Commercial leases are among the most significant financial commitments a business owner will ever make. The excitement of finding the right space can quickly shift into regret when unexpected costs or restrictive clauses surface after signing. Many small business owners focus on the monthly rent figure and the location, only to discover later that outgoings, make-good obligations, and restrictive permitted use clauses carry far more weight than they anticipated. Understanding what you’re agreeing to before you put pen to paper is the difference between a lease that works for your business and one that works against it.
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This article is general information only and does not constitute professional legal or financial advice. For your specific situation, consult a qualified professional.
Commercial leases are written to protect landlords first. That doesn’t mean you have no leverage, but it does mean you need to know what to look for before signing. Here’s what you actually need to know.
Key Takeaways for Commercial Tenants
What I tend to notice is that the permitted use clause gets far less attention than the rent, yet it can be the most restrictive part of the deal. A lease that’s too narrow can stop your business from growing or even operating.
The True Cost of a Commercial Lease
Rent is the headline number, but it’s rarely the only number that matters. Commercial leases typically pass many costs to the tenant that can add substantially to the monthly bill. Before you sign, ask for a detailed breakdown of all outgoings and understand how they change over time.
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| Cost Component | Who Pays | Key Risk |
|---|---|---|
| Base Rent | Tenant | Subject to fixed, CPI, or market rent reviews |
| Outgoings | Tenant (often) | Council rates, insurance, maintenance – can add 20–50% |
| Make-Good | Tenant | Removing fit-out, repairing damage, repainting – often very expensive |
| Fit-Out | Tenant / Landlord | Landlord may contribute; ownership and removal terms must be clear |
| Legal & Survey Fees | Tenant / Landlord | Often split; understand your liability upfront |
Market rent reviews are another area where costs can jump unpredictably. Unlike fixed or CPI increases, market reviews look at current rental values for similar properties. If the market has moved up sharply, your rent can too. Some leases also include a ratchet clause, meaning the rent can only go up, never down, even if the market falls. Understanding these mechanisms before you sign is critical. If you’re unsure about a clause, getting a quick review from a professional via a service like JustAnswer Real Estate Law can save thousands over the life of the lease.
Common Pitfalls in Commercial Leasing
Ignoring the Permitted Use Clause
You sign a lease for a space that seems perfect for your café. Later, you discover the lease doesn’t allow cooking on the premises, or the local council zoning doesn’t permit food service. You’re now legally bound to pay rent for a space you can’t use. The permitted use clause must match your intended business exactly. If you plan to expand your menu or sell goods later, ensure the clause is broad enough to cover those changes. If it’s too narrow, you’ll need landlord permission, which may come with extra costs or conditions.
Underestimating Outgoings
Many tenants sign a lease thinking the rent is the only major cost. Outgoings can include council rates, water charges, building insurance, common area maintenance, and management fees. These costs can add 20% to 50% to your monthly payment. Ask for an estimate of outgoings before you sign, and check whether the lease limits how much they can increase each year. Without a cap, your outgoings could rise unexpectedly, eating into your profit margins.
Signing a Personal Guarantee Without Limits
If your business is a limited company, the landlord may ask you to personally guarantee the lease. This means your personal assets, including your home and savings, are on the line if the business can’t pay the rent. You can negotiate a cap on the guarantee, or offer a higher security deposit or bank guarantee instead. If you do sign a personal guarantee, understand the full scope of your liability. Getting advice from a JustAnswer Business Law professional can help you understand the risks and alternatives.
Not Planning for Make-Good
Make-good clauses require you to return the premises to its original condition at the end of the lease. This can include removing your fit-out, repairing walls, repainting, and replacing flooring. The cost can be substantial. I have seen a small business hit with a $40,000 make-good bill that wiped out a year’s profit. Document the condition of the premises with photos before you move in, and negotiate the scope of your make-good obligations in the lease. Consider budgeting for a make-good reserve over the life of the lease.
