Signing a commercial lease can feel like a formality, the last box to tick before you open the doors of your Maitland business. But the lease is a legally binding commitment that can run for five years or more, and it’s packed with clauses that can cost you dearly if you don’t understand them. Every year we see Hunter Valley business owners caught out by terms they didn’t notice, didn’t understand, or assumed were standard.
This guide walks through ten of the most common and costly traps in commercial and retail leases, so you know what to look for before you sign. At Hills Solicitors, we’ve been reviewing leases for Maitland and Hunter Valley businesses since 1894, and almost every one of these traps is negotiable if you catch it before signing.
1. Personal Guarantees That Put Your Home at Risk
This is the trap with the most serious consequences. Many leases require the directors of a tenant company to personally guarantee the lease. If your business fails and can’t pay the rent, the landlord can pursue your personal assets, including your family home, to recover their losses.
Personal guarantees are common, but they are negotiable. You may be able to limit the guarantee to a fixed amount, cap it to a certain number of months’ rent, or have it reduce over time as the lease runs. Before you sign anything with a personal guarantee, understand exactly what you’re putting on the line.
2. Make-Good Clauses That Cost a Fortune at the End
A make-good clause sets out what condition you must return the premises to when the lease ends. The danger is in how broadly it’s worded. A harsh make-good clause can require you to strip out your entire fit-out, replace flooring and ceilings, repaint, and restore the premises to bare “base building” condition, a bill that can run into tens of thousands of dollars.
Check exactly what your make-good obligation is before you sign, and negotiate it down where it’s unreasonable. It’s also worth photographing the premises at the start of the lease so there’s a clear record of the condition you took them in.
3. Market Rent Reviews That Spike Unexpectedly
Leases increase rent over time using a review mechanism, commonly a fixed percentage, CPI, or a review to “market”. Market reviews are the ones to watch. They reset your rent to the current market rate, which in a rising market can mean a sharp and unwelcome increase.
Understand which review mechanism applies to your lease and when reviews occur. If your lease uses market reviews, consider negotiating a cap on how much the rent can rise, or a “ratchet” provision that at least prevents it from being reviewed in a way that disadvantages you unfairly.
4. Outgoings You Didn’t Expect to Pay
Outgoings are the property running costs (council rates, water, insurance, strata levies, and building management) that a landlord may pass on to the tenant. A vague or broad outgoings clause can leave you paying for expenses you never anticipated.
Make sure the outgoings you’re liable for are clearly defined and reasonable. Watch for attempts to pass on capital expenses or the landlord’s own management costs, which shouldn’t necessarily be your responsibility. Ask for an estimate of annual outgoings so you can budget accurately.
5. A Permitted Use That’s Too Narrow
The lease specifies what you’re allowed to use the premises for. If this “permitted use” is drafted too narrowly, it can box in your business and prevent you from adapting or expanding what you offer. For example, a use clause limited to “sale of coffee and cakes” might prevent you from later serving hot meals.
Negotiate a permitted use that’s broad enough to give you room to grow. And always confirm that your intended use is actually allowed under the council’s zoning for the premises before you commit, a step that’s easy to overlook and expensive to get wrong.
6. No Option to Renew
An option to renew gives you the right to extend the lease for a further term when the current one ends. Without one, you have no guaranteed security beyond the initial term, and the landlord could decline to renew or demand a much higher rent, forcing you to move your established business.
If security of tenure matters to your business (and for most location-dependent businesses it does), make sure your lease includes one or more options to renew, and understand the conditions attached to exercising them, including any deadlines you must meet.
7. Restrictive Assignment Clauses
If you ever want to sell your business, the buyer will usually need to take over your lease, a process called assignment. A restrictive assignment clause can make this difficult, giving the landlord broad power to refuse a new tenant, which can complicate or even derail a sale of your business.
Check what the lease says about assignment and subletting before you sign. Ideally, the landlord’s consent to an assignment should not be unreasonably withheld. This flexibility can be crucial to the future value and saleability of your business when the time comes to sell.
8. Missing or Late Disclosure Statement (Retail Leases)
If your lease is a retail lease under the Retail Leases Act 1994 (NSW), the landlord must give you a disclosure statement at least seven days before you enter the lease. This document sets out the key financial details, including rent, outgoings, and term.
If you don’t receive a proper disclosure statement, or receive one that’s incomplete or misleading, you may have certain rights, including in some cases the right to terminate the lease. Don’t waive this by signing without it. If you’re being rushed to sign without a disclosure statement, that’s a warning sign worth pausing on.
9. Repair and Maintenance Obligations That Aren’t Yours to Carry
Leases allocate responsibility for repairs and maintenance between landlord and tenant. Problems arise when a tenant unknowingly takes on responsibility for structural repairs or major systems (like air conditioning or plumbing) that should sit with the landlord.
Read the repair and maintenance clauses carefully. As a tenant, you’d generally expect to be responsible for keeping the premises in good order and repairing damage you cause, but not for structural elements or the landlord’s capital items. Clarify who’s responsible for what before you sign.
10. Signing Without Reading the Whole Lease
It sounds obvious, but the most common trap of all is simply signing a lease without reading and understanding every clause. Commercial leases are long, dense, and written in the landlord’s favour. The clauses that hurt tenants are rarely the ones that jump out, they’re buried in defined terms, cross-references, and schedules.
Never sign a commercial lease on the assumption that it’s “standard”. There’s no such thing. Every lease is different, and the details are where the risk lives. Having a solicitor review the lease before you sign is the single best protection against every trap on this list.
Frequently Asked Questions
Do I really need a solicitor to review a commercial lease before signing?
Yes, it’s strongly recommended. A commercial lease is a long-term commitment often worth hundreds of thousands of dollars over its term, and it’s written to protect the landlord. A solicitor identifies the traps in this guide, explains your obligations in plain language, and negotiates fairer terms before you’re locked in. The cost of a review is small compared with the cost of a problem discovered later.
Are the terms in a commercial lease negotiable?
Almost always, yes, but only before you sign. Landlords and agents present leases as though the terms are fixed, but personal guarantees, make-good obligations, rent review mechanisms, and options to renew are all commonly negotiated. Once the lease is executed you’re bound by it, which is why getting advice early matters so much.
What should I do if I’ve already signed a lease with an unfavourable term?
Your options narrow once the lease is signed, but you may still be able to negotiate a variation with the landlord, assign or sublet the lease, or in some cases rely on protections under the Retail Leases Act 1994. If a dispute develops over the term, our commercial litigation team can advise on your position. The sooner you get advice, the more options you tend to have.
How long before signing should I have my lease reviewed?
As early as possible, ideally as soon as you receive the draft lease and (for a retail lease) the disclosure statement. This gives your solicitor time to review the terms, raise issues, and negotiate with the landlord before you’re under pressure to commit. Hills Solicitors act for tenants and landlords across Maitland, the Hunter Valley, and the Newcastle region.
Get Your Lease Reviewed Before You Sign
The good news is that almost every trap in this guide can be avoided or negotiated, but only before you sign. Once the lease is executed, you’re bound by its terms, and your options narrow dramatically.
Hills Solicitors has been reviewing commercial and retail leases for Maitland and Hunter Valley businesses since 1894. We’ll go through your lease in plain language, flag the risks, and negotiate fairer terms so you can sign with confidence. To learn more about how we help, see our commercial leasing service.
Book a consultation with our leasing team today, or call us on (02) 4933 5111. Check our FAQ page if you have any questions.
