.svg)
A commercial lease typically starts with optimism. Keys change hands, the relationship feels solid, and everyone's aligned on the arrangement. Then months or years pass, and questions emerge. Maybe there's confusion about how outgoings are calculated. Perhaps the make-good clause means different things to landlord and tenant. Or the rent review formula doesn't work the way anyone expected.
These situations aren't unusual but most could have been addressed through clearer documentation from the start.
This guide walks through the commercial lease terms that matter most for preventing misunderstandings. We'll look at outgoings, make-good obligations, fitout arrangements, rent reviews and permitted use provisions. The goal is creating clarity that serves both parties throughout the lease term.
Invest time in ensuring lease documentation accurately reflects the commercial arrangements you've negotiated. Work with landlords and tenants to clarify outgoings calculations, make-good expectations, and fitout ownership before the lease is executed. Ensure rent review mechanisms are tested for workability and permitted use descriptions balance protection with flexibility. The clearer your documentation, the fewer disputes you'll manage during the lease term, preserving commercial relationships and reducing time spent resolving avoidable conflicts.
Most commercial leases begin with goodwill. Landlord and tenant have reached understanding, terms seem reasonable, everyone's focused on starting the tenancy. The relationship feels solid.
However, when the lease itself doesn't properly reflect that understanding, or leaves key terms vague or incomplete, even strong relationships can deteriorate when questions arise.
Vague lease documentation creates cascading problems. Both parties think they're aligned because the relationship is good, but they've actually understood different things from the same ambiguous clause.
When circumstances change, e.g. market conditions shift, business needs evolve, unexpected costs arise, unclear terms leave room for reasonable people to reach completely different conclusions about what the lease requires.
What starts as a question about outgoings or fitout can escalate into a dispute that fundamentally changes the landlord-tenant relationship, making the remaining lease term difficult for everyone involved.
Fixing documentation problems after disputes emerge is significantly more expensive and time-consuming than addressing terms clearly at the outset.
A well-drafted commercial lease serves two functions. It provides legal protection when circumstances require it - clear terms that can be relied upon if disagreement arises or enforcement becomes necessary.
More importantly for day-to-day operations, a clear lease creates practical certainty. When both parties can refer to specific, unambiguous provisions about their obligations, the lease becomes a useful reference rather than a source of confusion.
This is what I mean when I say a lease is a commercial deal first and a legal document second. The best leases reflect the actual agreement clearly and practically, reducing room for disagreement throughout the tenancy.
Let's work through the specific lease terms that make the biggest difference.
Outgoings generate more lease disputes than any other provision I encounter. Two reasons explain this: the costs themselves can be substantial, and the mechanisms for calculating, apportioning and recovering them are often poorly documented.
Scope of recoverable outgoings. The lease should specifically identify which costs the tenant contributes to. This typically includes council rates, water rates, land tax in some circumstances, building insurance, common area maintenance, property management fees and statutory charges.
Equally important is documenting what's excluded. Capital improvements and upgrades, landlord legal costs unrelated to the tenancy, structural repairs and maintenance, and remediation of pre-existing issues generally shouldn't pass through to tenants as outgoings.
Calculation and apportionment method. How will the tenant's share be determined? For single-occupancy properties, this may be straightforward—the tenant pays 100% of applicable costs. For multi-tenancy properties, specify the apportionment formula: is it based on floor area, a fixed percentage, or another method?
Reconciliation process and timing. Most leases provide for tenants to pay estimated outgoings monthly, with annual reconciliation once actual costs are known. Your lease should specify when reconciliations occur, how much notice the tenant receives, what supporting documentation will be provided, and the timeframe for payment of any shortfall or refund of surplus.
Cap or limit provisions. Some leases include caps on certain outgoings—for example, limiting annual increases in property management fees or excluding specific categories above a threshold. If such arrangements apply, they need clear documentation.
Transparency and supporting documentation. Consider including a schedule showing estimated annual outgoings when the lease is signed. This helps tenants understand their likely exposure and makes budgeting more predictable. During the tenancy, specify what documentation the landlord will provide to support outgoings charges.
Would you like to discuss how outgoings provisions should work for your specific property or tenancy?
