In short
A commercial lease sets out rent, term, outgoings, make good and security arrangements between landlord and tenant, and the drafting differs meaningfully depending on whether the premises falls under retail leasing legislation such as the Retail Leases Act 1994 (NSW) or the Retail Leases Act 2003 (Vic), which impose disclosure and other protections that don't apply to a purely commercial (non-retail) lease. Getting the retail-versus-commercial classification and the security arrangements (bank guarantee or personal guarantee) wrong is where most avoidable disputes originate.
Heads of terms before the lease itself
Before drafting the formal lease we recommend agreeing heads of terms covering rent, term and option periods, permitted use, outgoings treatment and any incentive (rent-free period or fit-out contribution), because negotiating these commercial points inside a fully drafted legal document is slower and more expensive than settling them upfront. A heads of terms document isn't intended to be binding, and we draft it expressly as such, but it materially speeds up the lease negotiation that follows.
The retail versus commercial distinction
Whether a lease is a 'retail shop lease' under the Retail Leases Act 1994 (NSW) or a 'retail premises lease' under the Retail Leases Act 2003 (Vic) depends on factors like the nature of the business conducted from the premises (broadly, whether goods or services are sold to the public) and, in NSW, whether the occupancy costs exceed the prescribed threshold that takes a lease outside the Act's protection. Retail legislation imposes disclosure statement requirements, restricts a landlord's ability to pass on certain outgoings (like land tax in both states) and can restrict ratchet rent review clauses, so classifying the lease correctly at the outset changes what terms are even legally available to negotiate. We assess this classification against the specific premises and use, not just the name of the shopping centre or building.
Outgoings and how they're actually recovered
Outgoings clauses need to specify precisely what's recoverable — council rates, water, insurance, common area maintenance, and (for non-retail leases only, since retail legislation generally prohibits it) land tax — and how they're apportioned and reconciled against actual expenditure each year. A vague 'tenant pays a proportionate share of outgoings' clause invites disputes at reconciliation time, so we draft with a defined outgoings estimate, an annual reconciliation mechanism and audit rights so the tenant isn't simply presented with a bill it can't verify.
Make good obligations
Make good clauses determine what condition the tenant must return the premises to at lease end — often a point of real dispute because 'as existing at commencement' and 'to base building condition' can mean very different scopes of works and cost. We recommend a condition report annexed at the start of the lease as the objective benchmark, and clear drafting on whether the tenant's own fit-out must be removed or can be left in place, since ambiguity here routinely turns into an expensive argument in the final months of a tenancy.
Bank guarantees and personal guarantees
Landlords typically require security in the form of a bank guarantee (an unconditional guarantee from the tenant's bank, callable on default) sized as a multiple of monthly rent, and where the tenant is a company, a personal guarantee from a director extending liability beyond the corporate tenant. We negotiate the amount and step-down provisions (reducing security after a period of good compliance) on the tenant side, and ensure the guarantee documents are properly executed and enforceable on the landlord side, since a defectively executed guarantee can be worthless when it's actually needed.
What the fixed fee covers
- Retail versus commercial classification check under the relevant state legislation
- Heads of terms to lock in commercial points before formal drafting
- Lease drafting covering rent review, outgoings, make good and default provisions
- Bank guarantee or personal guarantee documentation, including step-down terms where negotiated
- Disclosure statement preparation or review where retail leasing legislation applies
Mistakes we see
- Assuming a lease is 'commercial' when the premises and use actually trigger retail leasing legislation
- Passing land tax onto a retail tenant where the relevant Act prohibits it
- Leaving make good obligations vague with no condition report benchmark at commencement
- Accepting a bank guarantee document without checking it's validly executed and enforceable
- Failing to include a step-down mechanism, leaving security oversized for the remaining term
Who this is for
- Landlords leasing commercial or retail premises for the first time
- Tenants negotiating a new lease, renewal or option exercise
- Businesses opening in a shopping centre where retail leasing legislation likely applies
- Franchisors and franchisees negotiating site leases
Frequently asked questions
- How do I know if my lease is covered by retail leasing legislation?
- It depends on the nature of the business conducted from the premises and, in New South Wales, whether occupancy costs exceed the prescribed threshold, rather than simply where the premises is located. We assess the specific use against the Retail Leases Act 1994 (NSW) or Retail Leases Act 2003 (Vic) before drafting, since it changes what terms are legally available.
- Can a landlord pass land tax onto a retail tenant?
- Generally no — both the NSW and Victorian retail leasing Acts prohibit recovery of land tax from a retail tenant, even if the lease document says otherwise, because that prohibition overrides inconsistent lease terms. This is a common area landlords get wrong when using a commercial lease template for retail premises.
- What's the difference between a bank guarantee and a personal guarantee?
- A bank guarantee is a cash-backed instrument from the tenant's bank that the landlord can call on directly for a defined sum, while a personal guarantee makes an individual (typically a director) personally liable for the tenant company's obligations under the lease. Landlords often require both for a new or thinly capitalised corporate tenant.
- Who decides what 'make good' actually means at the end of a lease?
- It's determined by the make good clause in the lease itself, ideally benchmarked against a condition report taken at commencement, which is why we recommend that report as standard practice rather than leaving the standard to be argued over retrospectively.
- Are heads of terms legally binding?
- We draft them expressly as non-binding, intended only to record the commercial terms both parties expect to see reflected in the formal lease, which speeds up drafting without prematurely locking either party into terms before due diligence is complete.
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