Top 10 clauses to negotiate in a commercial lease

In Queensland, tenants should pay careful attention to, and consider negotiating, several core clauses in a typical commercial lease. These are the essential clauses we recommend you carefully review with your lawyer:

1. Term and Option to Renew: Tenants should ensure the lease specifies the term clearly, along with any options to renew, including how and when any option must be exercised.

2. Rent and Rent Review Provisions: The lease should detail how rent is calculated, how and when it is paid, rent review dates, and the mechanisms for review (market, CPI, fixed increase).

3. Outgoings and Other Payments: Tenants must understand what outgoings are payable (such as rates, taxes, insurance, management fees, or maintenance of common areas) and how these are apportioned and calculated.

4. Repair, Maintenance and Make Good: The balance of obligations between landlord and tenant regarding maintenance and repairs is crucial. A fair lease should limit the tenant’s obligations to the condition of the premises at the start of the lease (excluding fair wear and tear), exclude responsibility for structural repairs, and clarify the scope of any ‘make good’ obligations at the end of the term.

5. Use of Premises (Permitted Use): This clause should clearly stipulate the permitted use of the premises and whether this use is exclusive. It is also important to ensure the premises can legally be used for the required purpose, and the tenant should avoid overly restrictive use clauses.

6. Assignment, Subletting and Licensing: Consent to assignment or subletting clauses should not allow the landlord to unreasonably withhold consent, and the process should be clearly set out, including any conditions and timeframes.

7. Alterations, Fitting Out and Improvements: Provisions concerning alterations, installation of partitions, shopfronts, signage, or fitouts should be clear, with landlord consent procedures set out, along with obligations for reinstatement or repair at the end of the lease.

8. Relocation and Demolition Clauses: These clauses are more common in retail and shopping centre leases, but any lease with such a provision should be carefully reviewed. The tenant should have rights to terminate the lease or receive compensation if asked to relocate.

9. Damage, Destruction and Inaccessibility: The lease should provide for abatement or suspension of rent and outgoings if the premises are damaged, destroyed, or inaccessible, and ideally should set standards for repair/reinstatement and the tenant’s rights to terminate if the premises are not promptly reinstated.

10. Landlord’s Insurance and Tenant’s Insurance Obligations: The obligations on the tenant to insure should be limited, and the tenant should ensure that its obligations correspond to the landlord’s requirements.

    
    

Tenants entering into any commercial lease should closely review these clauses with their legal adviser and seek to negotiate more favourable terms on these key points.

If you are entering into a new commercial or retail lease or considering a re-negotiation of the terms with your landlord, talk to us about your specific requirements to ensure these matters are not overlooked during negotiation and execution.