The end of a lease is when make-good obligations come into focus—and when poorly drafted or ambiguous clauses create significant problems. I've seen countless disputes arise because the lease said the tenant must return the premises "in good condition" without defining what that actually means.
Specific condition requirements. Rather than generic language about "good condition" or "original state," detail exactly what's required. Does make-good include repainting? What about carpet replacement? Must damaged fixtures be repaired or replaced? Are there specific finishes or quality standards that apply?
Treatment of tenant fitout and alterations. Who owns the tenant's fitout at lease end, and more importantly, who's responsible for removing it? If the fitout must be removed, what condition must the premises be returned to? If the landlord is retaining the fitout, does this change the make-good obligations?
Timeframe for completion. The lease should specify how much time the tenant has to complete make-good works. Is it 30 days after lease expiry? Must it be completed before the tenant vacates? Can the tenant remain in possession on a holding-over basis while works are completed?
Process for landlord assessment. How will the landlord assess whether make-good obligations have been satisfied? Is there a formal inspection process? What happens if the landlord identifies deficiencies—does the tenant get an opportunity to rectify, or does the landlord engage contractors and charge costs to the tenant?
Documenting non-standard arrangements. Sometimes parties agree to modified make-good obligations - perhaps an "as is" handback, financial compensation in lieu of physical works, or an agreement that certain alterations will remain. These arrangements are legitimate, but they must be clearly documented in the lease itself.
Photographic condition reports. While not strictly part of the lease, consider attaching a comprehensive photographic condition report showing the premises condition at lease commencement. This provides objective evidence about the baseline condition the tenant is expected to restore.
Questions about tenant fitout, alterations and improvements generate frequent disputes during leases. Who pays for what? What approvals are needed? Who owns the fitout? What compliance obligations apply? When these issues aren't addressed clearly upfront, they create confusion and potential conflict.
Approval requirements. Specify what types of works require landlord consent. Is consent required for all alterations, or only for structural changes? Can the tenant make minor non-structural changes without approval? What's the process for requesting and granting consent?
Landlord's consent framework. Will the landlord's consent be provided at its discretion, or only withheld on reasonable grounds? What factors will the landlord consider when assessing fitout proposals? How quickly must the landlord respond to requests?
Compliance and certification requirements. The tenant typically bears responsibility for ensuring all fitout works comply with relevant building codes, regulations and development approvals. The lease should specify what certifications, approvals or compliance documentation must be provided to the landlord before and after works are completed.
Cost allocation. Who pays for what? This includes not just the fitout works themselves, but also landlord's costs for consultants, engineers or lawyers to review proposals, costs for obtaining any required consents or approvals, and costs for making good or reinstating if required at lease end.
Ownership of fitout. Does the fitout remain the tenant's property, or does it become a fixture owned by the landlord? This has implications for make-good obligations, insurance, and what happens at lease end or if the lease is assigned.
Insurance and risk allocation. The lease should address who bears risk if fitout works cause damage to the premises or common areas, and whether additional insurance coverage is required during the fitout period.
Ready to work through the fitout provisions for your commercial lease?
Rent review clauses sometimes seem straightforward when the lease is signed, but prove problematic when the review date arrives. I've seen reviews delayed for months while parties argue about how to interpret review formulas, what "market rent" means, or whether the mechanism can even work mathematically.
Clear and unambiguous review formula. If using fixed percentage increases, state the exact percentage and how it compounds over time. If using CPI increases, specify which CPI index will be used and the reference periods for calculating changes. If using market reviews, define the process for determining market rent.
Mathematical workability. Test the review mechanism before finalizing the lease. Can it actually be calculated? Are all required variables defined or determinable? Does the formula produce a logical outcome in different scenarios?
Timing and notice requirements. When does each review occur—on the anniversary of lease commencement, or on specific dates? What notice must each party provide about the review? Are there deadlines that could result in waiver if missed?
Market review parameters. If reviews are to market rent, define the assumptions that will apply. Should the valuation assume the premises are vacant or tenanted? Are tenant fitout and improvements disregarded? What comparable properties or transactions should be considered?
