The True Cost of a Commercial Lease: Rent Reviews, Outgoings, Make Good

A commercial lease is, for most businesses, the second-largest financial commitment they will ever undertake, behind only the cost of their workforce. A modest five-year lease can represent a half-million-dollar obligation, frequently secured by a personal guarantee from the directors and a bank guarantee equal to several months’ rent. Despite this, commercial leases are routinely signed with less scrutiny than a far smaller equipment finance agreement would attract.

This article sets out where the real economic impact of a commercial lease lies, the clauses that most often cause financial harm, and the steps a business can take before signing. It is a practical overview, not legal advice. Speak to a lawyer before signing, renewing, or exiting a commercial lease.

Schedule a Consultation

The economic weight of a lease

Consider a business paying $8,000 per month in rent on a five-year term with 3.5% annual increases. The base rent alone over the term exceeds half a million dollars before a single dollar of outgoings, before any make-good cost, and before the value of the management time spent dealing with the premises. For many small businesses, the lease commitment dwarfs every other contract they will sign. It also tends to be the least flexible: unlike a supplier or employee, a landlord holds a long-term, secured, personally guaranteed claim over the business.

This is why leasing decisions deserve the same rigour as a major financing decision. The lease shapes the cost base of the business for years, constrains its ability to relocate or grow, and can directly affect whether the business can be sold.

The regulatory framework in NSW

Commercial leases in NSW fall into two broad categories. Retail leases, broadly, leases of premises used for the sale of goods or supply of services to the public, are governed by the Retail Leases Act 1994 (NSW), which imposes specific protections for tenants, including a disclosure statement before entry, restrictions on certain costs, and a minimum term in some cases. Non-retail commercial leases are governed primarily by the lease itself and the general law, giving the parties more freedom but the tenant fewer statutory protections. Knowing which regime applies is the starting point for understanding a tenant’s rights.

Rent reviews: the single largest long-term variable

How rent increases over the term is the most financially significant mechanism in most leases, and the most commonly misunderstood. The main review types are:

  • Fixed percentage increases. Rent rises by a set percentage each year (for example, 3% or 4%). Predictable, but compounding. A 4% annual increase raises rent by more than 21% over five years.
  • CPI increases. Rent is indexed to the Consumer Price Index. Lower in periods of low inflation, but exposed in inflationary periods such as those experienced recently.
  • Market rent reviews. Rent is reset to market at defined intervals. Fair in principle, but the outcome depends heavily on the valuation process and the comparable evidence used.

The clause that causes the most damage is the ratchet clause, which provides that a market review can only increase the rent, never decrease it. In a soft market, a ratchet clause locks the tenant into above-market rent for the remainder of the term. The difference between a well-negotiated review regime and a poorly negotiated one can be tens of thousands of dollars over a five-year lease.

Outgoings: the cost that rises quietly

Most commercial leases require the tenant to pay outgoings, the landlord’s costs of owning and operating the property, which can include council and water rates, land tax, building insurance, management fees, and common-area maintenance. The risk for tenants is twofold. First, outgoings are often defined broadly, sweeping in costs the tenant did not anticipate. Second, they are frequently uncapped, meaning they can rise faster than the rent itself. Without a clear definition, an estimate, and ideally a cap, outgoings become one of the most common sources of landlord-tenant dispute. Under the Retail Leases Act, certain outgoings disclosure obligations apply, but non-retail tenants must rely on negotiation.

Make good: the liability that waits until exit

The make-good clause requires the tenant to return the premises to a specified condition at the end of the lease, often base building or original condition, which can require the removal of fit-out, partitions, signage, and services, and the repair of any resulting damage. Make good is one of the most underestimated liabilities in commercial leasing. A tenant who has invested in a fit-out can face a make-good bill running to tens of thousands of dollars, payable precisely when the business is leaving the premises and least able to absorb the cost. The scope of make good is negotiable at the outset. A capped, defined, or photographed-condition make good is far less dangerous than an open-ended one. It is almost impossible to negotiate at the end.

