Properties & Pathways

Commercial lease agreements

What to look for in a commercial lease agreement

A commercial lease agreement carries is a great deal of responsibility for both landlord and tenant of a commercial premises. Learn more about what a commercial lease agreement contains and what to look for before signing one.

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A commercial lease agreement is a contract between a landlord and a tenant of a commercial premises. Such commercial premises may include an office property, a retail premises, an industrial property, or any property used for business purposes. The lease agreement grants the tenant exclusive right to use a particular portion of the property in question.

Every lease agreement is different, so a thorough vetting of the document is a must before signing on the dotted line. A commercial lease agreement typically states a far longer lease term than a residential property lease, with tenures lasting up to (and beyond) ten years. Once signed by both landlord and tenant, the responsibilities laid out in the agreement are legally binding.

Elements of a commercial lease agreement

You can expect to see the following elements included in a commercial lease agreement in Australia:

  • Lease term
  • Rental payment amount
  • Permitted use: This clause in the agreement sets out what specific activities can and cannot be performed on the commercial premises.
  • Common areas: If the premises is shared, this clause will specify which areas of the property are to be used jointly by the existing tenants.
  • Net lettable area: This is the designated area of the property in which the tenant will be charged rent to use. After all, a premises may contain multiple tenants, so the entire property is not necessarily dedicated to the tenant signing the lease agreement
  • Annual rental increases: The payable rent amount will typically increase either on a fixed percentage each year (1% or 2%) or based on the Consumer Price Index (CPI)
  • Rights and responsibilities: Depending on the lease agreement, the tenant will be obligated to uphold certain aspects of the property, including paying for the property’s outgoings, ensuring continued maintenance of the premises, paying rent on time, etc.
  • Renewal: The clause in the lease agreement pertaining to lease renewal is crucial for a tenant to understand. Should the tenant be issued an Option, they will be granted the option to renew the lease agreement at the designated term (one year, two years, five years, etc) of that Option.

There are even different types of lease agreements in commercial real estate, such as a Triple Net Lease (NNN).

Understanding your rights as a party signing a commercial lease agreement is crucial. Whether landlord or tenant, it’s important to have a legal representative vet the contract before you sign.

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