Commercial Lease Agreements in Australia: A Complete Guide

A commercial lease agreement in Australia is a legally binding contract between a landlord and a business tenant that grants the tenant the right to occupy and use a property for business purposes in exchange for rent and other payments.

These leases typically run for three to ten years and are governed by a combination of state-based retail leasing legislation, common law principles, and the specific terms negotiated between the parties.

Whether you are a landlord drafting a lease for a warehouse in Melbourne, a tenant signing for retail space in a Sydney shopping centre, or a property investor managing tenancies across multiple states, the document you sign will shape your operating costs, flexibility, and exit options for years.

This guide walks through everything you need to know about commercial lease agreements in Australia, from the legal framework that applies in each jurisdiction to the clauses most likely to cause problems if drafted poorly.

What Is a Commercial Lease Agreement in Australia?

A commercial lease agreement is a written contract that gives a business tenant exclusive possession of premises owned by a landlord for a defined period in return for rent.

It sets out the rights, obligations, and risks of both parties, covering everything from how rent is calculated and reviewed to who is responsible for repairs, insurance, and what happens at the end of the term.

Unlike a residential tenancy, where most terms are set by statute and largely standardised, a commercial lease is heavily negotiated.

The parties have considerable freedom to agree on the length of the term, rent review methods, fit-out responsibilities, permitted use, and dozens of other commercial terms.

That flexibility is both an advantage and a risk because once signed, a poorly drafted clause can lock a business into years of unfavourable conditions.

A commercial lease will typically include the names of the parties, a description of the premises, the term and any options to renew, the base rent and how it will be reviewed, the outgoings the tenant must contribute toward, the permitted use of the premises, fit-out and make good obligations, security requirements, and the rights of each party to assign, terminate, or default.

The lease may also be supported by other documents such as a disclosure statement (mandatory in retail leasing), an incentive deed, a bank guarantee, or a personal guarantee from the directors of a corporate tenant.

Each of these has its own legal implications and should be reviewed alongside the lease itself.

How Do Retail and Non-Retail Commercial Leases Differ?

Retail leases are subject to mandatory state-based legislation that gives tenants additional protections, while non-retail commercial leases are governed primarily by common law and the negotiated terms of the contract.

The key practical difference is that retail tenants cannot contract out of statutory protections, whereas non-retail tenants must rely on whatever they negotiate into the lease itself.

Retail premises generally include shops, restaurants, cafes, hairdressers, and similar businesses that sell goods or services directly to consumers.

Each state and territory defines retail premises slightly differently, but the common indicators are that the business sells to the public, the premises sit within a shopping centre or strip retail location, and the size of the premises falls below a statutory threshold.

In some jurisdictions, the definition has been expanded to capture businesses that supply services to other businesses, even if the public never enters the premises.

Non-retail commercial leases cover offices, factories, warehouses, scrap yards, industrial units, and similar premises that fall outside the retail definition in the relevant state.

Because these leases are not regulated by retail tenancy legislation, the parties have greater freedom to agree on terms but tenants also lose statutory protections around disclosure, minimum lease terms, ratchet clauses, and recoverable outgoings.

The protections available under retail leasing laws often include mandatory disclosure statements before the lease is signed, minimum five-year terms in some states, restrictions on what outgoings can be passed on to the tenant, prohibitions on ratchet clauses that prevent rent from decreasing, and access to low-cost dispute resolution through state-based small business commissioners or equivalent bodies.

Working out which regime applies to a specific premises can be more complicated than it first appears.

A 2017 Victorian Court of Appeal decision in IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd confirmed that a cold storage facility supplying services to commercial customers fell within the scope of Victorian retail tenancy legislation, even though no member of the public ever entered the premises.

Where there is any doubt, the lease should be assessed against the specific definition in the applicable state legislation before it is signed.

Which Legislation Governs Commercial Leases Across Australian States and Territories?

Each Australian state and territory has its own retail leasing statute that regulates leases falling within its scope, while non-retail commercial leases are governed by general property and contract law in that jurisdiction.

