Your First Commercial Lease: What to Negotiate Before You Sign

Negotiate the term and options, the rent review formula, what counts as an outgoing, the fit-out contribution, and the make-good obligation at the end — those five clauses decide whether the lease works or quietly eats your margin. Everything is negotiable before you sign and almost nothing is negotiable afterwards, so this is the week to spend money on advice. Here's what to check, what to push on, and where your state's law already protects you.

Retail lease or commercial lease? It changes your rights

Every state and territory has retail tenancy legislation that gives tenants protections a plain commercial lease doesn't. If your premises is a shop selling goods or services to the public, or sits in a shopping centre, you're probably covered — and you can't contract out of it. Warehouses, standalone offices and industrial units usually aren't.

Coverage is capped in most places. NSW and Queensland exclude shops over 1,000 square metres, Victoria excludes leases where occupancy costs top $1 million a year, and South Australia's Act stops applying above $420,000 in annual rent excluding GST (as at September 2026). Two moving parts: Tasmania's Retail Leases Act 2022 is only partly in force, so the 1998 Code still does the work, and NSW has a Retail Leases Amendment (Review) Bill 2025 before parliament reworking the disclosure rules.

The disclosure statement is the document to argue with

Retail landlords have to give you a disclosure statement before you sign — a plain summary of rent, term, outgoings, fit-out obligations, trading hours and any works planned for the centre. It exists so you can compare what you were told with what the lease says, and the two often don't match.

Read it beside the lease and query every difference. Check the outgoings estimate line by line, because in most jurisdictions you can't be charged for an outgoing that wasn't estimated. If you don't get a statement, or it's wrong or misleading, retail legislation usually gives you a short window to terminate — so raise problems immediately, not after you've opened. And don't let anyone talk you into waiving the 7 or 14-day period. That gap is your only unpressured reading time.

The clauses that decide whether the lease works

Term and options

Match the term to your payback period, not your optimism. A three-year term with two three-year options gives you nine years of security while only committing you to three. Options are yours to exercise, but they die if you miss the notice window — often between six and twelve months before expiry — so put the date in your calendar the day you sign.

Check how the rent resets at the start of an option period. A market review is fair; a review to "the greater of market rent or the previous year's rent plus 4%" isn't, and in retail leases a clause that stops market rent from falling is generally void.

Rent and rent reviews

There are three common mechanisms: fixed percentage, CPI, and market review. Fixed reviews are predictable and compound, CPI tracks inflation, and a market review resets to what the space is worth — with the cost of a valuer if you disagree. The compounding is where new tenants get caught. On a $78,000 starting rent:

One percentage point costs about $8,360 across the five years and $3,459 in year five alone. Getting the review from 4% to 3.5%, or to CPI with a cap, is usually an easier win than knocking down the headline rent, because the landlord's valuation of the building depends on the face rent.

Outgoings

Outgoings are the property's running costs passed through to you: council and water rates, body corporate or owners corporation levies, building insurance, cleaning, security, and in a centre, management and promotion levies. They can add 15-25% on top of your rent, and in a shopping centre often more.

Get four things in writing: an estimate before you sign, a cap or a defined list so a new category can't appear mid-term, your apportionment method and the total area it's divided by, and the annual audited statement retail legislation entitles you to.

Some costs can't be passed to you at all. In NSW and Victoria, a landlord can't recover land tax from a retail tenant. Capital works and structural repairs are the landlord's problem, not an outgoing — make sure the lease says so.

Here's the whole number for a 120 square metre shop at $650 per square metre net, with outgoings of $115 per square metre:

If you're registered for GST you claim that back, but you still have to fund it between lodgements. Budget the gross figure, not the rent, and build it into your startup costs before you commit.

Fit-out, incentives and make good

Incentives are real money and landlords expect to give them: a rent-free period, a fit-out contribution, or a rent abatement. Three months rent-free on that $78,000 rent is $19,500 — about 4.6% off the entire five-year deal, without touching the face rent. Ask what's on offer before you name your rent.

Watch the clawback: most incentive deeds make you repay a pro-rata share if you default or leave early.

Make good is the sting at the end. A standard clause requires you to strip out your fit-out and return the premises to bare shell or to their condition at the start of the lease — which for a fitted-out cafe can run into tens of thousands. Negotiate one of three outcomes: a fixed dollar cap, agreement that specified items stay, or a schedule of condition with dated photos attached to the lease so there's no argument about what "original condition" meant.

Permitted use, exclusivity and assignment

A permitted use clause that reads "cafe" is safer than "sale of coffee and pre-packaged food" — the narrow version stops you adding dinner service or retail bags of beans. Ask for wording broad enough for where the business is going in five years. In a centre, also ask for an exclusivity clause stopping the landlord leasing to a direct competitor in the same building. You may not get it, but know the answer before you sign.

