Commercial and retail leases in Victoria: a landlord and tenant guide.

A commercial lease is not a residential rental agreement. It is a commercial contract that determines who bears cost, who bears risk, and who controls the premises for years or decades. In Victoria, the legal starting point turns on whether the premises are retail — because the Retail Leases Act 2003 (Vic) rewrites large parts of what the lease itself says.

This guide is for tenants and landlords entering, renewing, assigning or ending a commercial or retail lease in Victoria. It explains lease classification, disclosure, rent reviews, outgoings, options, make-good and dispute resolution — the levers that most often change the numbers.

Commercial versus residential

Residential tenancies are governed by the Residential Tenancies Act 1997 (Vic) and administered by Consumer Affairs Victoria and VCAT. That legislation does not apply to commercial leases. Commercial and retail leases are governed by the common law of contract, the Property Law Act 1958 (Vic), the Retail Leases Act 2003 (Vic) (where the premises are retail) and the terms of the lease itself.

Retail versus non-retail commercial

The most consequential classification is whether the premises are retail premises for the purposes of the Retail Leases Act. If they are, the Act overrides many lease terms and imposes minimum protections. If they are not, the parties are largely bound by whatever the lease says.

Why the classification matters

The Retail Leases Act, among other things: sets a minimum five-year term (unless the tenant has waived it under a certified valuation), regulates the timing and content of the disclosure statement, restricts what outgoings a landlord may recover, prohibits certain ratchet rent-review clauses, restricts land-tax recovery from tenants, imposes obligations on repairs and essential safety measures, and provides a low-cost dispute-resolution pathway through the Victorian Small Business Commission (VSBC).

What may constitute retail premises

Retail premises are broadly those used wholly or predominantly for the sale or hire of goods by retail, or the retail provision of services. Cafés, shops, hairdressers, gyms, medical clinics providing services to the public, and many similar premises are commonly retail. But the definition is fact-specific and can turn on the actual use.

Excluded premises and occupancy-cost thresholds

Certain premises are excluded from the Retail Leases Act by regulation or by ministerial determination — for example, some office premises above certain floor levels in specified buildings, and some leases where the occupancy cost exceeds a prescribed threshold. The current exclusions and thresholds should be checked against the current Retail Leases Regulations and VSBC guidance.

Permitted use, planning and licensing

The lease will define the permitted use of the premises. The tenant must ensure that use is lawful under the local planning scheme and that any required licences (liquor, food, health, environment, gaming) can be obtained. A tenant should not assume the landlord's permitted-use description guarantees planning compliance.

Due diligence before signing

Before signing, tenants should confirm: the property's planning permission and any historical use; whether change-of-use is required; access, parking and loading; building services capacity (power, water, ventilation); heritage or design constraints; and any works needed to fit-out. Landlords should confirm the tenant's identity, financial capacity, and — where a director's guarantee is expected — the guarantor's exposure.

Heads of agreement

Heads of agreement (HOA) are the pre-contract summary of the commercial deal. Depending on wording, they may be binding or expressly non-binding — "subject to lease" or "subject to formal documentation" is common. Because the HOA is where incentives, term and rent are actually negotiated, its wording matters — legal review before signing avoids expensive misunderstandings later.

Lease term and the minimum five-year retail rule

For retail leases, the Retail Leases Act requires a minimum term of five years including any options. Shorter terms are only permitted where the tenant has obtained a certificate from a lawyer or the VSBC certifying that the tenant has agreed to a shorter term. Non-retail leases can be for any term.

Options and option notice dates

Options give the tenant a right to extend the lease for a further term. Options must be exercised in accordance with the lease — typically by written notice within a defined window before expiry. Missing an option date is one of the most common tenant errors and can be fatal to the tenant's occupancy rights.

Rent: fixed, CPI and market reviews

Rent may be reviewed by fixed percentage increases, indexation to the Consumer Price Index, or market review. The lease usually cycles between them. Market reviews involve a valuation and can move rent up or down.

Ratchet clauses

A "ratchet" clause prevents rent from falling at review. The Retail Leases Act generally prohibits ratchet clauses on market reviews in retail leases. In non-retail commercial leases, ratchets are common.

Incentives, rent-free periods and fit-out contributions

Landlord incentives — rent-free periods, fit-out contributions, capped outgoings, staged rent — are commonly offered to secure a tenant. Incentives should be documented in the lease or in a separate incentive deed with clear clawback and repayment provisions if the tenant defaults or assigns early.

