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Most commercial landlords understand that having a lease in place is essential. What's less commonly considered is how much the quality of that lease affects the landlord's actual position - not just at the start of the tenancy, but at every significant moment over its life.
Many landlords use a document they've had for years, received from a previous solicitor, or sourced from a template. The document may look complete. The question is whether it reflects the actual tenancy, the specific premises, and the landlord's real risk exposure - or whether it's a generic form that happens to have the right names and dates.
This post looks at why a well-drafted commercial lease protects a landlord's investment, where the areas of genuine complexity sit, and what to think about before you issue a lease to a new tenant.
Granting a commercial lease transfers possession of your property to a tenant for a defined period. The terms you agree to at the outset determine your rights to recover rent, protect against tenant default, and reclaim your property in good condition at the end of the term.
A lease that works well for a landlord isn't just one that's legally valid, it's one that gives you the remedies you actually need when things don't go to plan. That's rarely something a generic template delivers without adaptation.
Think about the end of the tenancy before you finalise the beginning. What condition do you want the premises returned in? What happens to any fitout you've contributed to? What are your rights if the tenant can't pay, wants to exit early, or changes ownership?
These questions are far easier to address in the lease before signing than to resolve through negotiation or dispute after the fact.
The terms of a commercial lease are largely whatever the parties agree to. That puts landlords in a strong position at the drafting stage but only if that position is used well. A lease that doesn't reflect the specific tenancy can leave gaps that become expensive when they matter.
Permitted use provisions are a common source of problems. A permitted use that's too narrow can make the premises difficult to re-let if the tenant exits or assigns the lease. A permitted use that's too broad can result in uses that affect the landlord's insurance, planning approvals, or the trading environment in a multi-tenancy building. Getting the scope right requires understanding the building, the tenancy, and the landlord's longer-term plans for the property.
Make-good obligations need to be specific to be enforceable. A clause requiring the tenant to return the premises to "original condition" sounds clear until a dispute arises about what that actually means particularly where fitout works have been undertaken during the tenancy. Landlords who have contributed to a fitout face a particular risk if the lease doesn't address whether the tenant is required to reinstate, remove improvements, or leave the fitout in place at expiry. That question has a material effect on the value of the premises at the end of the term and is far easier to address in the lease than to argue about afterwards.
Assignment and change of control provisions matter as tenants' business circumstances evolve. A tenant may assign the lease to a new entity, or may be the subject of a corporate acquisition that effectively changes who's in occupation without any formal assignment taking place. A lease that addresses only formal assignment, without addressing change of control in a corporate tenant, can leave a landlord effectively bound to a new occupant they never agreed to.
This is where AI-generated leases have a genuine limitation. AI can produce a document that looks professionally drafted and includes recognisable commercial lease provisions. What it can't do is anticipate how those provisions interact with your specific property, your tenant's profile, or the circumstances that will arise over a five or ten-year tenancy. The gaps in a generic lease often aren't visible at the outset but they become apparent when something goes wrong.
Several areas of commercial lease drafting regularly create issues for landlords who haven't addressed them properly before signing.
Bank guarantee quantum and conditions are a consistent source of problems. Many landlords accept a bank guarantee equivalent to one month's rent without much consideration. Whether that's adequate depends on the tenant's covenant strength, the nature of the tenancy, and the realistic cost of recovering the premises if the tenant defaults. A tenant who vacates mid-term leaving fitout obligations and arrears can generate costs that far exceed a single month's rent. The conditions under which the guarantee can be called, and the process for doing so, also need to be workable in practice.
Outgoings recovery clauses determine what costs the landlord can pass through to the tenant. Commercial leases typically allow landlords to recover outgoings (e.g. rates, insurance, maintenance, management costs) but the scope of what's recoverable depends on how the clause is drafted. A clause that's vague about which outgoings are recoverable, or that contains carve-outs the landlord didn't intend, can result in the landlord absorbing costs they assumed would be passed on.
Fitout contributions create their own complexity when not properly documented. If a landlord contributes to a tenant's fitout to attract them to the premises, the lease needs to be clear about what happens to those improvements. Does the tenant reinstate at expiry? Can the landlord elect to retain the fitout? Who owns the improvements during the term and at its end? A lease that's silent on these questions leaves the landlord's position uncertain at precisely the moment it matters most.
Rent review mechanisms need to be clearly drafted to operate as intended. Market rent review processes in particular can produce unexpected results if the review mechanism isn't well structured including processes that are difficult to initiate or that produce outcomes the landlord can't practically enforce.
