What is a commercial office lease?
A commercial office lease is a legal contract between a property owner and a tenant that sets out the terms and conditions for possessing the commercial space for rent. Signing a commercial lease then creates a financial liability for organisations that requires they pay rent under the terms and conditions outlined in that document.
The lease agreement outlines the value of the rent, the size of the space, the use of the property, and the legal requirements for both parties.
The terms vary significantly - including how the property is handed back to the owner, and how expenses are calculated - so it is very important that all parties in the agreement understand the commercial office lease. Find out more about commercial leasing here.
How long is a typical commercial office lease?
Commercial office leases can vary, depending on the lease agreement, but in general, they are longer than residential leases. A typical commercial lease is about five years, but there are also 10-year agreements with options for another 10 years. The lease duration will depend on the needs of the property owner and the tenant. Generally, longer leases may be in place for new-build commercial office towers, such as when a developer builds a fit-for-purpose facility for a client.
What is included in a commercial office lease?
A commercial office lease includes terms and conditions regarding the length, space and maintenance of the property.
When looking for a commercial property for lease in Brisbane, it is critical to understand the inclusions and exclusions.
Key terms include the rental amount and the frequency of the payments, the duration of the lease, the use of the office space including any restrictions, whether the tenant can make alterations or renovations to the property, general responsibilities and duties of both the owner and the tenant, details about the possibility of a lease agreement renewal or extension, what would happen in the event of a breach, and termination of the lease.
It may also cover any requirements of exclusions on subleases.
What is a triple net lease?
A triple net lease is a form of a commercial office lease in which the tenant is responsible to pay all the operating and maintenance costs for the property.
This could include tax, council rates or body corporate fees, and maintenance and landscaping. There are different ways of considering a triple net lease.
For owners, this provides consistency in their rent and frees them from additional costs. For tenants, it also provides oversight over the costs incurred and allows them the flexibility to determine their providers. Triple Net Leases are common in single occupant buildings.
Can a commercial office lease be renegotiated?
A commercial office lease can be renegotiated. Once the lease is executed, it is a legal contract between the owner and the tenant, which includes financial liability and responsibility. If a tenant’s situation changes, however, it is possible that an owner will renegotiate the terms. Any change will require the consent of both parties.
During the Covid-19 pandemic in 2020, state governments in NSW and Queensland introduced regulations that required rent negotiations, changing commercial leasing in Brisbane temporarily.
This highlighted the reasons for renegotiations, which could range from changing market conditions, changes in the tenants’ needs for more or less space, or changes from the owner.
What happens if a tenant defaults on their lease?
If a tenant fails to pay their rent or does not comply with the terms of a commercial lease, this is termed a default.
Consequences of this could be termination of the lease, which requires the tenant to leave. If required, the landlord may take action to evict the tenant following a series of legal actions.
The landlord may also seek damages for loss of income or damage to the property, and seek collection proceedings to recoup that money. Generally, there is security tied to the lease in the form of a bank guarantee, personal/directors guarantee or company guarantee which the landlord can draw from.
If the landlord defaults on their mortgage, the mortgagee may take possession of the property - and the lease - if it is registered.
How is the rent for a commercial office lease determined?
The rent for commercial office space depends on a number of factors. These include the overall market conditions, the appeal of the building and its size, the amenity of the building or any additional sustainability features, the length of the lease, and whether it is a net or gross lease.
In early 2023, the Property Council of Australia reported that while vacancies were up as a national average, the forecast supply was lower than the historical average, meaning that rents are forecast to increase with fewer vacancies.
Can a commercial office lease have an option to renew?
Commercial leases can include an option for renewal in the lease agreement. This is a clause that gives the tenant the right to extend their lease for a set period after the initial lease. An example of this is a 10 year + 10 year lease, with an initial term of a decade, and the option to renew for another decade.
This provides certainty for the tenant that they can remain in the property long term, which can be helpful for finance or fitout considerations.
What is a sublease?
A sublease in commercial property is when a tenant (or head tenant) has signed the initial lease agreement and then rents out some of that space to another tenant. This is common if the original tenant no longer needs the space they have legally agreed to rent.
Subleasing was common throughout the pandemic period, but there is less availability now, according to the latest figures from the Property Council.