The legislation varies in important ways, including whether minimum lease terms apply, what outgoings can be recovered, and how disputes are resolved.

The table below summarises the primary retail leasing legislation in each jurisdiction along with key features that affect both landlords and tenants.

The differences between jurisdictions are significant in practice.

A lease that complies with NSW retail leasing legislation may breach Victorian or South Australian rules if used unchanged, particularly around outgoings recovery and minimum term implications.

A landlord operating across multiple states should not assume that a single template will work everywhere.

The Australian Capital Territory legislation is particularly broad in its application.

The Leases (Commercial and Retail) Act 2001 applies to premises under 200 square metres used for any commercial purpose, not just retail, and also captures premises leased to associations, charities, child care centres, sports centres, art galleries, and gardening supply centres.

Tasmania is currently in a transitional period.

The Retail Leases Act 2022 was passed but has not been fully commenced, meaning the Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 continues to regulate retail leasing in Tasmania until further regulations under the new Act are made and proclaimed.

What Does the Lifecycle of a Commercial Lease Look Like?

A commercial lease moves through five distinct stages: pre-lease negotiation, documentation and execution, occupation, renewal or expiry, and end-of-lease handover.

Each stage carries its own risks and decision points that can affect the cost and flexibility of the tenancy for years afterward.

How Are Commercial Lease Terms Negotiated?

Lease negotiations usually begin with a heads of agreement or letter of offer that sets out the headline commercial terms before formal lease documents are drafted.

This document will typically cover the rent, term, options to renew, security deposit, fit-out responsibilities, and any incentives such as rent-free periods or contributions to fit-out costs.

Heads of agreement should always be marked “subject to lease” and “subject to legal review” so that neither party is locked into terms before the formal document is finalised.

It is far easier to negotiate key commercial points at this stage than to try to amend a draft lease that has already been prepared by the landlord on standard terms.

The most important issues to settle before formal drafting begins are the rent and rent review method, the term and any options, the outgoings the tenant will contribute toward, the permitted use and any exclusivity protections, the fit-out and make good obligations, and the form and amount of security required.

What Happens at Lease Commencement?

Lease commencement involves the formal signing of the lease document, the provision of any required disclosure statement, payment of the security bond or bank guarantee, and the handover of the premises to the tenant.

For retail leases, the disclosure statement is usually mandatory and must be provided within a statutory time frame before the lease is signed, with penalties or termination rights available if it is missing or incorrect.

The tenant should conduct a thorough condition inspection before taking possession and document the state of the premises in writing or with photographs.

This baseline becomes critical at the end of the lease when make good obligations are assessed.

Without a proper condition report, disputes about whether damage existed at the start or was caused by the tenant become difficult to resolve.

If the lease term exceeds three years in most jurisdictions, the lease must be registered on the title to the property to be enforceable against future purchasers.

Registration also provides the tenant with greater protection if the landlord defaults on a mortgage or sells the property.

What Are the Ongoing Obligations During the Lease Term?

During the lease term, the tenant must pay rent and outgoings on time, comply with the permitted use clause, maintain the premises in accordance with the lease, hold the required insurances, and observe any operational rules such as trading hours.

The landlord must allow the tenant quiet enjoyment of the premises, maintain any structural and common areas the lease makes their responsibility, and comply with any statutory obligations under the relevant retail leasing legislation.

Both parties need to track key dates carefully throughout the term.

Missing a rent review notice, an option exercise deadline, or an insurance renewal can have serious consequences and may even result in the loss of valuable rights such as the option to renew.

Variations to the lease should always be documented in writing, ideally through a formal deed of variation rather than email correspondence, so that the position is clear if disputes arise later.

How Does a Commercial Lease End or Renew?

A commercial lease can end through expiry of the term, exercise of an option to renew, mutual surrender, early termination for breach, or in some cases through statutory rights such as a demolition clause being invoked by the landlord.

Each pathway has specific procedural requirements that must be followed to avoid disputes or unintended consequences.

Where the tenant has an option to renew, the option must be exercised in writing within the time frame specified in the lease.

If the deadline is missed, the option lapses and the tenant has no automatic right to extend, even if they have been a model occupant for years.