Drafting a commercial lease that actually protects a landlord's interests requires more than inserting standard clauses. It requires understanding what the tenant is likely to push back on, what's genuinely standard in the current market, and where holding firm on a particular position is commercially sensible versus where flexibility will help secure a good tenant without meaningful risk.
Tenants with experienced legal advice will push back on provisions they consider unreasonable. Understanding which of your standard positions are genuinely necessary to protect your interests - and which you're holding by habit rather than commercial logic - helps you negotiate from a position of clarity rather than simply reacting to the tenant's requests.
The value of a well-drafted lease also extends beyond the tenancy itself. Lenders considering the property as security will look at the quality of the lease documentation. Buyers considering acquiring the property will assess the lease terms carefully. A lease that contains gaps, ambiguities, or provisions that would be difficult to enforce can affect the property's value and saleability in ways that go beyond the immediate landlord-tenant relationship.
Where landlords manage multiple properties, consistency in lease standards matters but so does adapting each document to the specific tenancy. A commercial leasing lawyer working across your portfolio can help maintain both.
Drafting a lease well means thinking about the end of the tenancy from the beginning. The questions that create the most difficulty - what happens to fitout, what make-good actually requires, how disputes about condition are resolved - are all questions that could have been answered clearly in the original document.
I work with landlords to draft leases that reflect the actual tenancy: the specific premises, the tenant's profile, the landlord's plans for the property, and the scenarios most likely to create issues over the term.
The leases that cause the least difficulty aren't necessarily the most landlord-favourable. They're the ones that are clear about what each party's obligations are, so that when circumstances change, as they do over a long tenancy, the framework for resolving them is already in place.
A landlord had owned a commercial premises for several years and used the same lease template for successive tenancies. When a new tenant approached to take the space, the landlord agreed to make a significant fitout contribution to secure the tenancy. The contribution was documented in correspondence, and the lease was signed using the standard template, without addressing what would happen to the fitout at the end of the term.
At expiry, a dispute arose. The tenant's position was that the standard make-good clause required reinstatement to original condition, which would have meant removing the fitout the landlord had paid for. The landlord's position was that they had always intended to retain the fitout as a permanent improvement to the premises. The lease was silent on the point.
Addressing the point in the lease before signing by specifying what would happen to the fitout at expiry, and recording the landlord's election to retain the improvements would have eliminated the dispute entirely.
When I work with landlords on commercial lease drafting, the goal is a document that reflects the tenancy and gives you the remedies you need if things don't go to plan.
That means understanding the premises, the tenant, and your plans for the property - not just inserting standard provisions into a template. It means drafting make-good obligations that are specific enough to be enforceable, bank guarantee provisions that reflect your actual risk exposure, and assignment controls that address the ways a tenant's ownership or business might change over a long term.
I draft and review commercial leases, advise on lease negotiations, and work with landlords through the leasing process directly. If you're granting a commercial lease and want the document to actually protect your position, I'm happy to discuss your specific situation.
The most efficient point to get advice is before you issue a draft lease to the tenant - that's when you have full flexibility to structure the document correctly. If you're already in negotiations and the tenant has requested amendments, I can also review the proposed changes and advise on what to accept, push back on, or negotiate.
Advice is also useful if you're reviewing an existing lease in connection with a property sale, if a tenant has defaulted, or if a dispute has arisen about obligations under a current lease.
Published by Jackie Atchison, Principal | LexAlia Property & Commercial LawNorthern Beaches, Sydney | Serving NSW for property matters | Australia-wide for business law
Or if you'd prefer, you can send me a message and I'll get back to you promptly.
Standard templates provide a starting point, but a lease that doesn't reflect the specific tenancy can leave gaps that create problems later. The cost of addressing those gaps in a dispute is typically more than proper drafting at the outset.
The right quantum depends on your tenant's covenant strength and the realistic cost of recovering the premises if things go wrong. One month's rent is a common starting point but isn't always adequate for longer or higher-risk tenancies.
A standard form can be a useful starting point, but permitted use, make-good, bank guarantee, and assignment controls typically need adapting to each tenancy. Applying a template without adaptation can leave you unprotected in ways you're not anticipating.
If the company itself has limited assets, a personal guarantee from directors or shareholders — in addition to the bank guarantee — is worth considering. How to structure that depends on the specific tenant and the nature of the tenancy.
That depends on what your lease says. A clearly drafted assignment clause that also addresses change of control gives you a stronger position if consent is bypassed. If the clause is ambiguous, your practical remedies may be more limited than you expect.
