Commercial Lease Checklist NSW

A lease can be one of a business’s largest and longest-running commitments. The rent is important, but it is only one part of the commercial arrangement. Permitted use, options, outgoings, repairs, fit-out obligations, guarantees, assignment rights and end-of-lease requirements can materially affect the cost and flexibility of occupying premises.

This checklist identifies issues commonly considered before a tenant or landlord signs a commercial or retail lease in New South Wales. The correct approach depends on the premises, the proposed use and whether the Retail Leases Act 1994 (NSW) applies.

Is it a commercial lease or a retail lease?

“Commercial lease” is often used broadly, but some premises are subject to the specific retail-leasing regime. Whether the Act applies is determined by the legislation, including the type of business, the premises and statutory exclusions. The description used by the parties is not necessarily decisive.

The distinction matters because retail leases can carry additional requirements concerning disclosure, costs, rent review, assignment, dispute resolution and registration. The current Retail Leases Act 1994 should be considered before documents are finalised.

1. Confirm the premises and permitted use

The lease should accurately identify the area being leased together with any parking, storage, loading, signage or common-area rights. Plans should be checked against the premises in practice.

The permitted-use clause defines the activities the tenant may conduct. A description that is too narrow may restrict growth or make a later business sale more difficult. A description that is too broad may not provide the landlord with sufficient control over the tenancy mix. The tenant should separately confirm that its proposed activity is permitted by planning controls and that all necessary licences and approvals can be obtained.

The NSW Small Business Commissioner’s guidance explains that permitted use and council approval are separate considerations.

2. Check the term, commencement and options

The lease should state when the term begins, when rent becomes payable and what must happen before the tenant takes possession. These dates may differ where works or approvals remain outstanding.

An option can give a tenant the right to request a further term, but it normally must be exercised strictly within a stated period and subject to specified conditions. Diary the earliest and latest exercise dates. Consider whether the combined initial term and options support the tenant’s investment in fit-out, relocation and goodwill.

3. Understand rent and review mechanisms

Record the starting rent, payment frequency, GST treatment and every review date. Common review methods include fixed percentage increases, CPI-based reviews and market reviews. The drafting should explain how a market review is initiated and determined if the parties disagree.

Any incentive—such as a rent-free period, fit-out contribution or reduced starting rent—should be documented consistently across the lease and any separate incentive deed. The parties should understand what happens to the incentive following assignment, default or early termination.

4. Identify every outgoing and occupancy cost

Outgoings can substantially increase the effective occupancy cost. The documents should identify which rates, levies, insurance costs, management expenses, utilities, maintenance charges and other amounts the tenant must pay, and how estimates and reconciliations operate.

For retail leases, the lease and disclosure statement must address outgoings. The NSW Small Business Commissioner notes that retail outgoings must be meaningfully disclosed and directly and reasonably related to the premises.

5. Review the disclosure statement carefully

Where the retail-leasing regime applies, disclosure is not a formality. According to the NSW Small Business Commissioner, the lessor’s disclosure statement should contain important information about the premises, financial obligations, term, options, rent reviews, works, outgoings and trading hours. It must generally be provided to the prospective lessee at least seven days before the lease is entered into.

The lessee should check that the disclosure statement records representations relied upon during negotiations, including promises about access, neighbouring tenants, exclusivity, works, signage or expected disruptions. Incorrect or incomplete disclosure should be addressed before signing. See the Commissioner’s lease disclosure guidance.

6. Allocate responsibility for fit-out, repairs and services

The lease should specify who will carry out and pay for landlord works, tenant fit-out and statutory upgrades. Relevant issues may include approvals, plans, contractors, insurance, access before commencement and ownership of installed items.

Repair and maintenance clauses should be read with particular attention to structure, roofing, plumbing, electrical systems, air conditioning, fire-safety equipment, lifts and essential services. A condition report with dated photographs can help establish the state of the premises when possession begins.

7. Examine security and personal guarantees

A landlord may request a bank guarantee, cash bond, personal guarantee or a combination of security arrangements. The lease should state the amount, required form, expiry arrangements, circumstances for recourse and the process for return after the tenant’s obligations end.

Directors and other guarantors should obtain advice in their own capacity. A guarantee may expose personal assets and can sometimes continue after variations, renewals or other changes, depending on its terms.

8. Consider assignment and a future business sale

A tenant intending to sell its business will usually need to transfer the lease or obtain a new lease for the purchaser. The assignment clause should be checked for consent criteria, financial-information requirements, guarantees, costs and release of the outgoing tenant and guarantors.

A workable permitted-use clause and sufficient remaining term can affect the saleability of the business. Lease issues should therefore be investigated early in a proposed transaction, not after the business-sale contract has been signed. See our business sale and purchase checklist.

9. Check insurance, indemnities and risk allocation

The lease may require public liability, glass, property, business interruption and other insurance. Confirm required policy limits, insured parties and evidence requirements with an insurance adviser.

Indemnity, release and damage clauses should be reviewed together rather than in isolation. Consider what happens if the premises are damaged, access is interrupted or the building cannot be used, including whether rent abates and either party can terminate.

10. Understand default and termination rights

Default provisions may deal with unpaid money, unauthorised use, insolvency, failure to maintain insurance and other breaches. Review notice and remedy provisions, interest, recovery costs and the landlord’s enforcement rights.

Tenants should not assume they can end a fixed-term lease simply by vacating. If an early-exit right is required, it should be negotiated expressly. Landlords should ensure termination rights and required procedures are consistent with applicable legislation.

11. Plan for make-good and the end of the lease

Make-good obligations can require removal of fit-out, repairs, reinstatement or redecoration. The drafting should establish the required standard and whether the landlord may elect to retain items. The entry condition report, approved fit-out plans and records of later works can become important at the end of the term.

The parties should also consider signage removal, services, environmental obligations, keys, security devices and the timing for return of any guarantee or bond.

12. Consider registration and mortgagee consent

Registration can protect a tenant’s interest and may be required for certain retail leases. The NSW Small Business Commissioner states that retail leases exceeding three years, including option periods, must be registered and explains the relevant process in its lease-registration guidance.

The parties should identify who will prepare and lodge the registrable form, pay registration fees and obtain any mortgagee or head-lessor consent.

Practical checklist before signing

• Confirm whether the retail-leasing legislation applies.
• Verify the premises, area, access, parking and proposed use.
• Check planning approval and business-specific licences.
• Review the term, commencement date and option deadlines.
• Calculate total occupancy costs, not rent alone.
• Record every incentive and representation in the documents.
• Check fit-out, repairs, services and make-good responsibilities.
• Understand guarantees, bonds and insurance requirements.
• Review assignment, change-of-control and business-sale provisions.
• Consider damage, default, termination and dispute procedures.
• Complete disclosure and registration steps where required.
• Obtain legal, financial and tax advice before becoming bound.

How Russell Kelly & Associates can assist

Russell Kelly & Associates advises landlords and tenants on the preparation, review, negotiation, assignment and renewal of commercial and retail leases. Learn more about our commercial leasing services, our broader business and commercial law practice, or contact our Norwest office.

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Legal disclaimer: This article provides general information only and does not constitute legal, financial, tax or property advice. Retail-leasing requirements and contractual rights depend on the premises, use, documents and circumstances. Laws and administrative guidance can change. Obtain independent professional advice before entering into, renewing, assigning or varying a lease.