Signing Your First Commercial Lease in Victoria: A Small Business Checklist

For most small businesses the lease is the largest financial commitment they will ever sign — bigger than the fit-out, bigger than the first year’s wages — and it is usually signed with less scrutiny than either. A five-year lease with options at a modest Melbourne rent is easily a half-million-dollar obligation, personally guaranteed. This is the checklist we run through with first-time commercial tenants in Victoria.

1. Work out whether the Retail Leases Act applies

If your premises are used wholly or predominantly to sell goods by retail or to supply services to the public — a café, a salon, a physio clinic, a shopfront accountant — the Retail Leases Act 2003 almost certainly applies, and it gives you protections the landlord cannot contract out of: a disclosure statement before you sign, a minimum five-year term, a ban on recovering land tax from you, limits on rent review methods, and access to the Victorian Small Business Commission for cheap mediation. Pure office, warehouse and industrial leases are usually outside the Act. The distinction matters enough that it is the first question we answer. Our guide to retail versus commercial leases goes into detail.

2. Read the disclosure statement against the lease

Under the Act the landlord must give you a disclosure statement and a copy of the proposed lease at least 14 days before you sign. The disclosure statement sets out the rent, the term, estimated outgoings, any works the landlord will do and whether there is a demolition or relocation clause. Compare it line by line with the lease. Where they differ, you have rights — but only if you notice.

3. Rent, and how it will move

• Starting rent — is it inclusive or exclusive of GST and outgoings? A “$60,000 net” rent can be $75,000 in real cash once outgoings are added.
• Rent reviews — fixed percentage increases compound. A 4% annual increase adds about 22% over five years. CPI reviews are fairer to the tenant in low-inflation years and worse in high-inflation ones. Market reviews at option are where the biggest jumps happen.
• Rent-free or fit-out contribution — often available in exchange for a longer term, but check whether it is clawed back if you assign or exit early.

4. Outgoings: the number that surprises people

Outgoings are the landlord’s costs of running the building — council rates, water, insurance, owners corporation fees, cleaning, security, management fees — passed on to the tenant. Under a retail lease the landlord must give you an estimate before the lease starts and a reconciled statement each year, and cannot recover land tax or capital works. Under a non-retail lease, anything the document says is recoverable is recoverable. Ask for the last two years of actual outgoings, not the estimate.

5. Permitted use and exclusivity

The permitted use clause should describe what you actually do and what you might plausibly do in five years. “Café” does not include a bar licence, catering or retail sales of packaged goods unless it says so. Conversely, ask whether the landlord will agree not to lease neighbouring premises to a direct competitor — in a shopping strip or centre, that exclusivity clause can be worth more than a rent reduction.

6. Term and options

A five-year term with a five-year option is common. The option is yours to exercise, not the landlord’s, but it must be exercised in writing within a strict window — under the Act the landlord must now remind you at least three months before the last date, but the responsibility to act is still yours. Diarise it the day you sign. Also check what happens to rent at option: a market review with a “ratchet” clause that prevents rent falling is prohibited under retail leases but common outside them.

7. Security: bonds, bank guarantees and personal guarantees

Landlords typically require a security deposit or bank guarantee of three to six months’ rent, plus personal guarantees from the directors. Negotiate the amount, ask for the guarantee to be capped, and — critically — ask for your personal guarantee to be released if you assign the lease to a buyer of your business. Under many standard leases it is not, which means you remain liable for a lease you no longer hold, for years.

8. Fit-out, landlord’s works and who pays

Define precisely what condition the premises will be in at handover — the landlord’s works — and what you are allowed to do. Fit-out approvals, hours of work, the requirement to use the landlord’s contractors for base building services, and who owns the fit-out at the end all belong in writing. Get a dated photographic condition report at handover; it is your evidence when make-good is argued five years later.

9. Make good

The single most common end-of-lease dispute. “Make good” can mean anything from cleaning and patching to stripping the premises back to a concrete shell. Negotiate the scope now — ideally “return in the condition at commencement, fair wear and tear excepted, with no obligation to remove the fit-out” — because at the end of the lease you have no leverage at all.

10. Assignment and subletting

If you might sell the business, the lease has to be assignable to the buyer. The Act says a landlord cannot unreasonably withhold consent to assignment of a retail lease, but the process, the landlord’s costs and whether you stay liable afterwards are set by the document. If you might not need all the space, check whether subletting or licensing part of it is permitted.

11. Relocation and demolition clauses

Common in shopping centres and increasingly in mixed-use developments: the landlord can move you to other premises, or end the lease early because the building is being redeveloped. Under a retail lease you are entitled to notice and compensation, but the clause can still end a business you have spent years building. Know whether it is there.

12. Before you sign

Have the lease reviewed by a lawyer who acts for tenants regularly, and get any changes into the document — not into an email from the agent. “This is our standard lease” is the opening position, not the final one. Landlords with a vacant shop move on guarantees, make-good scope and assignment terms far more often than tenants expect.

Empower Legal Solutions reviews and negotiates commercial and retail leases for small businesses across Melbourne, with pricing disclosed before you engage us. Book a free first consultation or see our property and leasing page.

Frequently asked questions