What is a commercial property lease?
Commercial property leases are legal agreements in which a landlord rents out commercial property to a tenant. This type of property is meant for business or commercial activities. Examples include office buildings, retail centres, warehouses, and industrial buildings.
These leases are usually longer-term arrangements compared to residential leases. Commercial leases in Melbourne, Australia, are primarily governed by the Retail Leases Act 2003 (VIC) if the premises are used for retail business purposes or the Property Law Act 1958 (VIC) for non-retail commercial leases.
What legal obligations do landlords have?
Landlords of commercial properties in Melbourne have several legal obligations towards their tenants, including the following:
Disclosure Statement
Prior to entering a lease, the landlord must provide the tenant with a disclosure statement that outlines all costs associated with the lease, including rent, outgoings, and any other expenses. This helps the tenant make an informed decision before signing the lease.
Repair and Maintenance
It's the landlord's job to maintain the structure of the building, including common areas, essential safety measures, and fittings provided by the landlord.
Quiet Enjoyment
Landlords must respect the tenant's right to 'quiet enjoyment' of the property. This means not disturbing the tenant's use and enjoyment of the property.
Safe Premises commercial lease
It’s the landlord’s responsibility to ensure the property is safe and meets all relevant health, safety, and accessibility requirements.
Rent Increases
Rent increases must be done in accordance with the lease and the relevant legislation, which usually means they should be reasonable, and the tenant should be given proper notice.
Security Deposits/Bonds
If a security deposit or bond is required, landlords need to handle these in accordance with the law. This typically involves returning the deposit after the lease ends, minus any repairs or unpaid rent costs, if applicable.
Clauses that can be negotiated in a commercial lease
When involved in a commercial lease negotiation, consider the following clauses as points requiring mutual agreement.
Rent
The amount of rent and how often payment occurs can often be negotiated. This may also include whether there will be a 'rent-free' period at the start of the lease, which can be used to fit out the premises.
Rent Review
The method and timing of rent reviews can be negotiated. This could be a fixed percentage increase based on market rent or tied to the Consumer Price Index (CPI).
Term of Lease
The duration of the lease and any options to renew the lease are significant negotiation points.
Fit-out Rights and Obligations
The landlord and tenant can negotiate who is responsible for fitting out the premises and who owns the fit-out at the end of the lease.
Maintenance and Repairs
While the landlord is typically responsible for major repairs and structural maintenance, the lease could specify different arrangements.
Outgoings
These are expenses related to the property, such as property taxes, insurance, and maintenance costs. The lease should clearly specify who is responsible for each type of outgoing.
Use of Premises
The specific activities the tenant can carry out on the premises can be negotiated.
Assignment and Subletting
The tenant and landlord can negotiate whether and under what conditions the tenant may sublet the property or assign the lease to someone else.
Insurance
The types and amounts of insurance required and who is responsible for obtaining it can be points of negotiation.
Default and Termination
The conditions of termination, and the consequences of such termination, can also be negotiated.
Get the best advice on commercial leases from P&B Law
When you’re negotiating a commercial lease, there is no substitute for good legal advice to give you the advantage. At P&B Law, our property lawyers have all the experience and skills you need to cover the necessary legal clauses. Contact us today to benefit from our knowledge.
Related articles
- What is a commercial lease?
- Can I end a commercial lease early?
- Who pays the cost of a commercial lease dispute?