Options to renew: the window that closes

An option to renew gives the tenant the right to extend the lease for a further term. It is valuable, but it is also conditional and time-limited. An option must usually be exercised within a strict window (for example, between six and three months before expiry) and is often conditional on the tenant not being in breach. A tenant who misses the window, or who has an unremedied breach, can lose the right to renew and, with it, the premises around which the business has built its customer base, its goodwill, and its location-dependent value. Diarising the option window is one of the simplest and most valuable risk controls a tenant can implement.

Assignment and sale: the lease as a constraint on exit

When a business is sold, the lease usually has to be transferred to the buyer by assignment. The assignment provisions therefore directly affect the saleability of the business. A lease that allows assignment only with the landlord’s consent on onerous conditions, or that allows the landlord to refuse, can reduce the sale price or prevent a sale altogether. Equally important, an outgoing tenant who assigns a lease may remain liable under the lease, and under any personal guarantee, unless expressly released. Sellers are frequently surprised to find their exposure continues after they have sold the business.

Before You Sign A Commercial Lease, Know The Real Cost
Review Rent, Outgoings, Make Good And Personal Guarantee Risks
Book a Consultation

The headline rent is only one part of a commercial lease. CMI Legal can review your lease terms, explain your obligations, and help you negotiate before you commit to long-term costs.

Contact Now
Address

Suite 904/10 Help St, Chatswood, NSW 2067, Australia

Driving Directions

Personal and bank guarantees: where the risk becomes personal

Most SME leases are not granted to the company alone. The landlord typically requires a bank guarantee (a sum, often equal to several months’ rent, the landlord can draw on) and a personal guarantee from the directors. The personal guarantee is the point at which a company obligation becomes a personal one: if the company defaults, the landlord can pursue the director personally, potentially exposing the family home. Personal guarantees frequently survive the assignment of the lease and the sale of the business unless they are expressly released. Negotiating the scope, duration, and release conditions of a guarantee is one of the most important and most overlooked aspects of a lease.

The total cost picture

The financial impact of a commercial lease is not the rent on the first page. It is the sum of the base rent, the compounding effect of the review mechanism, the uncapped growth of outgoings, the make-good liability at exit, the personal exposure under the guarantee, and the constraint the lease places on selling or relocating the business. Each of these is negotiable before signing. None of them is negotiable afterwards.

The off-ramp: review before you sign

  • Obtain and review the disclosure statement (for retail leases) and the full lease, including all annexures, before signing anything.
  • Model the total cost of the lease over the full term, including the review mechanism and an estimate of outgoings, not just the headline rent.
  • Negotiate the make-good scope, the outgoings definition and cap, and the rent review mechanism at the outset.
  • Diarise the option exercise window the day the lease is signed.
  • Understand and negotiate the assignment provisions and the scope and release of any personal guarantee before committing.

A lease review before signing typically costs a small fraction of a single month’s rent. The cost of an unfavourable lease is measured across the entire term and, through the personal guarantee and make-good obligation, can extend beyond it. For a commitment of this size, the economic case for review is overwhelming.

CMI Legal advises Sydney businesses on commercial and retail lease review and negotiation, market rent reviews, make-good and outgoings disputes, assignments, and exit strategy. Book a free 15-minute consultation before you sign, renew, or exit a lease.

Latest Insights

Clear Filters
What Commercial Contract Clauses Decide Disputes in NSW?
Commercial Contract Clauses
What Commercial Contract Clauses Decide Disputes in NSW?

What Commercial Contract Clauses Decide Disputes in NSW?

A practical legal guide to commercial contracts for NSW businesses. Termination, payment, liability, force majeure, dispute resolution, and the clauses that matter when a deal goes wrong.

Read More
Food Business Licence NSW: Complete Guide to Costs, Registration & Home Kitchen Requirements (2026)
Food Business Licence NSW
Food Business Licence NSW: Complete Guide to Costs, Registration & Home Kitchen Requirements (2026)

Food Business Licence NSW: Complete Guide to Costs, Registration & Home Kitchen Requirements (2026)

Complete guide to Food Business Licence NSW including costs, council registration and home kitchen approval requirements.

