Checklist: What to Know When Negotiating a Commercial Lease

Securing the right commercial lease is one of the most critical steps in establishing or expanding your business. The terms of your lease can significantly impact your bottom line, operational efficiency, and potential for growth. Whether you’re launching a new venture or relocating an established business, understanding the nuances of commercial lease negotiations is essential.

To help you navigate this process, we’ve created a comprehensive checklist, drawing on the expertise from our shopfit experts at Total Fitouts—leaders in creating tailored, functional, and visually striking commercial spaces. From retail to hospitality and health, our commercial fitouts have transformed spaces like My Secret Wardrobe, Institute for Healthy Living, and Tim Adams Roastery into business-ready environments that reflect brand identity and customer needs.

1. Define Your Needs and Budget

Before entering lease negotiations, it’s crucial to have a clear understanding of your business requirements:

Space Requirements: Think about your business operations, customer flow, and storage needs. For instance, Total Fitouts’ work on Institute for Healthy Living demonstrates how functional layouts can be optimised for professional and client-focused operations. If your business involves retail, such as My Secret Wardrobe, consider commercial design elements that maximise display areas while maintaining a clean, welcoming environment.

Budget: Your budget isn’t just about rent; it should also account for commercial fitouts costs, utilities, and additional expenses. Working with a commercial fitout expert early on can help you estimate these costs and avoid surprises. Total Fitouts, for example, specialises in tailoring commercial designs to meet various budgets while ensuring high-quality results.

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• Space Requirements: Assess your operations, customer flow, and storage needs to optimise layouts.
• Budget: Include commercial fitout costs, utilities, and other expenses in your planning, and consult experts like Total Fitouts to ensure quality results within your budget.

2. Understand Lease Types

Knowing the type of lease you’re negotiating is fundamental. Here are three common types:

Gross Lease: A gross lease is a straightforward arrangement where the tenant pays a fixed rental amount that includes all property expenses. These expenses might cover maintenance, insurance, property taxes, and utilities, making it easier for tenants to budget as there are no unexpected costs. This lease type is ideal for businesses that prefer simplicity and predictability in their financial planning, such as startups or small businesses.

Net Lease: In a net lease, the tenant pays a base rent and is also responsible for certain additional costs. These expenses could include utilities, building maintenance, insurance, and sometimes even property taxes. There are variations such as single-net, double-net, and triple-net leases, with the tenant’s responsibilities increasing in each case. This lease type offers landlords more security for property upkeep while providing tenants with the flexibility to control their utility consumption and other costs.

Percentage Lease: Commonly used in retail, a percentage lease involves a combination of a base rent and a percentage of the tenant’s gross sales. This lease type aligns the landlord’s income with the tenant’s business performance, often motivating landlords to support the tenant’s success. It works well in high-traffic retail environments like shopping centres, where businesses like cafes, fashion boutiques, or specialty stores can benefit from the flexibility of paying less in slower months while contributing more during peak seasons.

Understanding these options allows you to choose a lease type that aligns with your commercial fitout business model and financial capacity.

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• Lease Types: Understanding lease types is essential—Gross Lease, Net Lease and Percentage Lease combines base rent with a percentage of sales—helping you select an option suited to your business model and finances.

3. Research the Property’s Location and Accessibility

The location of your commercial fitout will play a significant role in its success:

Foot Traffic: High-visibility locations are essential for businesses that rely on regular customer engagement. Such locations often attract significant pedestrian activity, increasing the likelihood of walk-in customers and creating a bustling atmosphere that enhances your brand’s visibility and reputation. Businesses like cafes, retail stores, and service providers can benefit greatly from these areas, especially when located in thriving commercial hubs or near other popular attractions.

Accessibility: Convenience for both customers and employees is a critical factor in choosing the right property. Consider elements such as ample parking, access to public transportation, and easy delivery routes for suppliers. Accessibility plays a key role in enhancing customer satisfaction and employee retention, as convenient access fosters a seamless shopping experience and efficient operations.