Some jurisdictions impose statutory notice requirements on landlords to remind tenants of approaching option deadlines, but tenants should not rely on this and should diarise these dates from the start of the lease.

If the tenant remains in occupation after the lease expires without exercising an option or signing a new lease, they typically become a holding-over tenant on monthly terms, often at a higher rent, until either party gives notice.

This is rarely a comfortable arrangement for either side and should be avoided through proper planning.

What Are the Most Important Clauses in a Commercial Lease?

The clauses that most affect the cost, flexibility, and risk profile of a commercial lease are the rent and rent review provisions, outgoings, permitted use, term and options, make good, security, assignment, and default.

Each of these deserves careful attention before signing.

How Is Rent Calculated and Reviewed?

Rent in a commercial lease is usually expressed as a base amount per year, paid monthly in advance, with a defined mechanism for adjusting it during the term.

The four most common rent review methods are fixed percentage increases, Consumer Price Index (CPI) adjustments, market rent reviews, and turnover rent.

Fixed percentage increases provide predictability for both parties because the rent moves by a known amount on each review date, typically between 3% and 5% per year.

CPI reviews link the rent to inflation, which is more variable but generally tracks broader economic conditions.

Market rent reviews allow the rent to be reset to current market levels, usually at the start of an option period, and are the source of the largest rent jumps and the most common rent disputes.

Turnover rent is calculated as a percentage of the tenant’s gross sales and is most common in shopping centre leases.

Many commercial leases use a combination of methods, such as annual CPI increases with a market review at each option period.

Tenants should also watch for ratchet clauses, which prevent rent from decreasing on a market review even if market conditions have softened.

Most state retail leasing statutes prohibit ratchet clauses in retail leases, but they are still permitted in non-retail commercial leases unless specifically negotiated out.

What Are Outgoings and Who Pays Them?

Outgoings are the operating expenses associated with owning and running the property that the landlord seeks to pass on to the tenant.

Common outgoings include council rates, water rates, building insurance, strata levies, common area maintenance, security, cleaning, and management fees.

Whether outgoings are recoverable depends on the lease and the applicable legislation.

In retail leases, state legislation often restricts what can be recovered, prohibits certain capital expenses from being passed on, and requires the landlord to provide annual estimates and reconciliation statements to the tenant.

Land tax recovery is a particularly important issue.

In Victoria, Queensland, and South Australia, retail leasing legislation prohibits landlords from recovering land tax from retail tenants, while in NSW land tax can be recovered from retail tenants if the lease provides for it.

For non-retail leases, land tax recovery is generally permitted unless the lease specifically excludes it.

Tenants should always look for caps or exclusions on outgoings in the lease, including a list of outgoings the landlord cannot recover, audit rights to verify the amounts charged, and clear definitions of management fees and capital works to prevent disputes about whether they are recoverable.

How Long Should a Commercial Lease Run?

Commercial lease terms in Australia typically range from one to ten years, with most falling between three and five years for the initial term plus one or more options to renew of similar length.

The right length depends on the nature of the business, the cost of the fit-out, the strength of the location, and the tenant’s growth plans.

A longer initial term provides security of tenure and is often required to justify a substantial fit-out investment.

It also gives the tenant more leverage to negotiate landlord contributions, rent-free periods, and other incentives.

The trade-off is reduced flexibility because the tenant is locked into rent obligations for longer if circumstances change.

A shorter initial term with multiple options to renew offers a different balance, giving the tenant the right to extend if the location works without the obligation to do so.

Options to renew are valuable to the tenant but should always be checked carefully because they may include rent reviews to market or other conditions that change the economics of the renewal.

In states with minimum five-year retail lease terms, the tenant cannot generally contract out of the protection except in limited circumstances and following specific procedural requirements.

What Does a Permitted Use Clause Cover?

A permitted use clause defines what business activities the tenant can carry on at the premises and is one of the most overlooked sources of operational risk in a commercial lease.

If the use is too narrow, the tenant may struggle to pivot the business or expand into related activities without seeking landlord consent.