How to Approach a Commercial Lease from Start to Finish
Conduct Thorough Due Diligence Before You Sign
Before you commit to a space, confirm that it’s suitable for your business. Check with the local council that your intended business use is permitted under zoning laws. If it’s not, you may need development approval, and your lease should be conditional on that approval. Inspect the premises for practical issues like power supply, ventilation, grease traps, and accessibility. Ask about any planned works or upgrades that could disrupt your trading. Understand the history of the premises, including recurring issues like leaks or mould. This upfront work can save you months of headaches later.
Negotiate the Lease Terms That Matter Most
Almost everything in a commercial lease is negotiable, but you need to know what to ask for. Request a rent-free or reduced-rent period to cover your fit-out. Ask for a cap on outgoings increases. Limit your make-good obligations to fair wear and tear, or negotiate a specific scope of work. If you’re being asked for a personal guarantee, try to cap it or offer a higher security deposit instead. A lease is a contract, and the first draft is always the landlord’s starting point, not the final offer. For a deeper dive, check out our guide on negotiating the perfect commercial lease.
Review the Fine Print and Key Clauses
Some clauses are easy to miss but can have huge consequences. Assignment and subleasing clauses control whether you can sell your business or bring in a new operator. Rent review mechanisms determine how much your rent can increase. Repair and maintenance responsibilities can shift the cost of replacing aging systems like air conditioning to you. Insurance requirements can add compliance costs. If a clause is ambiguous, ask for it to be clarified in writing. This is where a professional lease review can be invaluable. A service like JustAnswer Legal can help you understand the practical risks in plain English.
Align the Lease with Your Business Plan
Think about where your business will be in three to five years. If you grow, will you need more space? A right of first refusal on adjacent space can give you that option. If you need to exit, what are your options? Understand the notice periods, assignment rights, and potential liability for early termination. Choosing the right business structure for the lease, whether you sign as a company or in your personal name, affects your liability. Plan for the long term, and make sure the lease can flex with your business.
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| Feature | Lease | Sublease | Licence |
|---|---|---|---|
| Exclusive Possession | Yes | Yes (from head tenant) | No |
| Typical Term | 1–10 years | Varies (subject to head lease) | Short-term, flexible |
| Complexity | High | Very high (inherits head lease terms) | Low |
| Best For | Long-term, stable business | Tenants in shared or multi-tenant buildings | Pop-ups, short-term, shared spaces |
Frequently Asked Questions on Commercial Leasing
What is a “make-good” clause and why does it matter? ▾
Can I break my commercial lease early? ▾
What is the difference between a lease and a licence? ▾
Do I need a lawyer to review my commercial lease? ▾
What happens to my fit-out at the end of the lease? ▾
How is a market rent review conducted? ▾
If you’re facing a complex lease issue or need advice on early termination, a quick consultation with a specialist can clarify your options. Services like JustAnswer Landlord-Tenant Law can connect you with a professional who understands the specific laws in your state.
The Power Dynamic in Commercial Leasing
Commercial leases are drafted by landlords to protect their interests. That’s not a criticism, it’s a reality. A tenant’s best defense is knowledge and due diligence. The time to negotiate is before you sign, not after. Every clause, from rent reviews to make-good obligations, is a point of leverage if you know what to ask for. The most successful tenants treat the lease as a living document that needs to work for both sides over the full term.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read Understanding Your Rights as a Business Leaseholder in Australia.
Sources and Further Reading
Top Tips for Ending Your Commercial Lease Smoothly — A practical guide to managing your exit, including notice periods, make-good planning, and avoiding disputes.
Tips for Navigating Triple Net Leases in Australia — Understand how triple net leases shift almost all costs to the tenant and what to watch for.
LegalVision (2023). Checklist for Entering Into a Commercial Lease. 🔗
Sprintlaw (2023). Commercial Lease Checklist: What to Review Before You Sign. 🔗
Sprintlaw (2023). Commercial Property Leasing: Key Legal Steps Before You Sign a Lease. 🔗
