Choosing the right space to run your business is a major decision.
Whether you're opening a shop, moving into an office or leasing a warehouse, this milestone also comes with legal and financial responsibilities that you should be aware of.
This page will walk you through what a commercial lease is, the types of leases available for business owners in Tasmania and the key things to understand before signing an agreement.
You’ll also find helpful questions to ask your landlord or legal advisor, tips on what costs to expect and where to go for more advice.
Don’t go it alone. Before you sign any lease, it's strongly recommended you speak with an independent legal advisor.
A lawyer who understands commercial property can help protect your interests, explain your rights and responsibilities in plain terms and flag any clauses that could create problems down the line.
They can also help negotiate terms that better suit your business, saving you money and stress in the long run.
Useful information about commercial leases
What is a lease?
A lease is a legal agreement between a landlord (the property owner) and a tenant (you).
It gives you the right to occupy and use the space for a set period, in exchange for paying rent.
The lease sets out your rights and responsibilities, as well as those of the landlord. The lease is legally binding and difficult to change once signed.
What is a commercial lease?
A commercial lease is specifically for business use.
It’s a binding agreement that lets you operate from the premises while outlining the rules, responsibilities and financial commitments on both sides.
Unlike residential leases, rent increases, lease length, and renewal options in commercial agreements are usually negotiable before the lease is signed and vary widely depending on the landlord and the type of property.
Commercial tenants often do not enjoy the same rights as residential tenants and leases can often be weighted more heavily in the landlord’s favour.
Always have your own legal advisor review the lease before signing.
Lease versus Purchasing
You may want to consider leasing premises in the initial period rather than choosing to purchase commercial premises.
Lease payments rather than mortgage repayments may be easier on cash flow, particularly in the start-up period of business operation.
Banks may not be willing to lend as much for purchasing commercial property compared with residential property. This reflects the fact that commercial promises can be harder to sell.
Leasing a property in the first instance may give you time to gauge the likely success of your business prior to making a decision to buy.
It’s strongly recommended that you get professional financial or accounting advice to help you weigh the options and help you to make the best decision.
Types of commercial leases include:
Retail leases: For businesses that sell goods or services directly to the public, like shops or cafés in shopping centres or on the main street. There are specific rules that apply to retail leases
Office leases: For non-retail businesses like marketing firms, legal practices, or tech start-ups. These can range from co-working spaces to large corporate offices.
Industrial leases: For spaces used in manufacturing, production or storage like factories or warehouses.
Farming leases: For agricultural land used for growing crops or grazing livestock.
Seeking professional advice is strongly recommended before you sign a lease, to make sure you understand what your responsibilities will be whether your business is successful or not.
Below are some important questions to discuss with your financial and legal advisors and your future landlord.
How much is the rent, when is it due and how does it have to be paid?
How long will the lease agreement be for?
Commercial lease agreements are usually 3-5 years to allow for both parties to have stability. Before you sign a lease for multiple years, be sure to understand that once you have signed a lease, you are legally responsible to pay the rent on the lease for the term of the contract even if your business fails. Leases can include options to extend their term.
What are the outgoings on the property and who pays them?
Examples of outgoings include council rates, property maintenance costs, insurance and utilities.
Can I get out of my lease early? Are there penalties if I do?
Can I make improvements, and do I have to ‘make good’ when the lease expires?
‘Make good’ means returning the property to its original condition at the end of the lease which may include painting, cleaning carpets, repairing any damage and ensuring all fixtures are in good working order.
Who pays the legal costs incurred in preparing or changing the lease?
Who arranges and pays for insurance for the property?
Who is responsible for the maintenance and fit out?
Maintenance on a leased property refers to the upkeep required to keep the property in a tenantable and functional condition, preventing deterioration. Fit out is customising a commercial space to suit a tenant's operational needs. A tenant may need to pay for their fit out and then remove it at the end of the lease. This can be a significant cost.
Will I have to pay a security deposit/bond?
Can I sublet spaces that I don’t need?
Will the rent be reviewed or increased during the lease period?
Can I legally use the property for my business?
In Tasmania, property use is determined by the Tasmanian Planning Scheme. Zoning dictates what purposes land or property can be used for.
Before you sign a lease be sure to check with your local council to make sure the land zoning is appropriate for your business – the landlord is not obligated to check this on your behalf.
It's also worth checking whether a planning permit or change of use approval is needed for your business type in that location.
Often when you are starting out, you might run your business from your spare bedroom or your shed before looking to rent a separate space.
Some small businesses start out in a shared office space where they rent an office with other similar type business owners and share reception or administration services with others.
Your rent may cover postage, answering phone calls, bathroom and kitchen facilities.
A shared office space could be an open plan ‘hub’ type space or your own private room.
It's worth checking in your local area to see if there is something that might suit you – it's a cost-effective option that gets you out of the garden shed and into a workplace where you can meet other like-minded business people.
For information on leasing cars, vehicles, and equipment, the Australian Government provides comprehensive guidance on benefits and savings to help you decide what’s right for your business.
As with all major financial decisions, seek advice from your accountant or financial advisor to determine what best suits your needs.
