to assign the commercial space to another party. For this reason, you must clarify whether the commercial lease is assignable, as this can prove to be a helpful right in the long term.

Do You Have Adequate Insurance Policies In Place?

Typically commercial leases will include insurance policies that the landlord requires their tenants to have. These policies generally require that the:

  • landlord must be listed as an interested party or jointly named on the policy;
  • policy will not lapse unless you give the landlord prior notice; and
  • policy extends to common areas of the leased premises.

Beyond the policies listed in the lease agreement, it is important to consider broader policies that you might need to protect your business. Subsequently, an insurance broker can provide you with advice on what these additional policies should be to protect your business. Additionally, an insurance broker can provide you with certificates of currency that are necessary for you to obtain before accessing the leased premises.

Key Takeaways

Before you sign a commercial lease, you should:

  • retain a lawyer to review the lease agreement;
  • consider whether you are signing a commercial or retail lease agreement; 
  • identify whether you have the right to assign the lease; and 
  • ensure you have adequate insurance policies in place in addition to what is prescribed in the lease agreement.

If you need help reviewing the terms of your commercial or retail lease, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is a short term lease?

A short term lease runs for less than three years. In NSW, it is not compulsory for landlords to register a tenancy less than three years long. Indeed, short term leases are becoming increasingly popular in the context of co-working spaces, startups and pop-up shops.

What is a residential lease agreement?

A residential lease agreement is a legally binding contract between a potential landlord and their tenant which contains all the terms for renting a house or apartment as a place of residence.

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

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

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards