Commercial and Retail Leases in Victoria: A Practical Guide

Written By Melissa Ajram

Introduction

Entering into a commercial or retail lease is a significant commitment for any business. Lease terms can affect operating costs, flexibility, and risk exposure for many years, and misunderstandings at the outset can lead to costly disputes later on.

This guide provides an overview of commercial and retail leases in Victoria, highlighting common terms, key differences, and practical issues tenants should be aware of before signing a lease or taking over existing premises.

Commercial vs Retail Leases in Victoria

In Victoria, leases are generally categorised as either commercial leases or retail leases.

Retail leases are governed by the Retail Leases Act 2003 (Vic) and typically apply where premises are used to sell goods or services directly to the public. Commercial leases fall outside that regime and are primarily governed by contract law.

The classification matters because retail leases carry additional protections for tenants, including disclosure requirements and limitations on certain costs.

Key Terms Commonly Found in Leases

Rent and Rent Reviews

Leases usually specify:

  • Base rent

  • Frequency of rent increases

  • Method of review (fixed percentage, CPI, or market)

Rent review mechanisms can significantly impact affordability over time and should be understood from the outset.

Outgoings

Tenants may be required to pay outgoings such as:

  • Council rates

  • Owners corporation fees

  • Insurance

  • Land tax (more common in commercial leases)

Outgoings can materially increase the overall cost of occupation if not clearly disclosed.

Term and Options

Leases commonly include:

  • An initial term

  • One or more option periods

  • Strict notice requirements to exercise options

Failure to exercise an option correctly may result in loss of the right to remain in the premises.

Repair, Maintenance, and Compliance Obligations

Many leases place responsibility on tenants for:

  • Internal repairs and maintenance

  • Equipment servicing

  • Compliance with building, safety, or accessibility requirements

Broad repair clauses may expose tenants to unexpected costs, particularly in older buildings or where compliance standards change.

Make Good Obligations

At the end of a lease, tenants are often required to “make good” the premises. This may involve:

  • Removing fit-out

  • Repairing damage

  • Reinstating the premises to a specified condition

Make good obligations can be costly and are a common source of dispute if not clearly defined.

Assignment and Transfer of Lease

If a business is sold, the tenant will usually need the landlord’s consent to assign or transfer the lease to the buyer.

This process may involve:

  • Financial and background checks on the incoming tenant

  • Legal documentation

  • Payment of the landlord’s legal costs

Delays in lease transfer are a frequent cause of business sale settlement delays.

Security, Guarantees, and Risk Exposure

Landlords often require security for tenant obligations, which may include:

  • Bank guarantees

  • Security deposits

  • Personal guarantees from directors or individuals

Personal guarantees can expose individuals to personal liability if the business defaults, even after the business is sold in some circumstances.

Disclosure and Negotiation Considerations

For retail leases, landlords are required to provide certain disclosure documents before the lease is entered into.

Tenants should consider:

  • Whether disclosure has been provided correctly

  • Whether key terms are negotiable

  • The timing of lease execution relative to business purchase or fit-out commitments

Early advice can help identify risks and opportunities for negotiation.

Final Thoughts

Commercial and retail leases play a central role in the success and stability of many businesses. Understanding the key terms, risks, and obligations involved can help tenants make informed decisions and avoid disputes.

Lease arrangements can vary significantly depending on the premises, industry, and parties involved, so tailored advice is often beneficial before signing or transferring a lease.

Disclaimer

This guide is general information only and does not constitute legal advice. It relates to Victorian law only.

Melissa Ajram
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