Signing a commercial lease is often one of the biggest financial commitments a business makes. Whether you are opening your first premises or relocating an established business, it is important to understand the legal and practical consequences of the lease before signing.
A lease is more than just a rental agreement. It creates long term obligations and liabilities that can affect your business profitability, flexibility and future growth. In this article, we outline the key issues tenants in Queensland should consider before entering into a commercial lease.
Understand the lease type
The first step is to determine whether the lease is covered by the Retail Shop Leases Act 1994 (Qld). This legislation applies to certain types of premises used for retail businesses or in shopping centres, and gives tenants specific protections including:
- A required minimum lease term
- A disclosure statement from the landlord before signing
- Limitations on outgoings and rent review clauses
- A requirement for market rent disputes to be referred to specialist retail valuers
Even if your lease is not covered by the Act, many of the same principles will apply. However, nonretail leases are more heavily negotiated and less regulated, which makes legal advice even more important.
Review the lease term and renewal options
The lease term and any options to renew will directly affect your long-term plans. Consider:
- How long you want to be locked into the premises
- Whether your business will grow and need more space
- What rights you have to renew and how rent will be reviewed
- Whether you can assign or sublease the premises if needed
Make sure any renewal options are clearly documented in the lease. Verbal promises or informal agreements are not enforceable.
Understand rent, outgoings and hidden costs
In addition to the base rent, you may also be responsible for:
- Outgoings such as rates, water, insurance, cleaning and maintenance
- Management fees and legal fees
- Air conditioning servicing or shared facility costs
- Increases in rent based on fixed percentage, CPI or market rent reviews
Always request a breakdown of estimated outgoings and check whether any items are excluded. Ensure the rent review mechanism is clearly understood and complies with Queensland law.
Fit out and make good obligations
If you are required to fit out the premises, check:
- What approvals are needed from the landlord or centre management
- Who owns the fit out once installed
- What your obligations are when the lease ends
Many leases include a make good clause, which may require you to return the premises to a bare shell. This can be costly if not budgeted for.
Repairs, maintenance and responsibilities
It is important to clarify who is responsible for:
- Repairs to the building structure and services
- Maintenance of air conditioning and electrical systems
- Common areas and external signage
The default position may not always be fair. Negotiate any amendments before signing, especially if the premises are in older buildings.
Personal guarantees and security
Most landlords will ask for a form of security such as:
- A personal guarantee from the company directors
- A bank guarantee
- A cash bond
Understand the risk of personal liability, especially if the lease is for a long term or involves significant rent. Personal guarantees can remain enforceable even if the business fails.
Practical tip
Never sign a commercial lease without legal review. While some terms may appear standard, the impact of poorly worded clauses can be significant. A solicitor can identify risks, negotiate amendments and ensure you understand your rights and obligations before committing.
Disclaimer: This content is intended as general commentary and may not be applicable to your specific situation. It does not replace independent legal advice.
For a no-obligation consultation on various matters, you can contact us at (07) 3184 2424.