PA Law Articles · Commercial leasing

Before signing a commercial lease in SA, look beyond the advertised rent. The lease determines who pays unexpected expenses, who fixes essential equipment, whether a director has personal exposure and how the tenancy can end.

For tenants, unclear terms can disrupt cash flow and business plans. For landlords, they can create disputes about repairs, payments and the condition of the property at handover. These five checks help both parties identify what needs to be settled before committing.

First, which South Australian leasing rules apply?

The Retail and Commercial Leases Act 1995 (SA) applies to many business premises, including some that are not ordinary retail shops. Coverage depends on matters such as the use of the premises, rent and statutory exclusions. The label “commercial lease” does not decide the issue.

Where the Act applies, pre-contract disclosure and other statutory protections must be considered. Obtain the proposed lease, disclosure statement and the Small Business Commission’s Retail and Commercial Leasing Guide. Resolve inconsistencies between documents and verbal promises before committing.

1. What will the commercial lease actually cost?

Rent is only one part of the budget. Ask for a written breakdown of ongoing charges and upfront payments, then assess the commitment across the full term.

For leases covered by the Act, recoverable outgoings must be specified in the lease, and statutory requirements govern estimates and reporting. Land tax cannot simply be passed on as an outgoing under a new lease covered by the Act. A charge appearing in a draft does not establish that it is legally recoverable.

Practical step: Ask for the current outgoings budget and available prior-year figures. Model rent increases and allow for expenses outside the landlord’s budget. Landlords should ensure the lease, disclosure statement and proposed charges are consistent.

2. Who pays for repairs and maintenance?

Do not assume the landlord pays because the landlord owns the building. The allocation depends on the lease and applicable law. The Small Business Commission’s commercial leasing guidance explains why tenants should check the allocation of repairs, maintenance and equipment obligations.

Ask the parties to address these situations separately:

• Routine servicing, cleaning and minor repairs.
• Breakdowns involving air conditioning, plumbing or electrical systems.
• Replacement of equipment that has reached the end of its useful life.
• Structural problems, pre-existing defects and damage caused by the tenant.

For example, agreeing to service an air conditioner does not answer who must replace it if the entire unit fails. The lease should identify the responsible party, the approval process and how urgent work will be arranged. Statutory restrictions on capital expenditure may also affect the allocation.

Practical step: Prepare an agreed condition report with dated photographs and an equipment list. Record promised landlord works and completion dates. If an item is excluded from the tenant’s obligations, expressly address who must do the work; an exclusion alone may leave a gap.

3. Does a personal guarantee expose you beyond the company?

A company lease can still create personal obligations for a director who signs a guarantee. Depending on its wording, the guarantee may cover unpaid rent, other amounts or losses arising from the company’s failure to comply with the lease.

Before signing personally, ask:

• Which debts and obligations are covered, and is liability capped?
• Does the document include an indemnity as well as a guarantee?
• Does it extend to renewals, variations or a period of holding over?
• If there is more than one guarantor, can one person be pursued for the whole covered amount?
• What must happen for the guarantee to end or be released?

Resigning as a director does not automatically cancel a personal guarantee. A company exit and a release from the landlord are separate issues. Our guide explains why a personal guarantee may continue after director resignation.

Practical step: Discuss a defined limit, duration and release process before signing. Landlords should also check that the guarantee identifies the intended guarantors and clearly records the agreed security arrangements.

4. How and when must an option to renew be exercised?

An option to renew usually requires action by the tenant. A reference to a further term does not mean renewal happens automatically. The lease may specify an exercise window, a particular form of notice, a recipient and conditions that must be satisfied.

Check the earliest and latest dates for giving notice, the permitted delivery method, the length of the further term and how the new rent will be determined. Keep evidence that a valid notice was delivered.

For example, if a lease requires notice at least six months before expiry, waiting until the final month may be too late. Missing the deadline can put the contractual renewal right at risk. If a deadline has already passed, obtain advice promptly about the lease, any applicable statutory rights and the available options.

South Australia also has statutory provisions affecting renewal in particular circumstances. These should be checked alongside the contract; they are not a reason to disregard the option clause.

Practical step: Record the notice window when the lease is signed and set reminders well in advance. Landlords should maintain a corresponding diary for their own notice and renewal obligations.

5. What happens when you leave the premises?

Returning the keys may not complete the tenant’s obligations. A make-good clause sets the condition required at handover. Depending on the agreement, it may involve removing a fit-out, taking down signs, repairing damage, repainting or restoring alterations.

Before signing, negotiate answers to the following questions:

• Which fit-out items must be removed, and which may remain?
• What condition must the premises be returned to, and is fair wear and tear excluded?
• How will pre-existing damage be distinguished from tenant damage?
• When must works be completed, and what inspection process applies?
• When will security be released, subject to any lawful outstanding claim?

Keep end-of-term handover separate from an early exit. If the tenant needs to sell the business, relocate or close before expiry, check assignment, subletting, break rights and any proposed surrender. Moving out does not, by itself, settle future rent or guarantee obligations.

Practical step: Agree on the make-good scope before the tenancy starts and use the condition report as a reference. Any later agreement to accept a fit-out, waive work or release liability should be properly documented.

Read more in our guide to commercial lease make-good clauses in South Australia.

Before either party commits

Review the complete set of documents, including plans, guarantees, fit-out arrangements and any incentive deed. Confirm that the premises, permitted use, access and required approvals match the proposed business.

Seek advice before signing an offer or accepting preliminary terms, as a commitment can arise before a formal lease is signed. Our article on offers to lease in South Australia explains the earlier stage of negotiations.

Frequently asked questions about commercial leases in SA

Does retail leasing legislation apply to an office?

It can. The statutory definition extends beyond traditional shops and can include premises used to provide services to the public. The use, rent and exclusions need to be checked for the particular lease.

Who pays if the air conditioning breaks?

The lease and applicable law determine responsibility. Check servicing, repairs and replacement separately, along with the cause of the problem. Ownership of the equipment alone does not answer who must pay.

Does leasing through a company protect my personal assets?

Do not assume it does if you give a personal guarantee or indemnity. These can create personal exposure separate from the company’s obligations. The extent depends on the documents and applicable law.

Can I renew simply by continuing to pay rent?

Do not rely on continued payment as exercising an option. Follow the option’s notice requirements. Occupation after expiry may involve a different arrangement, such as holding over, depending on the lease and the parties’ conduct.

Can a commercial lease be negotiated?

Proposed commercial terms can be discussed before commitment, subject to legal limits and the other party’s agreement. Identify the changes you need and ensure accepted changes appear in the final documents.

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