5 Costly Mistakes Tenants Make When Negotiating a Commercial Lease in Sydney

Mistake 1: Treating the Lease as Non-Negotiable

Many tenants sign a landlord’s standard form lease without pushing back on a single clause. This is a mistake. While retail leases Australia-wide are governed by retail leasing legislation, which offers some baseline protections for tenants, commercial leases are largely a matter of contract. If it is not in writing, you do not have the protection.

Almost every clause in a commercial lease is open to negotiation:

• Rent review mechanisms (CPI, fixed increases, or market review)
• Outgoings obligations, including which costs are passed on to the tenant
• Make-good provisions at lease end
• Assignment and subletting rights
• Options to renew and the process for exercising them
• Early termination rights in defined circumstances

A commercial property lawyer in Sydney can identify which clauses are likely to be accepted with adjustment, and which are genuine dealbreakers. Do not assume the landlord’s first draft is the final word.

Mistake 2: Not Understanding What You Are Actually Paying

The headline rent figure is rarely the full picture. In most commercial leases, tenants are also responsible for a share of outgoings, which can include council rates, water rates, building insurance, land tax, and management fees. In some properties, this amount can be substantial.

Before signing, ask for:

• An outgoings estimate for the current financial year
• A breakdown of what is included and excluded
• Confirmation of whether land tax is recoverable (this is a frequently contested issue in NSW)
• Details of any planned capital works that might result in a special levy

Under the Retail Leases Act 1994, landlords in NSW must provide an estimate of outgoings before the lease is signed, and tenants can seek an adjustment if the estimate is materially inaccurate. For commercial leases outside the retail regime, there is no such statutory protection, making careful due diligence even more important.

Mistake 3: Overlooking the Make-Good Clause

The make-good clause sets out what a tenant must do at the end of the lease to restore the premises to their original condition. It is often an afterthought during negotiations, but it can result in a significant and unexpected liability at lease expiry.

Make-good obligations vary widely. A lease might require:

• Removal of all tenant fit-out and fixtures
• Repainting in the original colour scheme
• Reinstatement of walls, partitions, or flooring
• A cash payment in lieu of physical reinstatement

In practice, the cost of a full make-good on a fitted-out commercial tenancy can run into tens of thousands of dollars. Tenants should negotiate at the outset to limit the scope of the obligation and agree upfront on what can be left behind. This is far easier to achieve before you sign than after.

Mistake 4: Missing Key Dates and Deadlines

Commercial leases are full of dates that, if missed, can have serious consequences. Options to renew are the most common example. Most leases require a tenant to exercise an option strictly within a specified window, often somewhere between three and six months before the lease expires. Miss that window, and the right to renew generally lapses.

Other critical dates and obligations to track include:

• Rent review dates (particularly where market reviews require the tenant to dispute the review within a set period)
• Deadlines for providing bank guarantees or security bonds
• Fit-out completion dates tied to rent-free periods
• Demolition or redevelopment clauses that allow the landlord to terminate early

The best leasing lawyer will typically flag these dates at the outset and can assist with diary management systems to ensure nothing is missed. The risk of a missed option date is not theoretical. It happens, and the consequences can mean relocating a business at short notice.

Mistake 5: Skipping Proper Legal Advice to Save Money

This is the most expensive mistake of all. Commercial leases typically run for three to ten years. A modest investment in legal advice at the front end can prevent far more costly disputes, make-good claims, or rent review disagreements down the track.

This applies equally to landlords. A well-drafted lease protects a landlord’s income, limits liability, and sets clear expectations from day one. Poorly drafted leases, or leases that simply repeat standard clauses without regard to the specific property, often create ambiguity that ends in litigation.

In NSW, if the premises fall within the definition of retail premises under the Retail Leases Act 1994, a landlord must provide a disclosure statement and a copy of the proposed lease at least seven days before the lease is entered into. Failing to comply with these obligations can have significant consequences for the landlord, including giving the tenant rights to rescind the lease. A commercial property solicitor familiar with the NSW retail leasing regime will know exactly what is required.

Practical Takeaways

• Get legal advice before you sign, not after
• Always negotiate, even if the landlord says the lease is standard
• Understand your total occupancy cost, not just the headline rent
• Track all critical dates from day one
• Negotiate make-good obligations up front, while you still have leverage
• Get your lawyer to confirm whether the lease is a retail lease

Speak to a Leasing Lawyer

If you are negotiating a commercial lease or reviewing lease terms, Jaide Law can help. We work with tenants and landlords across Sydney and NSW on commercial leasing matters, and we are happy to book in a complimentary property call to discuss your situation. Reach out to the Jaide Law team today.

Disclaimer — We know most of you get this, but just to be clear, the information above is general and doesn’t consider your unique situation. Please don’t rely on it as a substitute for professional advice. We strongly encourage you to seek appropriate guidance for your specific needs.