Assignment matters most on the day you sell. Retail legislation generally limits the grounds a landlord can refuse consent on, but the lease still sets the process and makes you pay the landlord's costs. Check whether you're released from liability on assignment or stay on the hook for the incoming tenant.

Security and personal guarantees

Expect to provide security worth three to six months' gross rent, as a cash bond or a bank guarantee. A bank guarantee ties up a term deposit and attracts bank fees; a cash bond under a NSW retail lease goes into the government's Retail Bond Scheme rather than the landlord's account, and in NSW a bank guarantee must be returned within two months of you meeting your end-of-lease obligations.

Personal guarantees are the bigger risk. If your tenant entity is a company with no history, the landlord will want directors to guarantee the lease personally, which puts your house behind the rent. Negotiate a cap on the guaranteed amount, an expiry after a set number of years of on-time payment, and an automatic release when the lease is assigned. Get advice before you sign one, and check that your business insurance covers the obligations the lease imposes on you.

Demolition and relocation

Landlords of older buildings and centres often reserve a right to demolish or relocate you. Retail legislation softens both — typically requiring substantial written notice, genuine intent, comparable replacement premises for a relocation, and compensation for your costs — but the notice periods vary by jurisdiction. If the clause is in your lease, ask exactly what notice and compensation you'd get, and price your fit-out accordingly.

Your negotiation levers

You have more leverage than you think, especially on secondary space or a long vacancy.

• Sequence the ask. Agree the incentive and the review formula before you settle the face rent. Landlords protect the face rent hardest.
• Trade term for money. A longer term or an earlier start date is worth real value to a landlord and costs you nothing if you were staying anyway.
• Ask for a fit-out period. Rent-free access while you build is standard and usually granted.
• Put it in the heads of agreement, marked "subject to lease" so you're not bound early. Anything agreed verbally and left out of that document tends to disappear.
• Name the unfair terms. Many leases are standard-form documents, and the unfair contract terms rules cover small business contracts including grants of an interest in land. A clause letting the landlord vary charges at will is worth challenging on that basis.

Getting a lawyer involved

A leasing lawyer reviewing a straightforward retail lease is cheap next to five years of rent. Send them the heads of agreement, the disclosure statement and the draft lease together, and ask four questions: what am I liable for that I haven't budgeted, what happens if I want out early, what does make good actually require, and what is my personal exposure. If you're new to commercial paperwork, our guide to types of business contracts covers the vocabulary.

How you get out

Leases have no cooling-off period and no general right to break. Your realistic exits are: assign the lease to a buyer when you sell the business, sublet part of the space if the lease permits it, negotiate a surrender with the landlord (usually by paying), or exercise a break clause you negotiated up front.

That last one is why break clauses are worth asking for. A one-off right to terminate at the end of year two, on six months' notice and repayment of the unamortised incentive, converts a five-year commitment into a survivable one. If the landlord won't wear one, a shorter term with options achieves something similar. Walk away without a proper exit and you stay liable for rent to the end of the term, less whatever the landlord recovers by re-letting.

Key takeaways

• Find out first whether retail tenancy legislation covers you — it brings a disclosure statement, outgoings protections and, in most jurisdictions except NSW and Queensland, a right to a five-year term.
• Don't waive the 7 or 14-day disclosure period, and query every difference between the disclosure statement and the lease before you sign.
• The rent review formula compounds: one percentage point on a $78,000 rent is roughly $8,360 over five years, so negotiate the formula as hard as the rent.
• Budget gross occupancy cost, not rent. Outgoings commonly add 15-25%, and you can't be charged for outgoings that weren't estimated.
• Make good and incentive clawbacks are the two clauses that produce unexpected bills — cap them in writing, with dated photos of the premises attached to the lease.
• Cap and time-limit any personal guarantee, and get a release on assignment so selling the business actually gets you out.

Where to get help

• Your state or territory small business commissioner — the NSW, Victorian, Queensland and SA commissions, the WA Small Business Development Corporation and their equivalents in Tasmania, the ACT and the NT publish retail leasing guides and run free or low-cost mediation for lease disputes.
• business.gov.au — general guidance on leasing premises and what to check before signing.
• The legislation itself — each jurisdiction's retail tenancy Act is free on its legislation website, and the disclosure statement forms are usually prescribed.
• Australian Small Business and Family Enterprise Ombudsman (asbfeo.gov.au) — assistance when a dispute with a landlord stalls.
• A commercial leasing lawyer — review the draft lease, disclosure statement and any personal guarantee before you sign, not after. Your accountant can sanity-check the occupancy cost against forecast revenue and confirm how the incentive and fit-out spend are treated for tax.