Competitors and Complementary Businesses: The business ecosystem surrounding your commercial fitout can significantly influence your success. Being close to complementary businesses—such as a café next to a gym or a fashion boutique near a beauty salon—can drive mutual traffic and boost your visibility. However, being located too close to direct competitors may dilute your market share and create unnecessary competition. A thorough market analysis can help you identify the perfect balance, ensuring your business thrives in its chosen location.

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• Location Factors: Choose a high-visibility location for customer engagement, ensure accessibility for customers and employees with parking and public transport, and consider proximity to complementary businesses while avoiding direct competitors to maximise success.

4. Negotiate Rent and Incentives

Lease negotiations should include discussions about rent and additional incentives:

Base Rent: Before signing a lease, it’s essential to research the market rates in the area to ensure that the base rent is competitive and reasonable for your business. Understanding local market trends will help you determine if the rent is in line with other properties in the vicinity, ensuring you’re not overpaying. Additionally, it’s worth negotiating for a rent-free period at the start of the lease, especially if you need time to set up and fit out the space. This grace period can ease the financial strain as you establish your business operations and prepare for customer traffic.

Fitout Incentives: Commercial fitout incentives are often negotiated with landlords, especially for long-term leases, and they can be a valuable cost-saving measure. Landlords may be willing to contribute to the cost of your interior fitout, whether it’s in the form of rent reductions, a financial contribution to the buildout, or even offering a period of reduced rent to help cover expenses. Even when landlords provide limited fitout support, experienced commercial fitout experts can maximise these contributions to create an exceptional end result.

Rent Increases: One of the most important aspects of lease negotiations is understanding how and when rent increases will take place. This can include agreeing on fixed percentage increases annually or basing increases on market reviews. Some leases include a clause that allows rent to be adjusted according to the market conditions or an agreed-upon index, while others may set a fixed increase each year. It’s crucial to have these terms clearly outlined in the lease to avoid surprises later on, particularly if your business is growing rapidly and facing fluctuating revenue. Properly negotiating these increases can provide stability and financial predictability for the long term.

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• Base Rent – Research market rates in the area to ensure the rent is competitive. You may also negotiate for a rent-free period to allow time for setting up your business.
• Fitout Incentives – Landlords may contribute to commercial fitout costs, especially for long-term leases. Projects can highlight how creative design and smart budgeting can turn even minimal landlord contributions into stunning results.
• Rent Increases – Clarify how and when rent increases will occur, whether they’re based on market reviews or fixed percentages.

5. Ensure Fitout Flexibility and Permissions

Your commercial lease must allow for any modifications you need to make to the space:

Landlord Approvals: Most landlords require approval for structural changes or major design alterations. Total Fitouts has extensive experience navigating approval processes, ensuring commercial designs comply with building regulations and lease terms.

Make-Good Clauses: Understand your obligations to return the property to its original state when the lease ends. Fitout experts can help you design your commercial fitout with this in mind to minimise costs later.

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• Landlord Approvals: Landlords typically require approval for structural changes, and Total Fitouts ensures compliance with regulations.
• Make-Good Clauses: Understand your obligations to restore the property at lease end, and shopfit fitout experts can help commercially design with these requirements in mind to minimise future costs.

6. Account for Hidden Costs

Many tenants overlook additional expenses beyond the base rent for their commercial fitout. To avoid surprises, discuss:

Outgoings: Outgoings refer to additional costs that a tenant may be responsible for beyond base rent. These typically include council rates, insurance, and strata fees, which cover the cost of managing common areas and building upkeep. It’s important to clarify which of these expenses you are responsible for in the lease, as they can significantly impact your overall budget.

Utilities: Understanding who pays for utilities like electricity, water, and gas is crucial in lease negotiations. In some cases, these costs are included in the rent, while in others, tenants are responsible for their own usage, and this can affect your monthly operating costs. Ensure the lease clearly outlines utility payment responsibilities to avoid any misunderstandings.

Maintenance Costs: It’s essential to clarify who is responsible for the maintenance and repairs of essential systems, such as heating, air conditioning, and any structural issues that may arise during the lease term. Some leases stipulate that the landlord is responsible for maintaining the building’s infrastructure, while tenants may need to handle regular maintenance or repairs for equipment within their leased space. Understanding these obligations upfront can help prevent unexpected costs later on.

