The premises from which a business operates can be central to its success.

Whether you are leasing an office, warehouse, showroom, hospitality venue or other commercial premises, the lease can commit your business to substantial financial and legal obligations for several years.

A commercial lease may determine much more than how much rent you pay. It can regulate how the premises can be used, who pays for repairs and outgoings, whether you can sell the business and transfer the lease, what security you must provide and what you need to do to the premises when the lease ends.

Business Queensland describes a lease as a legally binding contract and recommends obtaining legal advice before signing if you do not understand its terms.

Here are some of the key issues Queensland business owners should consider before entering into a commercial lease.

1. Start With the Heads of Agreement

Commercial lease negotiations often begin with a heads of agreement, letter of offer or similar document setting out the principal commercial terms.

This may address matters such as:

• the premises;
• lease term;
• commencement date;
• rent;
• rent reviews;
• options;
• outgoings;
• security;
• incentives;
• fit-out; and
• permitted use.

It can be tempting to regard the heads of agreement as merely preliminary paperwork.

However, important commercial terms are often effectively negotiated at this stage. Once the landlord and tenant have agreed on those terms, it may be considerably more difficult to renegotiate them when the formal lease is prepared.

The legal effect of a heads of agreement also depends upon its wording and the circumstances.

For that reason, obtaining advice before agreeing to the heads of agreement can be just as important as reviewing the final lease.

2. Is It a Commercial Lease or a Retail Shop Lease?

Not every business lease in Queensland is governed by the same rules.

Some leases are subject to the Retail Shop Leases Act 1994 (Qld).

The Act applies to a lease of a “retail shop”, subject to statutory definitions and exclusions. For example, the Act excludes certain premises including retail shops with a floor area exceeding 1,000 square metres.

Whether the Act applies can be important because it imposes requirements and protections that do not necessarily apply to an ordinary commercial lease.

These include rules concerning:

• disclosure;
• rent reviews;
• outgoings;
• lease documentation;
• assignment;
• compensation; and
• dispute resolution.

Business Queensland recommends that both retail landlords and tenants understand their obligations under the Retail Shop Leases Act before entering into a retail shop lease.

We will deal with these requirements separately in our article Retail Shop Leases in Queensland: What Landlords and Tenants Need to Know.

3. Lease Term and Options

One of the first considerations is how long you want to commit to the premises.

For example, a lease might provide for:

3 years + a 3-year option

or

5 years + a 5-year option.

A longer lease can provide greater certainty, particularly where location is important to the business or substantial money will be spent on fit-out.

However, it also creates a longer financial commitment.

An option gives the tenant a right to extend the lease for a further period if the requirements for exercising the option are satisfied.

The lease should be reviewed carefully to identify:

• when the option must be exercised;
• how notice must be given;
• whether the option is conditional upon the tenant not being in default; and
• how rent will be determined during the option period.

Missing an option deadline can have serious consequences, particularly where the business depends upon remaining at the premises.

4. Rent and Rent Reviews

The starting rent is only part of the financial commitment.

The lease should also explain how rent will increase during the term.

Common rent review mechanisms include:

• fixed percentage increases;
• CPI adjustments;
• market reviews; or
• a combination of these mechanisms at different stages.

For example, a lease might provide for annual fixed increases with a market review when an option is exercised.

The method of review can have a significant effect on occupancy costs over a lengthy lease.

A tenant should therefore consider the rent over the entire proposed lease term, rather than focusing only on the first year's figure.

5. What Outgoings Will the Tenant Pay?

Many commercial leases require the tenant to pay outgoings in addition to rent.

Depending on the lease and premises, these might include:

• council rates;
• water charges;
• body corporate levies;
• building insurance;
• cleaning;
• air-conditioning expenses;
• waste services;
• security;
• maintenance; and
• other property-related costs.

Business Queensland specifically recommends investigating additional charges such as rates, taxes, garbage, air conditioning and marketing, as well as expenses for electricity, cleaning, repairs, maintenance and refitting.

Before signing, a tenant should understand both what outgoings are recoverable and how they are calculated.

