Commercial property lease guide: Costs, lease types and key terms explained

A commercial property lease is one of the most important agreements a small business can sign. This guide explains what a commercial lease is, how much it can cost, the main lease types, the key clauses landlords include and what to check before you sign.

What is a commercial property lease?

A commercial property lease is a legally binding contract between a landlord and a business tenant. It gives the tenant the right to use business premises (such as a shop, office or warehouse) for an agreed period in exchange for rent and other agreed costs. The lease also sets out the terms and conditions both parties must follow throughout the tenancy. This agreement outlines how the property can be used, how long the lease will run, and each party’s rights and responsibilities.

It differs from a residential lease in that it’s usually more flexible and certain items may be up for negotiation.

Why commercial leases matter for small businesses

For many small businesses, rent is one of the largest ongoing operating expenses. This makes a commercial lease a significant financial commitment for almost any SME. The lease determines key obligations such as rent payments, maintenance responsibilities, insurance requirements, permitted use of the property and renewal options, helping both the landlord and tenant understand their rights and responsibilities from the outset.

How much does a commercial property lease cost?

A commercial property lease usually involves more than simply paying rent on time. A business owner will usually also need to budget for GST, cleaning, utilities, insurance, any fit-out works, and a bond or security deposit.  Depending on the lease, council rates and other property expenses may also be passed on to the tenant.

The headline: rent is only part of the picture.

Hidden costs to budget for

As well as these additional costs, there are other ‘hidden’ costs that business owners should consider. These can include rent reviews, maintenance obligations, repairs, and unexpected building expenses under some lease types. These costs can add up quickly, especially if the lease puts more responsibility on the tenant. A careful review before signing helps avoid surprises later.

Types of commercial property leases

Commercial property leases come in several forms, and the right structure depends on the type of business and premises. Some leases are designed specifically for retail businesses, while others apply to offices, warehouses or industrial sites. They also differ in how operating costs are divided between the landlord and tenant, making it important to understand exactly what you’re agreeing to before signing.

Retail leases

Retail leases apply to businesses such as shops, cafés, restaurants and other retail premises that sell goods or services directly to the public. In most Australian states and territories, retail leases are governed by retail leasing legislation that provides additional rules and protections for landlords and tenants.

Non-retail commercial leases

Non-retail commercial leases typically cover offices, warehouses, factories, industrial sites and professional service businesses. These leases are generally negotiated under standard commercial contract law and may offer greater flexibility, depending on the agreement between the landlord and tenant.

Gross lease

Under a gross lease, the rent generally includes most building outgoings, such as council rates, building insurance and common area maintenance costs. Because many property expenses are bundled into the rent, gross leases can make budgeting simpler and more predictable for tenants.

Net lease

Under a net lease, the tenant usually pays rent plus some or all of the property’s operating costs, such as council rates, insurance or maintenance. While the base rent may be lower than a gross lease, the additional expenses can increase the overall cost of occupancy.

What landlords include in a commercial property lease

While every commercial lease is different, most agreements contain the same core sections. Understanding what each clause covers can help you know exactly what you’re agreeing to before you sign. Here are some of the main inclusions you should become familiar with:

• The parties: Identifies the landlord (lessor) and the tenant (lessee) entering into the lease agreement.
• The premises: Describes exactly what is being leased, including the property address, tenancy area and any shared or exclusive spaces.
• Permitted use clause: Specifies how the premises can be used, such as operating a café, retail store or professional office. Using the property for another purpose may require the landlord’s approval.
• Insurance clause: Outlines any insurance the tenant must hold during the lease. This may include Public Liability insurance or other business-related cover. It’s important to remember that the landlord’s building insurance protects the property itself, while the tenant’s business insurance protects their business assets and liabilities.
• Lease term: Sets out the length of the lease, commencement and expiry dates, and any options to renew.
• Rent and rent reviews: Explains how much rent is payable, when it must be paid and how future rent increases will be calculated, such as by CPI, fixed percentage increases or market review.
• Bond or security deposit: Details the amount of security required and the circumstances in which it may be used if lease obligations are not met.
• Maintenance responsibilities: Clarifies which repairs and maintenance are the landlord’s responsibility and which costs fall to the tenant.
• Fit-outs and alterations: Explains whether the tenant can modify the premises, who pays for any fit-out work, and whether changes must be removed or restored when the lease ends.

What should small business owners check before signing?

A commercial lease can have long-term financial and legal implications, so it’s worth reviewing every clause carefully before you commit. Taking the time to ask the right questions now can help you avoid unexpected costs or disputes later.

Questions to ask

Before signing a commercial lease, ask:

• Who pays the outgoings? Are costs like council rates, building insurance and common area maintenance included in the rent or paid separately?
• How often is the rent reviewed? Will increases be based on CPI, a fixed percentage or market value?
• Who is responsible for repairs and maintenance? Understand which obligations belong to you and which remain with the landlord.
• What are the renewal options? Check whether you have the right to extend the lease and when you need to notify the landlord.
• What are the exit conditions? Find out what happens if you need to leave early and what make-good obligations apply at the end of the lease.

When to seek professional advice

If you’re unsure about any lease terms, consider speaking with a solicitor or commercial leasing professional before signing. They can explain your rights and obligations, identify potential risks and help you understand the long-term financial commitments set out in the agreement.

Insurance considerations for commercial leases

Signing a commercial lease often means taking on insurance responsibilities as well as paying rent. Many landlords require tenants to hold certain types of insurance before they hand over the keys, with Public Liability insurance being the most common requirement. Depending on your business, you may also choose to consider cover for your contents, equipment or business interruptions.

Before signing your lease, check the insurance clause carefully so you understand exactly what cover is required and who is responsible for insuring different parts of the property.

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