Read More
Can I Switch from a 491 Visa to a 190 Visa in Australia?
186 Visa
Can I Switch from a 491 Visa to a 190 Visa in Australia?

Can I Switch from a 491 Visa to a 190 Visa in Australia?

Understand commercial tenant rights in NSW including eviction rules, rent reviews, retail lease protections and dispute options. Get legal guidance.

Read More
Commercial Tenant Rights in Australia: Your Complete Guide (2026)
commercial tenant rights
Commercial Tenant Rights in Australia: Your Complete Guide (2026)

Commercial Tenant Rights in Australia: Your Complete Guide (2026)

Understand commercial tenant rights in NSW including eviction rules, rent reviews, retail lease protections and dispute options. Get legal guidance.

Read More

Our Commercial Lawyer Reviews

Client Testimonials and Reviews

CMI Legal | Business Lawyers, Migration Lawyers & Contract Lawyers place picture
CMI Legal | Business Lawyers, Migration Lawyers & Contract Lawyers
5.0
Based on 70 reviews
powered by Google
review us on
Joe Shi profile picture
Joe Shi
5 months ago
Tina Tang is doing excellent service job as a profesional lawer and provide valued information about property purchase issue.Thank you so much,we are appreciated to your skilled help and hope to cooperate with your esteemed company,current residential living apartment 506/2-4 Culworth Ave Killara should be put in market,we hope Tina Tang will provide support as well.thank you so much.
Joe Shi
Sydney Translation profile picture
Sydney Translation
5 months ago
Ying Wan profile picture
Ying Wan
5 months ago
We had an excellent experience with CMI Legal during our property purchase. The team was highly professional, detail-oriented, and extremely knowledgeable throughout the entire process. They carefully reviewed all contracts, clearly explained potential risks, and provided practical advice at every stage, which gave us great peace of mind. Communication was prompt and clear, and they were always patient in answering our questions. Their efficiency and attention to detail made what could have been a stressful process smooth and well-managed. We would confidently recommend CMI Legal to anyone looking for reliable and trustworthy conveyancing and legal services, with special thanks to Tina for her professionalism, patience, and exceptional support throughout the process.
郭小姐 profile picture
郭小姐
6 months ago
Attorney Tina was professional and patient; I am very grateful for her legal assistance during my home sale process.
Solutions NovaBuild profile picture
Solutions NovaBuild
6 months ago
John and Tina are the best! I just had another settlement through them. Everything was so smooth and they are reminding you every step for the key points.
P W profile picture
P W
8 months ago
I recently used CMI and worked with Tina for my property settlement. Tina was extremely helpful, patient and very professional throughout the entire process. She explained everything clearly, kept me updated at every step and made the whole experience smooth and stress-free. I couldn’t have asked for a better lawyer. Highly recommend Tina and the CMI team!
Andy Hsieh profile picture
Andy Hsieh
8 months ago
I’ve been incredibly lucky to have Tina as my solicitor. She has been outstanding throughout the entire contract exchange and settlement process. She is always the first to respond, timely, and extremely efficient. Her attention to detail is exceptional, and she consistently makes sure everything is in the buyer’s best interest. Super attentive, helpful, and genuinely caring. I wouldn’t hesitate to recommend Tina to anyone looking for reliable and professional legal services.
David Lin profile picture
David Lin
8 months ago
Many thanks to Senior Lawyer Tina Tang for helping me handle the sale of my property in Sydney. She liaised with the real estate, banks and buyers broker and explained everything well and handled the sale meticulously.Her professional ability, experience and sense of responsibility are trustworthy. I recommend Tina and CMI for anyone looking for support in real estate sales.
David Lin
Denis Lebrun profile picture
Denis Lebrun
8 months ago
John Zhang has been absolutely great in helping me with my EOI and application for a skilled visa in Australia. On both calls I've had with John, I have had a multitude of questions for him which he answered in depth and gave me all the information I required. He really has a great amount of knowledge and I would highly recommend him and the CMI legal team for their efficiency and professionalism.
Jing LI profile picture
Jing LI
10 months ago
I was very fortunate to have Tina TANG from CMI as my conveyancing solicitor for the recent sale of my property. She demonstrated exceptional professionalism and dedication throughout the entire process — from preparing the contract, exchanging contracts, right through to settlement. What impressed me the most is that even after settlement, she continued to go above and beyond to assist me as the vendor, making sure everything was properly taken care of.

