Commercial Leases in Victoria: Key Terms Every Business Owner Should Understand
A commercial lease is one of the most significant financial commitments a business owner makes. Unlike residential leases, commercial leases are largely unregulated — the parties are free to agree on almost any terms. Understanding what you are signing is essential.
Retail leases vs commercial leases
In Victoria, leases of retail premises are governed by the Retail Leases Act 2003, which provides significant protections for tenants. Leases of non-retail commercial premises are governed only by the general law of contract. Knowing which regime applies to your lease is the first step.
Rent and rent reviews
The lease will specify the initial rent and the mechanism for rent reviews. Common review mechanisms include fixed percentage increases, CPI-linked increases, and market reviews. Market reviews can result in significant rent increases and are often a source of dispute. Understand the review mechanism before you sign.
Term and options
The term of the lease and any options to renew are critical. A short initial term with options gives you flexibility; a long initial term gives you security. Options to renew must be exercised strictly in accordance with the lease — missing the exercise date can mean losing the right to renew.
Make good obligations
Most commercial leases require the tenant to return the premises to their original condition at the end of the lease — a process known as make good. The cost of make good can be substantial, particularly if you have made significant fit-out works. Negotiate the make good obligations carefully before signing.
Personal guarantees
Landlords frequently require the directors of a corporate tenant to provide personal guarantees. A personal guarantee means that if the company defaults on the lease, the guarantor is personally liable for the outstanding obligations. The scope of the guarantee — and any cap on liability — should be carefully negotiated.
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