6 Types of Lease Agreements for Small Businesses in Australia

Many small business owners enter leases without fully understanding their obligations, only to discover later that simple oversights cost them thousands. The good news? With the right knowledge, you can avoid these pitfalls. 

This article outlines the various lease types available, key clauses to review, and the legal details to be aware of. Let’s break down how lease agreements work and what every small business should know before putting pen to paper.

Understanding lease agreements for small businesses in Australia

A lease agreement is a legally binding contract between a landlord (lessor) and a tenant (lessee) that grants the tenant the right to occupy and use the premises for business purposes. It outlines key terms, including rent, duration, renewal options, permitted uses of the premises, and responsibilities for maintenance and repairs.

Business leases aren’t the same as residential ones. Residential tenancy laws are typically tenant-friendly and provide statutory protections for individuals. In contrast, business or commercial leases are primarily governed by contract law. This means terms are negotiable and often favour the landlord unless carefully reviewed. 

Most states in Australia only impose specific statutory protections on retail leases, which involve selling goods or services to the public. For all others, the rule of thumb is: what’s written in the contract prevails.

6 types of lease agreements for small businesses in Australia

Depending on your business type, location, and the structure of the rent, you may encounter several types of lease agreements. 

Here is a brief overview of the six common types applicable to small business premises. Below, we take a closer look at each. 

Lease Type	Definition	Key Characteristics	Common Risks
1. Commercial Lease	Used for offices, warehouses, and industrial spaces	Governed mainly by contract law; negotiated terms; minimal statutory protection	Costly outgoings, make-good obligations, personal guarantees
2. Retail Lease	For businesses selling goods/services to the public	Regulated under state Retail Leases Acts; includes disclosure and tenant protections	Complex compliance requirements; strict timelines
3. Gross Lease	Rent includes most property outgoings	Predictable costs; simple to manage	Higher base rent; limited transparency on actual expenses
4. Net Lease	Rent plus payment of outgoings	Lower base rent; variable total cost depending on expenses	Budget uncertainty; exposure to rising costs
5. Percentage Lease	Rent based on base rate + % of turnover	Common in retail; ties rent to business performance	Reporting obligations; landlord audit rights
6. Short-term/Venue Lease	Temporary or event-based occupancy	Flexible, short duration; minimal setup	No renewal security; still legally binding

1. Commercial lease

A commercial lease applies to premises used for business operations that don’t directly serve the public, such as offices, warehouses, or industrial workshops.

Key characteristics

• Negotiated terms outline the most significant tenant and landlord obligations.
• Has few statutory protections under state law.
• Often includes clauses on outgoings, insurance, repairs, and make-good.

Common risks

• Outgoings: Tenants may need to cover additional expenses such as rates, maintenance, and utilities, in addition to rent.
• Make-good obligations: Requirements to restore the premises at lease end can be costly.
• Personal guarantees: Business owners may be personally liable for unpaid rent or damages.

2. Retail lease

A retail lease applies to premises used for retail businesses that sell goods or services directly to consumers. These are regulated under each state or territory’s Retail Leases Act, which provides added protections.

Key characteristics

• Landlords must provide detailed disclosure statements before a lease is signed.
• Rent reviews, fit-out contributions, and marketing fees are subject to regulation.
• Tenants receive certain rights around dispute resolution and renewal.

Common risks

• Complex compliance: Each state has slightly different legislation (e.g. NSW Retail Leases Act 1994).
• Disclosures and timelines: Failure to follow required disclosure procedures can void terms.

Despite stronger protections than commercial leases, retail leases remain intricate contracts that need careful review.

3. Gross lease

A gross lease is a type of agreement where the landlord includes most property outgoings in the rent. You pay a flat, predictable amount each period.

Key characteristics

• Provides a simple structure and predictable monthly costs.
• This is a common option for small office or serviced workspace arrangements.

Common risks

• Higher base rent: Since the landlord covers operating costs, they typically charge more upfront.
• Limited transparency: Tenants don’t see or control the actual outgoings being covered.

4. Net lease

A net lease (including “triple-net” leases) separates rent from outgoings. The tenant pays rent plus some or all of the property’s operating expenses, such as rates, insurance, and maintenance.

Key characteristics

• Lower base rent but variable total costs.
• Often used in industrial or long-term commercial spaces.

Common risks

• Budget uncertainty: Ongoing costs, like electricity and council rates, can fluctuate.
• Exposure to cost increases: The tenant bears financial risk as outgoings grow over time.

5. Percentage lease

A percentage lease ties the rent to the business’s turnover. The tenant pays a base rate plus a percentage of their gross sales once revenue exceeds an agreed threshold. This model is common in retail centres and shopping precincts.

Key characteristics

• Rent aligns with business performance — lower rent in slow months, higher in peak periods.
• Encourages landlords to attract foot traffic since both parties benefit from tenant success.

Common risks

• Reporting obligations: Tenants must regularly provide turnover reports.
• Audit rights: Landlords may request financial records to verify earnings.

6. Short-term or venue lease

A short-term or venue lease applies to temporary business use such as pop-up shops, event spaces, or market stalls.

Key characteristics

• Has a fixed duration ranging from a few days to several months.
• The renter has limited renewal rights and a lower administrative burden.