Dispute resolution mechanism. What happens if the parties can't agree on the reviewed rent? Does the lease provide for expert determination, arbitration, or some other process? How are the costs of dispute resolution allocated?
Minimum and maximum provisions. Does the lease include any floors or caps on rent increases? Some leases provide that rent can increase but not decrease on market reviews, or that increases are capped at a certain percentage regardless of market movements.
Review in context of other terms. Make sure the rent review mechanism works logically with other lease provisions. If outgoings or other costs are separately recovered, the market review should typically disregard those amounts to avoid double-counting.
The permitted use clause defines what business activities the tenant can conduct from the premises. This seems simple, but the clause needs careful consideration to protect both parties' interests while providing appropriate flexibility.
Primary use description. What is the tenant's core business activity that the premises will be used for? This should be specific enough to give certainty, but not so narrow that reasonable variations of the same business type are prohibited.
Breadth and flexibility. Consider the tenant's need for flexibility as their business evolves. A café operator might reasonably want to add catering services or sell retail products. A professional services firm might want to conduct training or consultancy work in addition to their core practice. Can the use description accommodate reasonable variations without requiring lease amendments?
Prohibited uses and activities. Are there specific activities that are not permitted—perhaps due to building restrictions, council conditions, incompatibility with other tenancies, or landlord policy? These should be clearly stated.
Operating hours and intensity. Does the permitted use include any restrictions on operating hours, noise, number of customers, or intensity of use? These may be particularly relevant for mixed-use buildings or where impacts on other tenants or neighbours need to be managed.
Signage and advertising. What signage is the tenant permitted to display? Are there size, location, design or content restrictions? Who approves signage proposals? These questions often connect closely to the permitted use, since signage typically advertises the business conducted from the premises.
Exclusive use provisions. In multi-tenancy properties, has the tenant been granted exclusive rights to conduct certain types of business, preventing the landlord from leasing other spaces for competing uses? If so, the scope of the exclusivity needs precise definition.
Assignment and subletting implications. How does the permitted use affect the tenant's ability to assign the lease or sublet? Can the lease be assigned to any business operating within the permitted use, or does the landlord have additional discretion?
Consider a commercial tenancy where landlord and tenant have a strong working relationship for the first two years. Then the landlord undertakes capital improvements to the building's common areas, say a lobby renovation and lift upgrades. The landlord includes these capital costs in the annual outgoings reconciliation.
The tenant objects, believing capital improvements should be excluded from outgoings. The landlord maintains that the lease requires the tenant to contribute to "all costs associated with the building." Both parties genuinely believe they're right based on their interpretation of the lease language.
This scenario illustrates why specificity matters in outgoings clauses. If the lease had explicitly addressed capital expenditure - either confirming it's recoverable or explicitly excluding it - this disagreement wouldn't arise. Instead, parties end up negotiating or potentially litigating an issue that could have been resolved at the drafting stage.
Similar scenarios play out with make-good obligations. A tenant installs extensive shopfitting and assumes they'll remove it at lease end, planning their budget accordingly. The landlord assumed the shopfitting would remain as part of the premises condition. At lease expiry, completely different expectations collide, creating conflict that affects both the handback process and the commercial relationship.
These aren't situations where either party is being unreasonable. They're simply the natural consequence of documentation that didn't clearly address the specific arrangements the parties intended.
Base rent is the fixed amount you pay for occupying the premises—the core rental component of your lease. Outgoings are additional costs you contribute toward expenses the landlord incurs in operating and maintaining the property, such as council rates, insurance, repairs and common area costs.
This distinction matters because the way each component is calculated, reviewed and recovered is typically different. Base rent usually changes according to scheduled reviews or fixed increases. Outgoings vary based on actual costs incurred and are usually reconciled annually. Understanding both components is essential for accurately budgeting your occupancy costs.
The relationship between base rent and outgoings also affects your market rent reviews—valuers determining market rent need to know which costs are included in rent and which are recovered separately to make accurate comparisons with other properties.
Make-good obligations should be specific enough that both landlord and tenant would reach the same conclusion about what's required if they reviewed the clause independently. Phrases like "good condition" or "original state" sound reasonable but often prove ambiguous in practice.
