Leasing a commercial space in Australia is not the same as renting a home. The rules are different, the paperwork is heavier, and the risks land on you, the tenant, in ways most first-timers don’t see coming. A standard commercial lease runs for three to ten years, and the obligations around repairs, outgoings, and make-good can cost tens of thousands of dollars beyond the rent. For heritage-listed properties, those costs can climb higher — and the restrictions on what you can change are tighter. Understanding the difference between a retail lease and a non-retail commercial lease is the first real test. One comes with statutory protections. The other is whatever you negotiate.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
Whether you are opening a café in a heritage-listed shopfront or leasing office space above ground floor in a Sydney tower, the lease structure, the legal protections, and the costs vary dramatically. Retail tenants get disclosure statements, restrictions on outgoings, and access to low-cost dispute resolution. Non-retail tenants get what they negotiate. Here’s what you actually need to know.
Four Things to Know Before You Sign
A commercial lease is a legally binding contract where a business tenant occupies premises for a defined period in exchange for rent. Unlike residential tenancies, commercial leases are individually negotiated, with no standard rulebook across states.
What I tend to notice is how many business owners sign a lease without checking whether their intended use is actually permitted. The permitted use clause is the single most important line in the document. If it does not match your business activity, you are in breach from day one. For heritage properties, that clause often comes with extra restrictions on signage, fit-out, and structural changes. A real estate lawyer can review the clause before you sign — it is money well spent.
The Real Cost of a Commercial Lease in Australia
Most tenants focus on the base rent. That is a mistake. The total occupancy cost includes outgoings (council rates, insurance, maintenance, utilities), fit-out costs, legal fees, stamp duty on the lease, and the make-good obligation at the end. For a heritage property, fit-out and make-good costs can double because you need approved materials and specialist contractors.
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| Cost Component | What It Covers | Typical Tenant Responsibility |
|---|---|---|
| Base Rent | Annual rent for the premises | Monthly or quarterly payments |
| Outgoings | Rates, insurance, maintenance, utilities | Proportionate share (retail: annual estimates + reconciliation) |
| Fit-Out | Internal finishes, signage, services | Tenant pays; landlord may offer incentive |
| Make Good | Restore premises to original condition at lease end | Full cost unless negotiated otherwise |
| Legal Fees | Lease review and negotiation | Tenant pays own legal costs |
| Stamp Duty | State tax on the lease | Varies by state; tenant typically pays |
One scenario that catches tenants out: a five-year lease on a heritage shopfront with a make-good clause requiring restoration to original condition. At the end of the term, the tenant faces a bill for reinstating period detailing, specialised plasterwork, and approved paint finishes — easily $20,000 to $50,000 depending on the property condition at entry. The research from mylawfirm.com.au confirms that make-good obligations are a standard feature of commercial leases, and the cost is rarely factored into the initial budget. A practical way to protect yourself is to document the property condition with detailed photos and a schedule of condition at lease commencement, ideally attached to the lease as a reference point for the make-good obligation.
Common Mistakes in Commercial Leasing
Treating a Retail Lease Like a Non-Retail Lease
Retail leases in Australia come with mandatory protections under state-based retail leasing legislation. These include disclosure statements, minimum five-year terms in some states, restrictions on ratchet clauses (rent cannot go down in market reviews), and access to low-cost dispute resolution through NCAT or the Small Business Commissioner. Non-retail tenants do not get these protections. If your premises are a shop, café, restaurant, hairdresser, or gym under 1,000 square metres, you are likely in a retail lease. Signing a non-retail lease for a retail space means you waive statutory protections without knowing it. The CMI Group guide to tenant rights makes this distinction clear: retail leases under 1,000 sqm with a term of at least five years fall under the Retail Leases Act, while leases over 1,000 sqm, leases for 25+ years, and premises in office towers above ground floor are excluded.
Ignoring the Permitted Use Clause
The permitted use clause defines what business activities you can conduct on the premises. If you run a restaurant but the lease says “retail shop — general merchandise,” you are in breach. For heritage properties, this clause often restricts signage, operating hours, waste disposal, and structural alterations. A breach can lead to a notice to remedy, and if you cannot fix it, eviction. The landlord-tenant law resources available through JustAnswer can help clarify whether a specific use clause is reasonable before you sign.