The clause should cover the current activities of the business and any reasonably foreseeable expansion, such as adding new product lines, services, or operating hours.

It should also align with the local zoning and council approvals applying to the premises because no permitted use clause overrides planning restrictions.

For retail tenants in shopping centres, the permitted use clause may also include exclusivity provisions that prevent the landlord from leasing nearby premises to direct competitors.

Without an exclusive use clause, the tenant has no protection if a similar business opens next door, even if foot traffic and revenue are affected.

How Do Make Good Clauses Work at the End of a Lease?

A make good clause requires the tenant to return the premises to a defined condition at the end of the lease, with the cost of doing so falling on the tenant.

The standard varies dramatically depending on the wording of the clause, ranging from “return to base building condition” to “repaint and repair” to a specific schedule of works.

A vague make good clause is one of the most common sources of dispute and unexpected cost at the end of a commercial tenancy.

Returning premises to “base building” condition can require the removal of all fit-out, including walls, ceilings, lighting, flooring, and services, and may cost tens of thousands of dollars or more for even modest premises.

To control this risk, tenants should negotiate for a specific make good standard rather than a generic clause, document the condition of the premises at commencement with photographs and a written report, and consider negotiating a fixed make good payment in lieu of physical works.

The clause should also address whether tenant fit-out can be left in place at the end of the lease, which may suit both parties if the next tenant wants similar premises.

What Security Will a Landlord Require?

Landlords typically require security for the tenant’s obligations under the lease, usually in the form of a cash bond, a bank guarantee, or a personal guarantee from the directors of a corporate tenant.

The amount is usually equivalent to between one and six months of rent and outgoings, with statutory caps applying in some jurisdictions such as three months in the ACT and South Australia for retail leases.

A bank guarantee is generally preferred by landlords because it can be drawn on quickly without the tenant’s involvement, and it remains in place even if the tenant becomes insolvent.

A cash bond, by contrast, is held in trust and may be subject to more procedural restrictions before it can be applied to a default.

Personal guarantees from directors expose individual assets if the tenant company defaults, which can be a significant risk if the business fails.

Where directors are asked to guarantee the lease, they should consider negotiating caps on the guarantee amount or duration, requiring the guarantee to fall away on assignment to a financially sound tenant, and seeking independent legal advice before signing.

When Can a Tenant Assign or Sublease the Premises?

An assignment transfers the lease from one tenant to another, while a sublease creates a new tenancy for part or all of the premises while leaving the original tenant on the head lease.

Both require landlord consent in almost all commercial leases, with the standard formula being that consent cannot be unreasonably withheld.

The grounds on which a landlord can refuse consent vary by jurisdiction and by lease.

Common acceptable grounds include the proposed assignee being financially weaker than the current tenant, having insufficient business experience, or proposing to use the premises for a use not permitted under the lease.

Assignment provisions matter most when the tenant wants to sell their business, because the buyer will usually require the lease to come with the business.

If the lease has restrictive assignment terms, the sale may be delayed or disrupted while consent is obtained.

Tenants should also check whether the original tenant remains liable for the lease after assignment, which is the default position in most jurisdictions unless the lease specifically releases the original tenant.

What Are the Most Common Commercial Lease Disputes?

The most frequent commercial lease disputes in Australia involve rent reviews, outgoings, make good, repairs and maintenance, and termination for breach.

Most can be avoided through careful drafting at the outset, but when they do arise, they often involve significant amounts and can disrupt business operations.

How Do Rent Review Disputes Arise?

Rent review disputes typically arise on market rent reviews when the landlord proposes an increase the tenant believes is unsupported by comparable evidence.

The lease should set out a clear process for resolving disagreement, usually involving the appointment of an independent valuer and the right to challenge a determination through mediation or tribunal proceedings.

The strongest position for either party in a market rent dispute is built on three to five comparable transactions for similar premises, with adjustments for differences in size, location, condition, incentives, and outgoings structure.

Where the tenant accepts an increase under protest, this should be communicated in writing within the time frames set by the lease.

Why Do Outgoings Disputes Happen?