Her diligence, patience, and attention to detail gave me great peace of mind and took away a lot of the stress of selling a property. I would highly recommend her to anyone looking for a reliable, professional, and truly supportive conveyancing solicitor. ⭐⭐⭐⭐⭐
Sabrina Ng profile picture
Sabrina Ng
12 months ago
Outstanding service from start to finish. Tina Tang handled my unit's sales contract with exceptional professionalism. Communication was always clear and prompt, making the whole process smooth and stree free. I highly recommand Tina to anyone seeking a reliable and knowledgeable solicitor.
Max Swan profile picture
Max Swan
1 year ago
I’ve had an incredibly positive experience working with John & Winnie on my matter. From start to finish, they have been professional, knowledgeable, and genuinely supportive throughout what’s been a stressful time for me.

They explained every step of the process clearly, responded promptly to any questions I had, and made complicated situations feel a lot more manageable. I felt like I was in good hands the entire time, and their calm, confident approach really helped me stay grounded.

Highly recommend CMI services to anyone needing immigration or legal assistance — couldn’t be more grateful.

Thanks again!
danny profile picture
danny
1 year ago
As an old customer of CMI, this year is already the 8th year. Special thanks to attorney John and attorney Tina for carefully answering our various questions, providing a lot of professional advice and help, allowing us to easily complete each transaction.
Vivien Lu profile picture
Vivien Lu
1 year ago
Tina was a great lawyer - she was always incredibly knowledgeable, answered all questions promptly, and very friendly. Would recommend Tina!
Zhiyi LI profile picture
Zhiyi LI
1 year ago
Jeremy Tong profile picture
Jeremy Tong
2 years ago
Tina was a great help in guiding us through our first home buying experience. She gave us a lot of great explanations and advice from initial discussion of the process through every step until successful settlement. Communication and resolution of issues was prompt and professional.
Yun Jung Hsieh profile picture
Yun Jung Hsieh
2 years ago
Tina is a fantastic lawyer. her responses to my queries were thorough and timely, and impeccable organizational skills! Truly appreciated her clear and consistent communcation througout the entire property-purchasing process. she handled everything with profressionalism and expertise, making what could have been a stressful experience much smoother. Highly recommend!
Jeena Jung profile picture
Jeena Jung
2 years ago
We had the pleasure of working with Tina as our solicitor for our first home purchase, and we couldn’t have been in better hands. She carefully explained every step of the process, guiding us through what initially felt overwhelming and unfamiliar. Buying off the plan made us particularly cautious, especially when it came to reviewing legal documents. Tina’s meticulous approach put us at ease—she ensured we both clearly understood each aspect, taking the time to highlight and reorganise information to make it more accessible. Her dedication and professionalism made the entire experience far less daunting, and we’re truly grateful for her support.
Keyu Jiang profile picture
Keyu Jiang
2 years ago
John and Tina have provided great professional legal service since 2017 for me.
Ian Pereira profile picture
Ian Pereira
2 years ago
I realised that I hadn’t left a review for my dealings with CMI legal. I had dealt with them a few months ago, but an epiphany made me come and leave a review.

5 stars is insufficient to express their work. We were working Dee and she is an amazing and thorough professional. She goes above and beyond and explains matters that makes you understand things really well. Thank you Dee for your amazing work.

Meet Our Experienced Legal Team of Commercial Lawyer

Mathew Wu

Director

John Zhang

Principal

Tina Tang

Lawyer

Rita Lam

Lawyer

Meet Our Team