Overlooking the Assignment and Sublease Provisions
Businesses evolve. You may need to sell the business, assign the lease, or sublease part of the space. Most commercial leases require landlord consent for assignment or sublease, and the landlord cannot unreasonably withhold consent. But the lease may include conditions — you may need to guarantee the new tenant’s performance, pay the landlord’s legal costs, or demonstrate the new tenant has sufficient financial standing. The research from Sprintlaw’s commercial lease guide emphasises that assignment and sublease rights are a key area of negotiation. Locking yourself into a five-year lease with no exit strategy is a common and costly mistake.
Not Understanding the Security Bond Rules
For retail leases, the security bond must be lodged with the government (NSW: Rental Bond Board). For non-retail leases, the landlord holds the bond directly. If your landlord goes bankrupt or disputes the bond return, you have far less protection. The CMI Group guide notes this difference as a critical distinction between retail and non-retail leases. For heritage properties, bond amounts may be higher to cover potential damage to period features.
How the Commercial Leasing Process Works
Research and Inspect
Start by identifying properties that match your business needs: location, size, accessibility, and zoning. For heritage properties, check whether the building is listed on the state heritage register and what restrictions apply. Inspect the property thoroughly — services, HVAC, loading access, parking, after-hours access, and noise levels. Compare asking rents, incentives, and standard terms across similar properties. The guide to finding the perfect commercial property covers the full search process in more detail.
Negotiate the Heads of Agreement
The Heads of Agreement (HOA) or Offer to Lease is the document that sets out the key commercial terms before the full lease is drafted. It covers rent, outgoings, lease duration, options to renew, permitted use, fit-out contributions, and key dates. The HOA is not legally binding in most cases, but it anchors the final lease. Negotiate hard here — once the HOA is signed, the landlord’s solicitor will draft the lease based on these terms. The research from Sprintlaw confirms that the HOA is the most important document to get right because it sets the framework for the entire lease.
Review the Draft Lease Thoroughly
This is where you need a commercial lawyer. The draft lease will include clauses on rent review (fixed percentage, CPI, or market review), outgoings (what you must pay and how), repairs and maintenance (tenant vs landlord responsibilities), make good, assignment and sublease rights, and default and termination. For heritage properties, check for additional clauses on approved alterations, signage, and maintenance of period features. A business law review can flag problematic clauses before they become binding.
Carry Out Due Diligence and Sign
Before signing, confirm the property is zoned for your business activity, check for any council restrictions (especially for heritage properties), and verify the landlord’s ownership and authority to lease. For retail leases, the landlord must provide a disclosure statement at least seven days before signing. Once you sign, the lease is legally binding. The essential checklist for renting commercial space walks through the final verification steps.
Frequently Asked Questions About Commercial Leases
Can a landlord evict me without notice for non-payment of rent? ▾
What is the difference between a retail and non-retail lease for a heritage property? ▾
How long does a commercial lease typically last? ▾
Can I sublease part of my commercial space? ▾
What happens if I want to end the lease early? ▾
Do I need a lawyer to review a commercial lease? ▾
What to Watch For in the Year Ahead
Leasehold reform is an active topic in Australia. Several states are reviewing retail leasing legislation, particularly around disclosure obligations, make-good standards, and dispute resolution pathways. For heritage properties, councils are tightening approval processes for alterations and signage, which directly affects fit-out costs and timelines. The trend is toward greater tenant protection in retail leases, but non-retail tenants remain largely subject to market forces and negotiation. If you are considering a commercial lease in 2025, the best time to understand your rights and obligations is before you start looking at properties — not after the landlord’s solicitor emails the draft lease.
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 5 Commercial Space Mistakes to Avoid in Australia.
Sources and Further Reading
Essential Checklist for Renting Commercial Space in Australia — A practical step-by-step checklist covering inspections, lease terms, and compliance checks before signing.
Understanding Lease Rental Escalations When Renting Commercial Space — Explains how rent reviews work, including fixed, CPI, and market review methods.
Sprintlaw (2024). Lease of Commercial Properties: Essential Legal Tips. 🔗
Sprintlaw (2024). Understanding Commercial Rental Property Leases: Key Legal Tips for Australian Businesses. 🔗
mylawfirm.com.au (2024). Commercial Lease Agreements Australia Guide. 🔗
CMI Group (2024). Commercial Tenant Rights Australia. 🔗