A comparatively attractive rent may look very different once substantial outgoings are added.

6. Check the Permitted Use

The permitted-use clause specifies the type of business that can be operated from the premises.

It should be broad enough to accommodate the tenant's intended activities and, where appropriate, reasonable future development of the business.

However, the lease itself is only part of the issue.

A tenant should also investigate whether the proposed use is permitted under relevant planning, zoning and other regulatory requirements.

Business Queensland cautions tenants to check the necessary council approvals and not merely assume that a particular business use is permitted because of representations by an owner or property agent.

This can be especially important for businesses such as hospitality venues, gyms, medical or allied health practices and businesses requiring particular operational approvals.

7. Fit-Out and Alterations

Many commercial premises require a tenant to undertake a fit-out before trading.

The lease or related documentation should address matters such as:

• who approves the fit-out;
• who pays for it;
• when works can commence;
• whether landlord approval is required;
• building or council approvals;
• ownership of improvements;
• contractor requirements;
• insurance during works; and
• what happens to the fit-out when the lease ends.

If the landlord is contributing to the fit-out, the terms of that contribution should also be clearly documented.

A tenant should avoid making substantial expenditure on premises without understanding what rights it has to occupy them and what happens to those improvements at the end of the lease.

8. Lease Incentives and Rent-Free Periods

Landlords may offer incentives to encourage a tenant to enter into a lease.

These might include:

• a rent-free period;
• reduced rent for an initial period;
• a fit-out contribution; or
• another financial incentive.

The headline amount of an incentive does not tell the whole story.

The documentation should explain how the incentive operates and whether the tenant may have to repay some or all of it if the lease ends early or the tenant defaults.

Any incentive arrangement should therefore be reviewed together with the lease itself.

9. Security, Bank Guarantees and Personal Guarantees

A landlord will commonly require security for the tenant's obligations.

This might take the form of:

• a security deposit;
• bank guarantee;
• director's guarantee; or
• a combination of these.

A personal guarantee is particularly important.

Where a company is the tenant, a landlord may require one or more directors to personally guarantee the company's obligations.

That can potentially expose the guarantor's personal assets if the company fails to meet its lease obligations.

The extent of any guarantee should therefore be understood before the lease is signed.

10. Repairs and Maintenance

The lease should clearly allocate responsibility for maintaining the premises.

Depending on its terms, the tenant may be responsible for matters such as:

• internal repairs;
• fixtures and fittings;
• air-conditioning;
• plumbing;
• electrical systems;
• glass;
• doors;
• equipment; and
• regular servicing.

The landlord may retain responsibility for structural matters or other parts of the building.

However, this should not simply be assumed.

Business Queensland specifically recommends checking who must maintain the premises, who bears the cost and what conditions apply to alterations or improvements.

For older premises in particular, maintenance obligations can create substantial unexpected costs.

11. Insurance Requirements

Commercial leases commonly require the tenant to maintain particular insurance policies.

Depending on the business and premises, these may include:

• public liability insurance;
• plate glass insurance;
• contents insurance;
• workers' compensation insurance; and
• other business-specific cover.

The lease may prescribe minimum levels of cover and require the landlord or another party to be noted on the policy.

Tenants should ensure the required insurance is commercially available and appropriate for the business before committing to the lease.

12. Make-Good Obligations

One of the most commonly overlooked provisions is the make-good clause.

This determines what the tenant must do to the premises when the lease ends.

Depending on the wording, the tenant might be required to:

• remove its fit-out;
• remove signage;
• repair damage;
• repaint;
• replace floor coverings;
• remove alterations;
• reinstate walls or partitions; or
• return the premises to a specified condition.

Business Queensland specifically recommends checking whether the lease requires the premises to be returned to their pre-lease condition.

Make-good works can be expensive.

The clause should therefore be understood at the beginning of the lease rather than first being examined when the tenant is preparing to leave.

13. Assignment — What Happens if You Sell the Business?

A commercial lease can become particularly important when a business is sold.