Better practice is to itemise specific requirements: repainting (including how many coats and what areas), carpet condition or replacement, fixture repairs, removal of tenant installations, and any specific finishes or standards that apply.
If you've negotiated non-standard make-good arrangements - perhaps agreeing the tenant won't need to remove certain fixtures, or that some wearing of finishes is acceptable, or that the landlord will handle reinstatement in exchange for an agreed payment - document these arrangements explicitly in the lease itself. Side letters or verbal agreements about make-good frequently become points of dispute at lease end when memories differ and circumstances have changed.
We can work through what specific make-good provisions make sense for your situation.
The best approach to rent reviews depends on your commercial circumstances and risk appetite, but all review mechanisms should share certain characteristics: they must be unambiguous, mathematically workable and consistent with other lease terms.
Fixed percentage increases provide certainty for both parties—everyone knows exactly what rent will be in future years. CPI-linked reviews allow rent to move with inflation while remaining relatively predictable. Market reviews can be more favourable in softening markets but require clear parameters about how market rent will be determined.
Whatever mechanism you choose, test it before finalising the lease. Can it actually be calculated? Are there any unclear variables? Does it work logically with outgoings and other cost recovery provisions? And critically, does the lease specify what happens if the parties disagree about the reviewed rent?
Let's work through the options together to find a review mechanism that suits your circumstances while avoiding the ambiguity that creates disputes.
Whether tenant fitout becomes the landlord's property depends on both property law principles about fixtures and what the lease specifically provides. Generally, items that are permanently attached to the premises may become fixtures owned by the landlord, while items that remain chattels (loose equipment) stay the tenant's property.
This matters for several practical reasons. First, it affects who insures the fitout - if it's become the landlord's fixture, the landlord's building insurance typically needs to cover it. Second, it impacts make-good obligations - if the fitout has become the landlord's property, can the landlord then require the tenant to remove it? Third, it affects valuation and finance - landlords refinancing their properties need to know what improvements have become part of the building. Fourth, it impacts tax treatment for both parties.
Your lease should clearly address fitout ownership to avoid these complications. Some leases specify that all fitout remains tenant property regardless of how permanently it's attached. Others provide that certain fitout becomes landlord property while other elements remain tenant property. The key is documenting the arrangement you've actually agreed to.
The permitted use should be specific enough to give certainty to both parties, but broad enough to accommodate reasonable evolution of your business without requiring lease amendments every time you adjust your service offering.
Consider whether the permitted use description would allow you to expand into logical adjacencies of your current business model. If you're a café, can you add catering or retail sales? If you're a professional services firm, can you conduct training workshops or consulting in addition to your core services?
Also consider the commercial realities of your sector. If your industry tends toward specialisation in one specific service, a narrow permitted use might be fine. But if your business model includes diverse revenue streams or you anticipate pivoting to meet market demand, you'll want more flexibility in the permitted use description.
The clause also affects your ability to assign the lease if you ever sell your business. Can you assign to any business operating within the permitted use, or does the landlord have additional discretion to approve assignees? A narrowly-drafted permitted use might limit your exit options.
We can review whether the proposed permitted use balances these considerations appropriately for your situation.
When important lease terms are vague, incomplete or ambiguous, several consequences typically follow. Initially, parties operate based on their own interpretation of what the lease requires, which works fine until a question arises where their interpretations diverge.
At that point, both parties genuinely believe they're right because the lease language supports multiple reasonable interpretations. What might have been a straightforward administrative matter - like an outgoings reconciliation or approval of alterations - becomes a negotiation or potential dispute.
Resolving these ambiguities after they've become contentious is invariably more expensive and difficult than addressing them clearly in the initial drafting. Parties often need to obtain legal advice, exchange correspondence, and potentially resort to mediation or litigation to resolve questions that could have been answered clearly in the lease itself.
The relationship between landlord and tenant often suffers as well. A dispute that arises from poor documentation can create ongoing tension and mistrust that affects the rest of the lease term.
This is why investment in proper lease drafting at the outset delivers value throughout the entire tenancy—you're not just creating a legal document, you're establishing a clear framework for the commercial relationship.
