Most leases are read once, by the tenant, on the day they are signed. The act of reading deserves more time than that, and a different kind of attention.
A commercial lease is among the longest commitments a small or medium-sized business will undertake. Five years is common; ten is not unusual; with options, the document can govern a business's premises for fifteen years or more.
The financial commitment over that period, including rent, outgoings, insurance, fitout, and make-good, frequently exceeds the value of the business itself.
It is striking, then, how often a lease is read in a hurry.
What the document is, and what it is not
A lease is not a description of an arrangement. It is the arrangement. What the agent said, what the parties discussed over coffee, what was understood to be the deal: none of it matters, for most practical purposes, if the lease says something different.
The document governs. This is well known in principle and forgotten in practice.
Tenants will frequently say, in a dispute, that they did not understand the clause to mean what it says. The clause means what it says.
Reading the lease before signing is reading what will, in most cases, be the only thing that matters if the tenancy becomes difficult.
The clauses that look ordinary
Disputes do not usually arise from clauses that look unusual. They arise from clauses that look ordinary and turn out to be specific.
Outgoings provisions are an example. Most commercial leases require the tenant to pay outgoings. The clause looks similar across most documents. The category of what counts as an outgoing, however, varies considerably between leases, and the difference can be substantial.
Land tax, body corporate levies, capital works contributions, repairs to common property, management fees: each of these may be included or excluded, and the totals over the life of the lease can run into tens of thousands of dollars.
Make-good clauses are another example. Every lease has one. The scope of make-good varies wildly. A lease may require the tenant to return the premises to the condition existing at the commencement of the lease, or to base building condition, or to a condition specified in a schedule that no party has read in years.
The cost of compliance can range from negligible to significant, and the tenant often does not know which until late in the tenancy.
Repair obligations, redecoration clauses, restrictions on assignment, options to renew, rent review mechanisms: each of these deserves specific attention. Not because each will cause a problem, but because the ones that do cause problems cause them for exactly this reason. They were not read carefully at the start.
What slow reading looks like
Slow reading is not legal expertise. It is a willingness to ask, of each clause, what it actually says, and whether the answer is what was expected.
For most clauses the answer is uneventful. For some it is not.
The clauses that prompt hesitation, that require re-reading, or that do not match the tenant's understanding of the deal, are exactly the clauses that legal advice, if obtained, should address. The lease itself does not need to be read by a solicitor; the questions it raises do.
The reading does not need to produce certainty about every clause. It needs to produce a list of the things that are unclear, or that seem inconsistent with what was agreed. That list is the basis for useful legal advice.
The negotiation that has not yet happened
One further observation. By the time a tenant has read a commercial lease carefully, that tenant typically has questions, and sometimes objections, that have not yet been raised with the landlord.
These questions and objections may or may not be accepted. They are, in most cases, more readily accepted before signing than after.
The negotiation that takes place after careful reading is sometimes the most useful negotiation in the entire transaction. It is also the negotiation that occurs least frequently, because it is the negotiation that requires the reading to happen first.
Free resource Pre-signing commercial lease checklist →
A short, printable list of what to confirm before you sign.