If the business operates from leased premises, the buyer will often need either:

• an assignment of the existing lease; or
• a new lease from the landlord.

The existing lease should be reviewed to determine the requirements for assignment and obtaining the landlord's consent.

Business Queensland notes that where a seller transfers a business operated from leased premises, landlord approval may be required for assignment of the remainder of the lease to the purchaser.

This is one reason lease due diligence is an important part of a business acquisition.

A valuable business can become considerably more difficult to sell if the purchaser cannot secure the premises from which it operates.

Related articles: Buying or Selling a Business in Queensland: Key Legal Considerations and Due Diligence When Buying a Business in Queensland.

14. Subleasing and Sharing the Premises

A tenant should also consider whether it may eventually want to sublease part of the premises or allow another business to occupy part of the space.

The lease may prohibit this entirely or require landlord consent.

Business Queensland recommends checking whether subletting and transfer of the lease are permitted and what conditions or expenses may apply.

If sharing or subleasing forms part of the tenant's business plan, this should be addressed before the lease is signed.

15. Relocation and Redevelopment Clauses

Some leases give the landlord rights to relocate the tenant or terminate the lease if the property is redeveloped.

These provisions can have significant consequences where a business depends heavily upon its location or has invested substantially in fit-out.

Before signing, a tenant should understand:

• whether the landlord can relocate the business;
• the circumstances in which this can occur;
• notice requirements;
• who bears relocation costs;
• whether compensation is available; and
• whether redevelopment can result in early termination.

Additional statutory protections may apply where the lease is governed by the Retail Shop Leases Act.

16. Default and Termination

The lease will usually specify circumstances in which the tenant is in default.

These may include:

• failing to pay rent;
• failing to pay outgoings;
• breaching permitted-use requirements;
• failing to maintain insurance;
• unauthorised alterations;
• insolvency-related events; or
• other breaches of the lease.

The consequences of default can be significant.

Depending on the circumstances and applicable law, the landlord may have rights relating to termination, recovery of possession or financial loss.

A tenant should therefore understand what constitutes a default and whether the lease provides appropriate mechanisms for dealing with breaches.

17. Disclosure Requirements for Retail Shop Leases

Where the Retail Shop Leases Act 1994 (Qld) applies, specific disclosure requirements arise.

As at September 2026, the Act generally requires a lessor to provide a prospective tenant with a draft lease and lessor disclosure statement at least seven days before the tenant enters into the retail shop lease, subject to statutory exceptions and waiver provisions. A prospective tenant also has disclosure obligations.

The disclosure statement includes prescribed information about matters such as the premises, lease term, options and rent.

Failure to comply with applicable disclosure requirements can have significant consequences. In certain circumstances, the Act allows a tenant to terminate within six months where the lessor has not complied with its disclosure obligation or has provided a materially defective disclosure statement, subject to the statutory qualifications.

These statutory requirements are one reason it is important to establish at the outset whether a proposed lease is governed by the Retail Shop Leases Act.

18. Don't Review the Lease in Isolation

A lease should be considered in the broader context of the business.

For example, a five-year lease might appear commercially reasonable until you discover that:

• the business requires a major fit-out;
• there is no option to renew;
• rent increases substantially each year;
• the permitted use is too narrow;
• the tenant pays significant outgoings;
• a director must provide an unlimited personal guarantee; or
• substantial make-good works are required at the end.

Likewise, a lower-rent premises is not necessarily the better commercial option if its location, lease conditions or regulatory restrictions affect the operation of the business.

The question is not simply “How much is the rent?”

It is whether the lease, taken as a whole, supports the business's objectives.

Obtain Advice Before Signing

Commercial leases are often long-term commitments involving substantial financial obligations.

Once a lease has been signed, negotiating a more favourable provision can be difficult.

Obtaining legal advice before committing allows the tenant to understand the proposed terms, identify potential risks and, where appropriate, negotiate amendments before the lease becomes binding.

The same applies to landlords. A carefully prepared lease can help clearly document the parties' respective obligations and reduce uncertainty during the tenancy.