Common risks

• Reduced security: Once the term ends, you have no guaranteed right to renew.
• Still legally binding: Even a short lease creates enforceable obligations for rent and damage.

Unsure which lease type is right for your business? Get professional legal help today!

The difference between commercial leases and retail leases

Small business tenants often confuse commercial and retail leases. After all, both involve renting premises. However, their legal frameworks, protections, and applicability differ markedly.

Legal framework

Commercial leases rely purely on contract law. The written agreement determines the rights and obligations between landlord and tenant. 

In contrast, state-specific retail leasing legislation governs retail leases. If there are any inconsistent terms, such legislation overrides them. The aim is to level the playing field between large landlords and smaller retail tenants.

Tenant protections

Tenants under commercial leases enjoy minimal default protections; they must rely on careful negotiation or legal advice. 

On the other hand, retail leases incorporate statutory safeguards. Landlords must provide disclosure statements, follow limits on recoverable costs, and allow tenants access to low-cost dispute resolution services, typically through a state tribunal.

Cost transparency

A major distinction is cost transparency. Commercial leases let landlords pass through most property costs, often under broad “outgoings” clauses. 

Meanwhile, retail leasing laws specifically restrict which costs can be recovered and require landlords to disclose outgoings before signing.

Suitability for small businesses

Commercial leases are suitable for businesses that use offices, warehouses, or industrial premises, where customers rarely visit. 

Retail leases apply to business that sell goods or services are sold to the public, including cafés, boutiques, salons, and certain service-based shops like travel agencies.

Key lease clauses small businesses should review

Before you sign any business lease, it’s crucial to examine several key clauses. The main ones are: 

• Rent review and increases 
• Outgoings and operating costs 
• Make-good obligations 
• Personal guarantees 
• Termination and exit rights 

Let’s look at each of these in more detail. 

Rent review and increases

Most leases contain a rent review clause specifying when and how rent can increase — often annually. Increases may be tied to the Consumer Price Index (CPI), a fixed percentage, or “market rent.” 

You’ll need to carefully review this part to forecast future expenses and avoid unexpected jumps that strain cash flow.

Outgoings and operating costs

Outgoings cover recurring costs such as council rates, insurance, cleaning, security, and maintenance. Some leases make tenants responsible for all outgoings, while others include them in the rent (gross lease). 

Understanding exactly what’s included and what isn’t will help you calculate the full cost of your tenancy. 

Make-good obligations

The make-good clause outlines your responsibility to return the premises to its original condition when the lease ends. This may mean removing fit-outs, repainting, or repairing wear and tear. 

Make-good costs can surprise you if you don’t limit them in the contract or budget for them ahead of the lease’s end. 

Personal guarantees

Landlords often request personal guarantees, especially from small business owners or new entities. This means if the business entity defaults, you (the director or guarantor) become personally liable for unpaid rent or damages. 

Reviewing this clause is vital to understand your personal financial exposure.

Termination and exit rights

It’s usually pretty difficult to exit a lease. Pay attention to clauses covering termination, default, and assignment of rights. 

Some leases allow early termination under limited conditions or assignment to another tenant Others, however, lock you in regardless of changing business circumstances.

Seeking legal help before signing a lease — Is it necessary? 

In short, yes. Lease agreements are legally binding, long-term commitments that can shape your business’s financial stability for years. 

Often, landlords or real estate agents draft leases whose terms naturally protect their interests. Without legal review, small business owners may agree to clauses that increase costs, restrict flexibility, or expose them to unexpected liabilities.

Even when using a standard lease template, professional legal review ensures the terms align with your business goals and comply with relevant state legislation. You may specifically need customised legal support for: 

• Complex leases
• Fit-out contributions
• Shared tenancy situations 

Operating on a tighter budget? You can also use standardised, legally verified templates as a cost-effective starting point. 

FAQ

What are the types of lease agreements for small businesses?

The six main types are commercial leases, retail leases, gross leases, net leases, percentage leases, and short-term or venue leases. Each differs in structure, cost responsibilities, and level of legal protection. 

The right choice depends on your business type and how you operate.

What is the difference between a commercial lease and a retail lease?

Commercial leases are governed by contract law and typically apply to non-retail premises, such as offices or warehouses. 

Retail leases, on the other hand, are regulated by state retail leasing legislation and apply to businesses dealing directly with consumers. Retail leases offer greater transparency and tenant protections.

Can a small business negotiate lease terms?

Absolutely. Most lease terms, including rent amount, fit-out responsibilities, and make-good conditions, are negotiable. 

However, once signed, the lease becomes legally binding. Negotiating before signing ensures the agreement supports your business operations and financial capacity.

Do I need a lawyer to review a lease agreement in Australia?

It’s strongly recommended. A lawyer can identify clauses that expose your business to risk, verify compliance with your state’s retail lease law (if applicable), and clarify ambiguous wording. 

Protect your business with a lease that’s right for your business

Signing a lease is one of the biggest financial decisions a small business can make. The right lease type and terms strike a balance between affordability and flexibility, so that your premises support your long-term growth. 

Before you commit, it’s best to seek legal advice or use a trusted legal service to ensure the agreement reflects fair and lawful terms. 

If you’re ready to secure your next business location, explore Lawpath’s Commercial and Retail Lease Templates — professionally drafted, compliant across all Australian states, and designed to help small businesses lease with confidence.