Commercial Leases

Unlike retail leases, which are regulated by the Retail Leases Act 1994 (NSW), commercial leases do not have a dedicated statutory regime, giving parties more flexibility but also placing greater emphasis on the importance of the lease agreement itself.

Here’s a summary of the key aspects of commercial leasing law in NSW:

1. Freedom of Contract:

• Negotiation and Agreement: The terms of a commercial lease are largely determined by the negotiation between the landlord and tenant. There is considerable freedom to negotiate terms such as rent, duration, outgoings, and other obligations. Always consult a lawyer as you negotiate the terms of a commercial lease.

• Written Lease Requirement: While not all leases need to be in writing (e.g., short-term leases under three years), it is highly recommended to have a written agreement to avoid disputes.

2. Key Lease Terms:

• Rent: The rent amount and payment terms (e.g., frequency, method) are agreed upon by the parties. Rent increases may be specified in the lease, often based on fixed amounts, CPI adjustments, or market reviews.

• Term of Lease: The duration of the lease, including any options to renew, is negotiated between the parties. There is no minimum term requirement for commercial leases. However leases and subleases of part of land with a total term of more than 5 years is a deemed subdivision of land.

• Outgoings: The lease may specify that the tenant is responsible for paying certain outgoings, such as rates, taxes, insurance, and maintenance costs. These should be clearly outlined in the lease.

3. Rent Reviews:

• Rent Review Clauses: Leases typically include provisions for rent reviews, which may occur periodically throughout the lease term. The method of review (fixed percentage, market value, CPI) should be clearly defined.

• Dispute Resolution: If parties cannot agree on a new rent during a market review, the lease may provide for the appointment of an independent valuer to determine the rent. In the event of any dispute, consult a lawyer.

4. Security Deposits and Guarantees:

• Security Deposit: It is common for landlords to require a security deposit (often equivalent to several months' rent) as a form of financial security. The handling and return of this deposit should be specified in the lease.

• Personal Guarantees: Landlords may also request personal guarantees from business owners or directors, particularly for new or small businesses.

5. Repairs and Maintenance:

• Tenant’s Obligations: The lease usually outlines the tenant's responsibilities for maintaining the leased premises, often covering repairs and maintenance within the premises.

• Landlord’s Obligations: The landlord is typically responsible for structural repairs and maintaining common areas, unless otherwise agreed.

6. Assignment and Subleasing:

• Assignment of Lease: Tenants may have the right to assign (transfer) the lease to another party, but usually require the landlord’s consent. This consent cannot be unreasonably withheld if the new tenant is suitable.

• Subleasing: Subleasing part or all of the premises is generally allowed, subject to the landlord's approval and the terms of the original lease.

7. Termination of Lease:

• Breach of Lease: Either party may terminate the lease if the other party significantly breaches its terms. Common breaches include non-payment of rent, unauthorized alterations, or failure to maintain the premises.

• Termination by Agreement: The lease can be terminated early by mutual agreement between the landlord and tenant, usually documented in a "surrender of lease" agreement.

• Holding Over: If the tenant continues to occupy the premises after the lease term expires, and the landlord accepts rent, a "holding over" tenancy may arise, often on a month-to-month basis.

8. Dispute Resolution:

• Negotiation and Mediation: Disputes between landlords and tenants are often resolved through negotiation or mediation. In all cases we recommend that you consult a lawyer.

• Legal Action: If disputes cannot be resolved amicably, parties may seek resolution through the NSW Civil and Administrative Tribunal (NCAT) for certain matters or through the courts.

9. Registration of Lease:

• Registration Requirements: For leases exceeding three years (including any option periods), it is advisable to register the lease with NSW Land Registry Services. Registration protects the tenant's interest in the property and ensures the lease is enforceable against third parties.

10. Compliance with Legislation:

• Work Health and Safety (WHS) Laws: Both landlords and tenants must comply with WHS laws, ensuring the premises are safe for employees, customers, and visitors.

• Environmental Laws: The lease may impose obligations on the tenant to comply with environmental laws, particularly if the business involves activities with environmental impacts.

11. Special Conditions:

• Fit-Out and Alterations: The lease may include conditions regarding the tenant’s ability to fit out or make alterations to the premises. Consent from the landlord is typically required.

• Make Good Provisions: At the end of the lease, tenants may be required to "make good" the premises, restoring them to their original condition, subject to fair wear and tear.

Conclusion:

Commercial leases in NSW provide flexibility for parties to tailor the terms to their specific needs, but they also place a strong emphasis on the importance of clear, well-drafted lease agreements. Both landlords and tenants should seek legal advice to ensure their rights and obligations are adequately protected and understood.

For more information, contact:

Michael McHugh BA LLB (Hons)

Accredited Specialist – Property Law

Australian Legal Practitioner