What Should You Check Before Signing a Commercial Lease?

Signing a commercial lease is a significant commitment for any business. Whether you’re opening your first premises, relocating an established business or expanding into an additional location, the terms of your lease can affect your costs, operations and flexibility for years to come.

Unlike many everyday contracts, commercial leases can involve substantial financial obligations and complex legal terms. The rent is only one part of the equation. Outgoings, rent reviews, maintenance obligations, guarantees, permitted use restrictions, make-good requirements and options to renew can all have important consequences for your business.

Before signing a commercial lease in Western Australia, it is important to understand exactly what you are agreeing to and whether the lease supports your business objectives.

Here are some of the key matters to consider before committing to commercial premises.

1. Understand Exactly What Premises You Are Leasing

The lease should clearly identify the premises being leased and any areas or facilities you are entitled to use.

Depending on the property, this could include the internal premises as well as car parks, storage areas, loading areas, signage locations or access to common facilities.

Plans attached to the lease should be reviewed carefully to make sure the area shown corresponds with what you believe you are leasing.

You should also understand whether any areas are shared with other tenants and whether there are restrictions on accessing or using particular parts of the property.

For some businesses, seemingly minor issues such as customer parking, delivery access, storage space or signage visibility can have a significant impact on day-to-day operations.

2. Check the Permitted Use

Most commercial leases specify the purpose for which the premises may be used.

This is commonly referred to as the permitted use.

The wording of this provision is important because it can determine what activities your business is legally permitted to conduct from the premises.

A permitted use that is drafted too narrowly may restrict your ability to expand your products or services in the future.

For example, if your business evolves during the lease term, you do not want to discover that the lease prevents you from introducing an additional service that would otherwise be commercially valuable.

You should also consider whether your proposed use of the premises complies with relevant planning requirements, licences and approvals.

Do not assume that because a landlord is willing to lease the premises to you, every aspect of your proposed business activity has automatically been approved by the relevant authorities.

3. Review the Lease Term and Options to Renew

Consider how long you want to remain at the premises.

Commercial leases can run for several years and may include one or more options allowing the tenant to extend the lease.

A longer lease can provide stability, particularly where location is important to the business. However, it can also create a substantial long-term financial commitment if the business’s circumstances change.

A shorter lease may provide greater flexibility but could create uncertainty if you invest heavily in fitting out the premises and later cannot secure another term.

If the lease includes an option to renew, check:

• how long the additional term will be;
• when the option must be exercised;
• how the option must be exercised;
• whether there are conditions attached to exercising it; and
• how rent will be determined during the renewed term.

Missing an option deadline can potentially have serious consequences, particularly where the location has become valuable to your business.

4. Understand the Total Cost — Not Just the Rent

The advertised or negotiated rent does not necessarily represent the total cost of occupying commercial premises.

Depending on the lease, tenants may also be responsible for various outgoings associated with the property.

These could include expenses relating to council rates, water charges, insurance, strata levies, property management or maintenance of common areas.

You should identify which expenses are payable by the landlord and which are recoverable from you as the tenant.

It is also important to understand how those expenses are calculated and whether they are likely to increase significantly during the lease.

When comparing different premises, consider the overall occupancy cost rather than comparing the base rent alone.

5. Check How and When the Rent Can Increase

Commercial leases commonly contain mechanisms for reviewing the rent during the lease term.

Depending on the agreement, rent reviews might involve:

• fixed percentage increases;
• increases based on the Consumer Price Index (CPI);
• market rent reviews; or
• another method specified in the lease.

These provisions can have a substantial effect on the total amount you pay over the life of the lease.

Before signing, consider what the rent could realistically become after several reviews rather than focusing only on the amount payable during the first year.

Where a market review applies, the lease should also explain the process for determining the new rent and what happens if the landlord and tenant cannot agree.

6. Understand Your Maintenance and Repair Obligations

One of the areas that can cause disputes between commercial landlords and tenants is responsibility for maintaining and repairing the premises.

The lease should explain who is responsible for different parts of the property and its fixtures, equipment and services.

Depending on the premises, issues may include air conditioning, plumbing, electrical systems, doors, windows, flooring and other fixtures.

It is important to understand the condition in which you are required to maintain the premises and whether you could become responsible for repairing or replacing expensive items.

The condition of the property at the beginning of the lease should also be properly documented.

Photographs and a detailed condition report can provide useful evidence if there is later disagreement about damage or the condition in which the premises must be returned.

7. Consider Your Fit-Out Requirements

Many businesses need to modify commercial premises before they can operate effectively.

This might include installing partitions, counters, shelving, signage, flooring, lighting, equipment or specialist infrastructure.

Before committing to a lease, determine whether the proposed fit-out is permitted and what approvals are required.