Outgoings disputes happen when the tenant disputes the amount charged, the categories of expense included, or the basis of apportionment between tenants in a multi-tenanted property.

Retail leasing legislation often gives tenants statutory rights to request audit information and challenge outgoings that have not been properly disclosed or are not recoverable under the legislation.

For non-retail leases, the tenant’s rights depend almost entirely on what is written into the lease.

If audit rights and definitions are vague, the tenant may have limited ability to challenge unexpected charges.

Common outgoings disputes involve management fees that exceed reasonable benchmarks, capital works being charged as ongoing maintenance, and land tax being recovered in jurisdictions where it is prohibited for retail tenants.

What Causes Make Good Disputes?

Make good disputes are among the most expensive lease disputes because the obligation often crystallises only at the end of the term, when the tenant has limited leverage and the cost of works has not been clearly defined.

Disputes typically arise over the standard of restoration required, whether tenant fit-out must be removed, and how to value the works that need to be done.

The best protection against a make good dispute is detailed drafting at the start of the lease, supported by a condition report that records the state of the premises at commencement.

Where this has not been done, tenants and landlords often end up in protracted negotiations near the end of the term that can delay handover and trigger holding-over rent.

How Are Repair and Maintenance Disputes Resolved?

Repair and maintenance disputes arise when the lease is unclear about who is responsible for particular categories of repair, especially the structural elements of the building, the air-conditioning plant, and shared services.

The tenant’s right to quiet enjoyment also comes into play if the landlord delays repairs or carries them out in a way that disrupts the tenant’s business.

Most leases divide repair responsibility between the parties, with the landlord typically responsible for structural elements and external repairs, and the tenant responsible for internal repairs and the items they install or maintain themselves.

The boundary between these categories is often unclear, and disputes commonly arise over items such as air-conditioning servicing, plumbing within walls, and roof leaks.

What Happens When a Lease Is Terminated Early?

Early termination of a commercial lease can occur through breach by either party, mutual surrender, exercise of a break clause if the lease includes one, or in some cases through statutory rights such as the right to terminate for non-disclosure under retail leasing legislation.

The procedure and consequences vary significantly depending on the cause.

If the tenant breaches the lease, the landlord can typically issue a notice of breach and, if the breach is not remedied within the time specified, terminate the lease and re-enter the premises.

The landlord may also claim damages for unpaid rent and the cost of finding a replacement tenant.

If the landlord breaches the lease, the tenant may have rights to claim damages, terminate the lease, or seek specific performance, depending on the nature of the breach.

Surrender by mutual agreement is usually documented in a deed of surrender that releases both parties from their future obligations and addresses outstanding issues such as make good, return of security, and apportionment of outgoings.

What Other Considerations Should Influence Your Commercial Lease?

Beyond the headline commercial terms, several other matters can have a significant impact on the value and risk of a commercial lease, including GST treatment, lease registration, personal guarantees, and the broader legal context in which the lease will operate.

How Does GST Apply to a Commercial Lease?

Most commercial leases in Australia are subject to GST at 10%, charged on top of the rent and outgoings.

The lease should clearly state whether the rent figures are GST-inclusive or GST-exclusive to avoid disputes, and the landlord must be registered for GST and provide tax invoices for the tenant to claim input credits.

Where the property is sold subject to a lease, the sale may qualify as a “going concern” for GST purposes, which can affect the timing and amount of GST payable.

Both landlords and tenants should obtain accounting advice on GST treatment, particularly for higher-value leases or where complex incentive arrangements are involved.

When Does a Commercial Lease Need to Be Registered?

Commercial leases with a term of more than three years generally need to be registered on the title to the property in most Australian jurisdictions.

Registration provides the tenant with priority over later registered interests and protects the lease if the property is sold or mortgaged.

The cost of registration is usually borne by the tenant, although in some retail leasing legislation, the landlord is required to take steps to facilitate registration.

Unregistered leases can still be enforceable between the parties, but they may not bind a new owner of the property who takes the title without notice of the lease.

Registration is particularly important for tenants who have invested heavily in fit-out or who depend on the location for their business, because the protection it provides can be the difference between continuity and forced relocation if the property changes hands.