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• Outgoings: These might include council rates, insurance, and strata fees.
• Utilities: Ensure there’s clarity on who pays for electricity, water, and gas.
• Maintenance Costs: Know who is responsible for repairs to heating, air conditioning, or structural issues.

7. Lease Term and Renewal Options

Your lease term can significantly impact your business stability and flexibility:

Duration: A shorter lease offers flexibility, allowing you to reassess your business location or needs after a few years. This is especially useful for businesses that are in early stages or those that anticipate changes in market conditions or growth.

In contrast, a longer lease provides stability, locking in favourable rental terms for an extended period. This is beneficial for established businesses that expect steady growth and want to secure their location without the uncertainty of frequent lease renewals.

Renewal Options: Negotiating favourable renewal terms upfront ensures that you have the option to extend your lease if your commercial fitout is successful and continues to grow. Securing this option can help prevent being forced to relocate or renegotiate terms under less favourable conditions.

It’s also important to clarify the renewal process, including how much notice you need to provide and whether rent increases will be capped. This allows you to plan for the future with confidence, knowing that you can remain in a prime location if your business thrives.

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• Duration: A shorter lease offers flexibility, while a longer lease provides stability.
• Renewal Options: Negotiate favourable renewal terms upfront to secure your space if your business thrives.

8. Understand Zoning and Compliance Requirements

Ensure the property is zoned appropriately for your business type and meets all compliance standards.

Commercial Fitout Regulations: Work with a commercial fitout expert who understands local council requirements. Total Fitouts’ work on Sunshine Coast Neurosurgery involved strict compliance with health and safety standards, showcasing their expertise in creating functional yet compliant commercial fitouts.

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• Commercial Fitout Regulations: Partner with a commercial fitout expert who understands local council requirements.

9. Engage the Right Professionals

Navigating a commercial lease involves legal and technical complexities. Surround yourself with the right team:

Commercial Lawyer: A commercial lawyer is essential for navigating the complexities of a lease agreement. They can help you understand the lease terms, identify potential red flags such as hidden fees or unfavourable clauses, and ensure that the contract protects your business interests, giving you peace of mind throughout the leasing process.

Moreover, a lawyer can assist in negotiating favourable clauses related to rent increases, renewal options, or exit strategies. Their expertise ensures that you are not bound by terms that could become a financial burden or limit your flexibility down the road.

Fitout Experts: Engaging a commercial fitout expert like Total Fitouts early in the process is crucial for evaluating the suitability of the space for your business. They can assess the layout, design possibilities, and any structural limitations, providing you with a clear understanding of how the space can be transformed to meet your needs.

In addition, commercial fitout experts can provide accurate cost estimates for the project, helping you budget effectively and avoid unexpected expenses. With their guidance, you can make informed decisions about the space’s potential and ensure a seamless commercial fitout process that aligns with your business goals.

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• Commercial Lawyer: They’ll help you understand lease terms, identify red flags, and negotiate favourable clauses.
• Fitout Experts: Engaging a commercial fitout company early in the process can help you assess the feasibility of the space and estimate costs.

10. Plan for Future Growth

Your lease should accommodate your commercial fitout’s potential growth:

Expansion Clauses: Negotiate terms that allow you to expand your operations within the property or adjacent spaces.

Flexible Commercial Design: Design a space that can scale with your business. For example, My Secret Wardrobe was designed with flexibility in mind, allowing for easy adjustments to display areas as the business evolves.

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• Expansion Clauses: Negotiate terms that permit expansion within the property or adjacent spaces as your business grows.
• Flexible Commercial Design: Design your space to scale with your business where flexible design allows for easy adjustments to display areas as the business evolves.

Negotiating a commercial lease is a pivotal step in building a successful business. By following this checklist and partnering with experienced professionals like Total Fitouts, you can secure a lease that supports your goals, ensures compliance, and creates an inviting commercial fitout for customers and employees.

For more inspiration or to discuss your commercial fitout needs, visit Total Fitouts to explore their portfolio and connect with their expert team. From boutiques to health services and hospitality spaces, Total Fitouts has the expertise to turn your vision into reality.