A well-drafted commercial lease reflects the commercial deal accurately, addresses the specific arrangements between landlord and tenant clearly, and provides a reliable framework for managing the tenancy through its entire term.
This doesn't mean the lease needs to be excessively long or complicated. It means the terms that matter most for preventing disputes -outgoings, make-good, fitout, rent reviews and permitted use - should be documented with sufficient specificity that both parties would reach the same conclusion about what's required.
Before signing a new lease. This is the optimal time to ensure all terms clearly reflect your commercial understanding. Once the lease is signed, changing terms requires both parties' agreement, which may be difficult to obtain.
During lease negotiations. Don't wait until you receive a final lease document. Addressing key terms during Heads of Agreement or letter of offer stage means you're working through these issues while both parties are still flexible and focused on reaching agreement.
When renewing or extending. Lease renewals and extensions provide an opportunity to clarify terms that proved unclear during the previous lease period. If outgoings or make-good caused confusion in your last lease, address those issues specifically in the renewal documentation.
If you're using template leases for multiple tenancies. Landlords and agents managing multiple properties benefit from having base template leases reviewed to ensure they address common dispute points clearly and reflect current best practice.
Watch for these indicators that your lease documentation may need improvement:
Working with a commercial leasing lawyer means your lease documentation reflects the actual commercial arrangement clearly, addresses the terms most likely to cause disputes specifically, and creates a reliable framework for the tenancy.
This involves understanding the commercial context - what are the parties actually trying to achieve? What are the key areas where clarity matters most for this particular tenancy? What issues commonly arise in similar leases that should be addressed upfront?
It also means translating commercial understandings into precise legal documentation that will hold up if circumstances change or disagreement arises. The lease becomes both a practical reference document for day-to-day operations and a legal framework that can be relied upon if needed.
Ready to work through your commercial lease documentation together? Let's ensure your lease accurately reflects your commercial understanding and provides the clarity needed to avoid disputes throughout the tenancy.
I work with landlords, property managers, tenants and commercial agents across Sydney's Northern Beaches and throughout New South Wales to ensure commercial leases are clear, fair and reflective of the parties' actual commercial arrangements.
Whether you're negotiating a new lease, reviewing lease terms before signing, preparing for a renewal, or dealing with questions about existing lease provisions, getting the documentation right makes a meaningful difference to how the tenancy functions throughout its term.
Base rent is the fixed amount you pay for occupying the premises - it's the core rental component. Outgoings are additional costs for operating and maintaining the property, such as council rates, insurance, repairs and common area costs. This distinction matters because each component is calculated, reviewed and recovered differently, and understanding both is essential for accurately budgeting occupancy costs.
Make-good obligations should be specific enough that both landlord and tenant would reach the same conclusion about what's required. Better practice is to itemise specific requirements: repainting (including how many coats and what areas), carpet condition or replacement, fixture repairs, removal of tenant installations, and any specific finishes or standards that apply. We can work through what specific make-good provisions make sense for your situation.
The best approach depends on your circumstances and risk appetite, but all review mechanisms must be unambiguous, mathematically workable and consistent with other lease terms. Fixed percentage increases provide certainty, CPI-linked reviews move with inflation, and market reviews can be more favourable in softening markets. Let's work through the options together to find a review mechanism that suits your circumstances.
Whether tenant fitout becomes the landlord's property depends on both property law principles about fixtures and what the lease specifically provides. This matters because it affects who insures the fitout, impacts make-good obligations, affects valuation and finance, and impacts tax treatment. Your lease should clearly address fitout ownership to avoid complications.
The permitted use should be specific enough to give certainty, but broad enough to accommodate reasonable evolution of your business without requiring lease amendments. Consider whether it would allow expansion into logical adjacencies of your business model and how it affects your ability to assign the lease if you sell your business. We can review whether the proposed permitted use balances these considerations appropriately.
When important lease terms are vague or ambiguous, parties operate based on their own interpretation until a question arises where their interpretations diverge. Resolving these ambiguities after they've become contentious is invariably more expensive and difficult than addressing them clearly in initial drafting. This is why investment in proper lease drafting delivers value throughout the entire tenancy.
.webp)
.webp)