The lease may require the landlord’s consent before alterations can be made.

You should also establish who will pay for the fit-out, whether the landlord is contributing to the works and what happens to those improvements at the end of the lease.

If you are investing a significant amount into the premises, the length and security of your lease become particularly important.

8. Check the Make-Good Obligations

A make-good clause determines what you must do to the premises when the lease ends.

These obligations can be more significant than tenants initially expect.

Depending on the wording of the lease, you might be required to remove your fit-out, repair damage, repaint surfaces, replace flooring or return the premises to a particular condition.

For a heavily fitted-out office, retail premises, hospitality venue or industrial property, this could involve considerable expense.

Understanding the make-good requirements before signing allows you to factor those potential costs into your decision and, where appropriate, negotiate the terms before entering the lease.

9. Understand Personal Guarantees and Security Requirements

A landlord may require additional security before agreeing to lease commercial premises.

This could include a bank guarantee, security deposit or personal guarantee from the directors or owners of the tenant business.

A personal guarantee is particularly important to understand.

Operating through a company does not necessarily mean your personal assets are protected from every obligation associated with the lease. If you personally guarantee the tenant’s obligations, the landlord may potentially pursue you personally if the company fails to meet those obligations.

You should understand the extent and duration of any guarantee before agreeing to provide it.

10. Consider Assignment and Subleasing Rights

Business circumstances can change.

You might sell your business, outgrow the premises, restructure your operations or decide to relocate before the lease expires.

For that reason, it is important to understand whether the lease allows you to assign the lease to another party or sublease some or all of the premises.

The landlord’s consent will usually be required, and the lease may specify conditions that must be satisfied.

If you are planning to sell the business during the lease term, assignment provisions can become particularly important because the purchaser may need to take over the existing lease.

Understanding these provisions at the beginning can help preserve flexibility later.

11. Check Insurance and Indemnity Requirements

Commercial leases frequently require tenants to maintain particular types and levels of insurance.

Depending on the premises and business, this might include public liability insurance and other appropriate business insurance.

The lease may also contain indemnity provisions allocating responsibility for certain losses, claims or damage.

These clauses should be reviewed carefully so you understand the risks you are accepting and whether your insurance arrangements adequately respond to those risks.

12. Understand What Happens If Something Goes Wrong

It is important to understand the consequences if either party fails to comply with the lease.

The lease should address matters such as defaults, notices, remedies and termination rights.

From the tenant’s perspective, you should understand what could constitute a breach and what opportunity you may have to remedy it.

You should also consider what rights you have if the landlord fails to meet an obligation that materially affects your ability to operate from the premises.

Thinking about these issues before signing can help avoid uncertainty if a problem arises later.

13. Determine Whether Retail Leasing Laws Apply

Not every business premises is governed by exactly the same legal framework.

In Western Australia, some leases may fall within specific legislation regulating retail shop leases. Whether those laws apply will depend on factors including the nature of the premises and the business being conducted.

Where the legislation applies, it can affect important aspects of the leasing relationship and impose particular obligations or protections.

Determining the correct legal framework is therefore an important part of reviewing a lease.

Why Legal Advice Before Signing Matters

A commercial lease is often one of the largest and longest-running contractual commitments a business will make.

Once the document has been signed, negotiating changes can become significantly more difficult.

Obtaining legal advice before signing gives you an opportunity to identify potentially problematic provisions, understand your financial and legal obligations and negotiate changes where appropriate.

A commercial lawyer can review the lease in the context of your particular business rather than considering individual clauses in isolation.

This can be particularly valuable where the premises are essential to your operations, you are investing substantially in a fit-out, personal guarantees are required or the lease involves significant long-term financial commitments.

Commercial Lease Lawyers in Busselton

If you’re considering leasing commercial premises in Busselton or elsewhere in the South West, taking the time to properly review the lease before signing can help protect your business and reduce the risk of unexpected problems later.

At Leeuwin Legal Collective, we provide clear, practical advice on commercial and property matters, including the review and negotiation of commercial, retail and industrial leases.

We assist businesses and business owners in Busselton, Dunsborough, Vasse, Yallingup, Margaret River and surrounding South West communities.

Our approach is focused on helping you understand the terms of the proposed lease, identify potential risks and make informed commercial decisions with confidence.

Speak With a Commercial Lawyer in Busselton

Before committing to a commercial lease, make sure you understand exactly what you’re agreeing to.

Leeuwin Legal Collective can review your proposed lease, explain your obligations in plain language and advise you on any provisions that may require further consideration or negotiation.

Book a free 15-minute consultation with our team today.

(08) 6716 9348

Clear advice. Practical solutions. Confidence for your business.