Potential issues a tenant may face in a commercial lease

Entering into a commercial lease can be a significant step for any business, but it’s crucial to be aware of the potential issues tenants may face during the lease term. Navigating these challenges effectively can ensure a smoother leasing experience and help avoid costly surprises. Below are some common problems that tenants in commercial leases may encounter, particularly in relation to make good obligations, repair and maintenance responsibilities, and exercising lease renewal options. 

1. Make Good Obligations 

One of the most common issues tenants face in a commercial lease is the “make good” obligation. This term refers to the requirement for tenants to return the premises to their original condition at the end of the lease. However, what constitutes “original condition” can be subjective, leading to disputes about what needs to be repaired or restored. Tenants should carefully review the lease to ensure they understand the scope of the make good requirements and attempt to negotiate fair terms. It’s also important to account for the cost and time involved in meeting these obligations, as failure to comply could result in significant financial penalties. 

2. Repair and Maintenance Responsibilities 

Another area of concern for tenants is the responsibility for repairs and maintenance. In many commercial leases, tenants are obligated to maintain the premises, which may include repairs to both the interior and exterior of the property. However, the lease should specify whether this responsibility extends to structural repairs or common areas, such as lifts or car parks. Disputes often arise if there’s ambiguity regarding who is responsible for certain repairs, or if the tenant is expected to bear costs that are traditionally the landlord’s responsibility. It is advisable for tenants to clarify the scope of their repair obligations and ensure the lease is fair and reasonable, particularly regarding the wear and tear of the property. 

3. Exercising Options to Renew 

Many commercial leases offer tenants the option to renew their lease once the initial term expires. While this may seem like an attractive benefit, tenants often face complications when it comes time to exercise this option. For example, some leases contain strict conditions or timeframes within which tenants must notify their landlord of their intent to renew, often months in advance. Missing this window can result in the loss of the renewal option, leaving tenants vulnerable to rent increases or being forced to vacate the premises. To avoid this, tenants should be proactive in managing the renewal process and ensure they are fully aware of the deadlines and requirements involved. 

4. Rent Increases and Market Reviews 

Another significant issue that can arise in commercial leases is the potential for rent increases during the lease term. Many commercial leases include rent reviews, which allow the landlord to adjust rent based on market conditions or CPI (Consumer Price Index) adjustments. While this is a standard practice, tenants may find themselves facing unexpectedly high increases that can impact their financial stability. Tenants should negotiate rent review clauses carefully, ensuring they understand how rent will be calculated and whether there are caps or limits on increases. 

5. Conclusion 

A commercial lease can offer stability for a business, but it’s vital to understand the potential challenges before signing on the dotted line. Owen Hodge Lawyers are here to guide you through all your legal issues, from commercial to personal matters. Contact us today at 1800 770 780 to organise a consultation with the expert solicitors Sydney rely on.