Traps in Commercial Leasing: What Queensland Tenants and Landlords Need to Know
Entering into a commercial lease is a significant commitment for both landlords and tenants. In Queensland, while leases may seem straightforward, there are hidden traps that can lead to costly disputes or long-term issues. Whether you’re leasing a shopfront, office, or industrial space, understanding these common pitfalls can save time, money, and stress.
We discuss five traps in commercial leasing to be aware of.
1. Not Knowing Whether the Retail Shop Leases Act Applies
One of the biggest traps in Queensland leasing is assuming you're signing a standard commercial lease, when the Retail Shop Leases Act 1994 (Qld) (RSLA) may actually apply. The distinction matters a lot. The RSLA imposes strict requirements and gives additional protections to tenants that don’t exist under general commercial lease law.
What’s the Difference?
Retail Shop Lease (covered by RSLA):
These leases involve premises used wholly or predominantly for retail business (e.g., shops in shopping centres, standalone retail stores, cafes, hairdressers, etc.). The RSLA sets out specific rules about disclosure, rent reviews, outgoings, and lease renewals.General Commercial Lease (not covered by RSLA):
Applies to non-retail premises like industrial warehouses, office buildings, and logistics hubs. These leases are largely governed by contract law and common law principles, with far fewer legislative protections.
Why it Matters
Disclosure Obligations
Landlords must provide a detailed disclosure statement to tenants at least 7 days before the lease is signed. Failing to do so can allow the tenant to terminate the lease within six months.
No Recovery of Certain Costs
Under the RSLA, landlords cannot pass on certain legal costs (I,e Outgoings) or capital costs to tenants. This is something that’s often permitted under a standard commercial lease.
Market Rent Review Protections
In a retail lease, if the lease says rent will be reviewed to market value, the tenant has the right to request an independent determination by a specialist retail valuer.
Renewal and Option Periods
There are strict rules about how and when a tenant must be notified of their option to renew. Landlords who miss these deadlines may lose their rights to increase rent or renegotiate terms.
Common Trap of Failing to Understand the Retail Shop Leases Act
Many small businesses lease premises that look “commercial” (for example, they’re in an industrial estate) but are operating a retail business. This may mean the RSLA applies even though the lease says otherwise.
Avoiding the Trap
Always confirm whether your lease is governed by the RSLA before signing. If you're a landlord, failing to comply could invalidate key parts of the lease. If you're a tenant, understanding your RSLA rights could give you stronger negotiating power and extra protection.
2. Inadequate Disclosure and Heads of Agreement Confusion
It’s not uncommon for landlords and tenants to start with a heads of agreement or letter of intent before the formal lease is drafted. While this can be a helpful way to outline the deal, it can also create risk if not handled properly.
What’s the Trap?
Non-binding confusion:
A heads of agreement on many occasions can be binding, even when a party may not think that it is. This can lead to misunderstandings if the final lease terms differ, as well as arguments about the validity of the heads of agreement which can be extremely costly and time consuming.Missing key terms:
Important details, such as who pays outgoings, what fit-out is required, or who is responsible for repairs, are often left out or vaguely defined, which can cause conflict once the lease is drafted.Verbal promises and assumptions:
Sometimes parties rely on verbal agreements or informal emails, expecting them to be honoured later, only to find those terms didn’t make it into the final lease.
Avoiding the Trap
Get legal advice early. Don’t sign a heads of agreement or pay a deposit without reviewing it with a lawyer first.
Be specific. Make sure commercial terms, like rent, term, options, incentives, outgoings, are clearly stated.
Follow disclosure rules. If the lease is a retail shop lease, ensure statutory disclosure obligations are met on time and in full.
A well-drafted heads of agreement can set the tone for a smooth leasing process, but a vague or misleading one can create more problems than it solves.
3. Underestimating Outgoings and Hidden Costs
Tenants sometimes focus on the base rent without fully understanding their obligation to pay outgoings, which are costs that can significantly increase the total cost of occupancy. These typically include council rates, water and sewerage charges, building insurance, cleaning of common areas, repairs and maintenance, air conditioning servicing, and property management fees.
What’s the Trap?
If outgoings aren't clearly itemised in the lease, tenants can be hit with unexpected charges throughout the lease term.
Avoiding the Trap
Before signing, it’s a good idea for the landlord to give a written estimate of annual outgoings and confirm exactly which charges the lessee is responsible for. It might also help to negotiate caps on variable outgoings for transparency — especially if a portion of a larger property or shopping centre is being leased. It can help to work with a lawyer to prepare the lease to ensure it aligns with what was agreed.
4. Lack of Flexibility and Exit Options
Business needs change, whether it's downsizing, upsizing, relocating, or restructuring. Unfortunately, sometimes commercial leases don’t provide room to move. Without the ability to assign, sublet, or exit early, tenants can be trapped in premises that no longer suit their needs.
What’s the Trap?
This time, the trap is quite literal. Signing a lease with no clear exit strategy can result in being locked into long-term obligations, even if your business needs change.
Avoiding the Trap
Negotiate flexibility upfront. Include clauses that allow:
Assignment (transferring the lease to a new tenant),
Subletting (renting part of the premises), and
Early termination (ideally with a break fee or mutual agreement).
5. Personal Guarantees and Security Risks
For small businesses and startups, landlords sometimes require personal guarantees from directors or business owners as security. This means personal assets, like the family home, could be at risk if the business defaults on the lease.
What’s the Trap?
This trap is tenant-specific. Many tenants sign personal guarantees without realising they’re potentially liable for the full term of the lease, even if the business closes or is sold.
Avoiding the Trap
Where personal guarantees are required, there are ways to reduce the risk to the individual. In some cases, landlords may agree to limit the guarantee to a fixed period—such as the first six or twelve months of the lease—rather than the full term.
A bank guarantee or security bond may be accepted in place of a personal guarantee, providing financial security without exposing personal assets. It’s also possible to include a sunset clause, which brings the guarantee to an end after certain conditions are met, such as timely rent payments over an agreed period.
Always seek legal advice before signing any document that includes personal security.
Protect Yourself with the Right Legal Support
Commercial leases can be complex, and the consequences of overlooking terms or obligations can be costly. Whether you're a tenant or landlord, getting the right advice before you sign can help you avoid disputes, manage risk, and ensure the lease truly reflects your intentions.
At Bradley & Bray, we are experienced lawyers and conveyancers based in Queensland. We can help you prepare a lease, guide you through your lease, explain your rights and obligations clearly, and help you negotiate terms that protect your long-term interests.
Get in touch with us today to discuss your commercial lease or to have your lease documents reviewed before you commit.
Disclaimer: This article is general in nature and does not constitute legal advice. If you require legal advice in relation to your personal circumstances, you must formally engage our firm or another firm to provide legal advice in relation to your matter. Bradley & Bray lawyers take no responsibility for any use of the information provided in this article.