What Is the Role of a Personal Guarantee?

A personal guarantee is a commitment by an individual, usually a director of a corporate tenant, to be personally liable for the obligations of the tenant under the lease.

This includes paying rent, outgoings, and damages if the corporate tenant defaults or becomes insolvent.

Personal guarantees give landlords greater security but expose the guarantor’s personal assets, including the family home in some cases, if the lease is not honoured.

The risks should be weighed carefully, particularly for new businesses or where the directors hold significant personal wealth.

Where a personal guarantee is required, the guarantor should consider negotiating a cap on the amount of the guarantee, a time limit on its operation, the release of the guarantee on assignment to a creditworthy tenant, and the substitution of a bank guarantee or larger cash bond as an alternative form of security.

Why Should You Get Legal Advice Before Signing?

Commercial leases are long-term contracts with significant financial consequences, and the cost of a thorough legal review before signing is small compared with the cost of fixing problems after the lease has commenced.

A solicitor with commercial leasing experience can identify hidden costs, unfavourable clauses, and risks that may not be apparent on a casual reading.

For retail tenants, legal advice may also be required to satisfy statutory certification requirements in some jurisdictions.

South Australia, for example, requires a certificate from either a lawyer not acting for the lessor or the Small Business Commission for retail leases of less than five years where the tenant is contracting out of the minimum term.

Even where legal advice is not strictly required, getting it is one of the most cost-effective protections available to a commercial tenant.

The same applies to landlords, who need to ensure their lease documents comply with applicable legislation and protect their property investment over the term of the tenancy.

Get Help With Commercial Lease Agreements in Australia

A commercial lease agreement will shape the cost, flexibility, and risk of a business for years, so getting the document right at the start is one of the most important investments any landlord or tenant can make.

The right legal advice can identify hidden risks, negotiate better terms, and prevent the disputes that arise from poorly drafted clauses.

As commercial lease lawyers in Australia, my law firm offers fixed-fee services for drafting, reviewing, and negotiating commercial and retail leases for landlords, tenants, and property investors across every state and territory.

Contact the team today on 1300 529 888 to discuss your commercial lease agreement.

Frequently Asked Questions

What is the difference between a retail lease and a commercial lease in Australia?

A retail lease covers premises used to sell goods or services to the public and is regulated by state-based legislation that gives tenants statutory protections. A commercial lease covers non-retail premises such as offices, warehouses, and factories, and is governed mainly by common law and the negotiated contract terms, with fewer statutory protections for tenants.

How long is a typical commercial lease in Australia?

A typical commercial lease runs for three to ten years, with most falling between three and five years for the initial term plus one or more options to renew. Retail leases in Victoria, Western Australia, South Australia, and the Northern Territory have a minimum five-year term that includes any option periods. Shorter terms are common for flexible workspaces.

Who pays the outgoings in a commercial lease?

The tenant typically pays a share of outgoings such as council rates, water, building insurance, common area maintenance, and management fees in addition to the base rent. What can be recovered depends on the lease and applicable retail leasing legislation. In Victoria, Queensland, and South Australia, landlords cannot recover land tax from retail tenants, while in NSW they can.

Does a commercial lease have to be registered in Australia?

Commercial leases with a term of more than three years generally need to be registered on the property title in most Australian jurisdictions to be enforceable against future purchasers and mortgagees. Registration is usually paid for by the tenant. Unregistered leases remain enforceable between the parties but may not bind a new owner without notice of the lease.

Can a tenant get out of a commercial lease early?

A tenant can exit a commercial lease early through mutual surrender, a break clause if included, assignment to another tenant, or termination for breach by the landlord. Early termination without an agreed pathway typically exposes the tenant to liability for unpaid rent for the remainder of the term and the cost of finding a replacement tenant.

What is a make good clause in a commercial lease?

A make good clause requires the tenant to return the premises to a defined condition at the end of the lease, at the tenant’s cost. The standard ranges from basic cleaning and minor repairs to full restoration to base building condition, which can require removing all fit-out. Make good obligations are a frequent source of dispute.