Reviewing a commercial lease: the clauses that bite

Real Estate2 July 20266 min read

A commercial lease is one of the largest and longest commitments a business makes, yet it is often signed under time pressure with a fit-out looming and a landlord’s standard form on the table. That standard form is written for the landlord. The good news is that most terms are negotiable before signing — and almost nothing is negotiable afterwards. These are the clauses worth slowing down for.

Rent, reviews and what makes it go up

Look closely at how and when rent increases. Fixed annual percentages, CPI adjustments and market reviews behave very differently over a long term, and a "ratchet" clause that prevents rent ever falling at a market review can leave you paying above-market for years. Model what the rent looks like in the final year of the term, not just the first.

The term, options and holding over

Understand the initial term, any options to renew, and exactly how and by when you must exercise them — miss the notice window and a valuable option can simply evaporate. Check what happens if you stay on after the term ends ("holding over") and whether the landlord can end that arrangement at short notice.

Who pays for what: outgoings and repairs

Outgoings clauses pass building costs — rates, insurance, management, sometimes maintenance of common areas — through to tenants, and their breadth varies enormously. Repair and "make good" obligations can require you to return the premises to their original condition at the end, an expense that surprises many tenants. Both deserve careful reading and, where possible, caps.

Getting out, assigning and personal guarantees

If you might sell the business or need to leave early, the assignment and subletting clauses determine whether you can hand the lease on, and on what conditions. Many leases also require directors to sign a personal guarantee — putting personal assets behind the company’s obligations — which is worth understanding fully and, sometimes, negotiating to limit. This article is general information only and is not legal advice; have a lawyer review the specific lease before you commit.