Signing a business premises lease

Tenancy costs tend to be one of the main overheads for small businesses. Disputes between landlords and tenants are common and often arise from small business owners not seeking advice or not understanding the significant impacts a lease can have on the financial viability of their business. Knowing who you are dealing with and what else is available before signing a business lease can help to avoid letting your heart rule your head in this critical business decision.

Signing a commercial lease is one of the biggest commitments you'll make as a small business owner. In this video, Fiona Napier, Lease Detective and Mentoring for Growth mentor, breaks down the essential pitfalls to avoid, from hidden terms to negotiation traps. Gain practical tips and confidence to protect your business' financial future.

  • [Fiona Napier, Lease Detective]

    Hi, I'm Fiona Napier, the Lease Detective. and one of the mentors for the Queensland Government's Mentoring for Growth program.

    I help small business owners navigate leasing and landlord matters. And as a business broker, I also support their needs when it's time to sell.

    If you're looking to sign a commercial lease, it's very important to understand what you are agreeing to before committing. Here's 3 key tips to consider.

    Tip 1, understand all the costs involved in a commercial lease.

    It's not just about the rent and whether you can afford it. There are often additional costs that can have a real impact on your budget and cash flow that are easily overlooked.

    Take the time to understand how outgoings will be charged. Are they included in the agreed rent? Will they be a fixed monthly charge? Or will the landlord invoice you as each expense occurs?

    Energy costs are another important factor to consider. The cost to run lighting, air conditioning, and refrigeration can really add up, especially during our hot summer months.

    These costs can vary quite a bit depending on things like the age and energy rating of the building, your chosen fit out design and layout and what your business needs to operate efficiently.

    Understanding these costs will help you avoid surprises and allow you to plan your cash flow more effectively.

    Tip 2, timing is key.

    Plan ahead as the Brisbane 2032 Olympic and Paralympic Games isn't far away.

    So, when considering a commercial lease, it's important to think carefully about the lease term that will best suit your business, now and into the future.

    Ask yourself a few key questions before taking the next steps.

    When will the lease expire and how does that fit with your business plans?

    Does it have an option for a further lease term? And how will that align with 2032?

    And how can you avoid a market review or lease expiry around this time?

    Major events like Brisbane 2032 can have a significant impact on market rent and the availability of commercial space, particularly in key locations, so thinking ahead and strategically planning your lease expiry with this in mind could give your business a real advantage.

    Tip 3, get professional advice before you sign.

    A commercial lease is a binding agreement, so it's important not to rush the process or feel pressured into making a quick decision.

    Consider engaging a commercial tenant advocate to negotiate the terms on your behalf and help secure more favourable outcomes.

    It's wise to seek financial advice to help assess whether the lease commitment is sustainable for your business model over the term of the lease.

    Always seek advice from a solicitor to ensure you fully understand the lease terms and what you're agreeing to before signing.

    A solicitor can help identify any potential risks, explain complex clauses, and make sure the lease agreement is fair and clearly understood.

    Taking the time to get professional advice up front can help protect your business and set you up for long-term success.

    Visit Business Queensland for more information on support available for your business.

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Before you sign a lease, you need to be confident that you understand and can meet all the terms and conditions. To find out if the lease is suitable for you, and to avoid expensive misunderstandings that could cost you money and potentially your business, consider these questions and discuss the answers with your solicitor and financial adviser.

Lessor or lessors agent

  • Does your contract say a lot but actually tells you very little?
  • Are you left wondering what it's all about?
  • Do you get the feeling that information is being withheld?
  • Are you immediately pressured to sign on the spot?
  • Is the discussion relaxed – no pressure to sign – with time for you to properly consider things and take appropriate advice?

Lease

  • Who pays the legal costs for establishing the lease?
  • When does the lease start? What time period does it cover?
  • Will the lease period give you time to make enough profit to get a reasonable return on your investment?
  • Can both parties engage a specialist retail valuer if there is a dispute over market rent?

Rent

  • What is the rent? Is it paid weekly, monthly or in advance?
  • Is a deposit or other payment required?
  • How are rent increases worked out?
  • What happens if rent payments are late?

Options

  • Do you have an option to buy the premises?
  • Can you renew the lease? When, and for how long?
  • Can you end the lease before it expires? If so, what are the conditions?
  • Is subletting possible? If so, what are the conditions?
  • Can you transfer the lease? Are any expenses involved?

Expenses

  • Are there additional charges for outgoings such as rates, taxes, garbage, air conditioning or marketing? How are these charges worked out?
  • Have you considered expenses such as electricity, cleaning, repairs, maintenance and refitting?
  • Who is responsible for taking out the various types of insurance?

Restrictions

  • Are there restrictions on the type of business, its goods or trading hours?
  • When you leave the premises, can you remove fixtures, fittings or furnishings you have put in?
  • Will any lease terms affect the ongoing profitability of your business?

Council approvals

  • Have you checked if the lease makes it your responsibility to have all the correct planning and permitted use approvals from council, regardless of what the owner or property agent told you? (This is a very common clause in commercial leases.)
  • Have you checked with council that the planned use for the premises (especially for a gym, micro-brewery or auto-related business) is permitted—not just that the zoning is correct?
  • Do you have written assurances from the landlord or property agent that the approvals for your business type will be granted?

Maintenance

  • Does the lease require you to maintain the premises? At whose cost?
  • Can alterations or improvements be made to the premises by either party? Are there conditions?
  • Do you have to return the premises to pre-lease condition?

Assignee/assignor involvement

  • Has the assignor* got written approval for the assignment of the remainder of the lease?

*If you are buying a business and the seller has a lease as part of that business, they are known as the assignor. The assignor requires approval from the landlord for the assignment of the remainder of the lease to the purchaser of the business (assignee).

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