The Insider's Guide to Commercial Property Leases

Leasing a commercial property is a big commitment for any business. At its core, a lease agreement allows a tenant to occupy and operate from a premises or building by paying rent to the property owner. Once signed, both landlord and tenant are generally locked in until the lease expires or a break clause is triggered.

But leases offer advantages to both sides. For landlords, it secures a reliable income stream over an extended period. For tenants, it provides a stable long-term base to grow their operations. Getting the lease terms right is crucial.

The Leasing Process Step-by-Step

Negotiating and finalising a commercial lease typically involves these key stages:

1. Agreement to Lease

This initial document outlines the intent to enter a lease agreement down the track, without granting occupation rights yet. It's used when the property isn't ready, the landlord hasn't secured title, or terms still need finalising.

2. Draft Lease Issued

The landlord's solicitor drafts the proposed lease based on the agreement to lease. The tenant reviews it and can request amendments.

3. Lease Finalised 

Once negotiated, the tenant signs all lease copies which the landlord co-signs, keeping one copy each.

4. Lease Registration

For longer leases over 3 years (including renewals), a lease memorandum is registered on the property title.

What's Included in a Lease?

While leases are complex legal agreements, some core elements are:

- Tenant and guarantor details

- Property description and permitted uses 

- Start/end dates and term length

- Rent amount and increase provisions

- Outgoings the tenant covers (e.g. rates, utilities)

- Repair/maintenance responsibilities

- Trading hours

- Rent-free periods or fit-out contributions

- Insurance requirements

Your solicitor will scrutinise the fine print, but grasping the key terms upfront allows you to negotiate better.

Types of Commercial Leases

The four main commercial lease structures are:

Gross Lease

A 'full-service' lease where the landlord pays all outgoings. Tenants only pay rent.

Net Lease 

The tenant covers some outgoings (rates, maintenance etc.) on top of rent, while the owner handles others.

Triple Net Lease

The tenant pays for everything except the building's structure, roof and parking areas.

Absolute Net Lease

The tenant is responsible for every property cost, including rent, taxes, insurance, repairs, management fees, etc.

Making Sense of It All

Understanding commercial leases is vital for securing the right property and negotiating favourable terms. While complex, the right resources and guidance can steer you towards an optimal lease for your business needs.

To take your education further, explore our best-selling commercial investing book or speak to our property experts for personalised lease advice.