Disclosure statement

For a retail lease, the landlord must give the tenant a proposed lease and a disclosure statement at least 14 days before the tenant enters into the lease. If the landlord fails to give a disclosure statement, or the statement is materially false or misleading, the tenant may terminate within a defined period. Late disclosure can push out the lease commencement date and restrict the tenant's obligations for a defined period.

Outgoings estimates and reconciliations

Where the tenant is required to contribute to outgoings, the landlord must give the tenant an annual estimate of outgoings before the start of each year and a statement of actual outgoings after year-end. Tenants can withhold contributions if the required statements are not provided.

Recoverable outgoings

Outgoings a landlord can recover from a retail tenant are limited to specified categories — rates, essential building repairs and maintenance, insurance, cleaning of common areas and similar. Some categories are prohibited (for example, capital costs and depreciation on the building itself). Non-retail commercial leases can pass through a broader range of outgoings if the lease says so.

Land tax restrictions

The Retail Leases Act prohibits a landlord from recovering land tax from a retail tenant. In non-retail commercial leases, land tax is commonly a recoverable outgoing, subject to the lease terms.

GST

Where the landlord is registered for GST, rent, outgoings and other charges will generally be inclusive of GST. Both parties should confirm the GST position and any input-tax credit entitlement.

Security deposits, bank guarantees and personal guarantees

Landlords commonly require a bank guarantee, security deposit or director's personal guarantee. The Retail Leases Act imposes limits on security deposits and requires their return within specified periods after termination. Personal guarantees expose directors to personal liability well beyond the corporate tenant's balance sheet — they should be considered carefully.

Condition reports and fit-out approval

Both parties should agree a written condition report at commencement, including photographs. The lease should specify how fit-out is approved, what plans and permits are required, and who bears cost.

Ownership of fit-out

Fit-out installed by the tenant is often owned by the tenant, but the lease may provide for it to become the landlord's property at the end of the lease. Ownership affects make-good obligations, depreciation and insurance.

Repairs and maintenance

The Retail Leases Act requires the landlord to keep the retail premises in a condition consistent with their condition at commencement, subject to fair wear and tear, and to repair damage caused by structural failure and services failure not attributable to the tenant. Non-retail leases will typically make repairs a matter of contract, sometimes shifting significant obligations to the tenant.

Section 52 disclosure obligations

Under section 52 of the Retail Leases Act, the landlord is responsible for the structure, fixtures, plant and equipment provided with the premises. This obligation cannot be contracted out of and applies regardless of what the lease says.

Essential safety measures

The building surveyor's essential safety measures determination lists items required to be maintained for fire safety, evacuation and similar. Retail Leases Act provisions generally allocate the cost of maintaining essential safety measures to the landlord. In non-retail leases, the allocation can be otherwise.

Insurance and indemnities

The lease will require the tenant to hold public liability insurance and, often, plate-glass and business-interruption insurance. The tenant will typically indemnify the landlord against loss caused by the tenant's conduct. Broad indemnities without a negligence carve-out expose tenants to a wide category of loss.

Damage and destruction

The lease will provide for what happens if the premises are damaged or destroyed — abatement of rent, right to terminate, obligation to reinstate. These clauses matter enormously if fire, flood or structural failure occurs.

Relocation and demolition

Retail leases commonly include relocation and demolition clauses letting the landlord move or terminate the tenant if the landlord redevelops. The Retail Leases Act imposes notice periods and compensation obligations on these clauses that cannot be contracted out of.

Assignment, subletting and change of control

Most leases require landlord consent to assignment or subletting. The Retail Leases Act constrains what the landlord can require — consent must not be unreasonably withheld and specific documents must be provided. Change of control provisions (deemed assignment where directors or shareholders change) require particular care for corporate tenants.

Options and renewals

The Retail Leases Act requires the landlord to give the tenant notice of an approaching option date and, for renewals, to provide a current disclosure statement. Non-compliance can extend the tenant's option period and — where the tenant has been prejudiced — provide grounds for compensation.

Make-good obligations

Make-good is the tenant's obligation at end of lease — typically to remove fit-out and reinstate the premises to a defined condition. Make-good obligations are one of the most frequently disputed end-of-lease issues. The scope of make-good should be defined at lease-signing, ideally by reference to the initial condition report.

Early termination and default

Grounds for termination — rent default, breach of covenant, insolvency — must be triggered strictly in accordance with the lease and, in Victoria, section 146 of the Property Law Act (for many breaches other than non-payment of rent) requires notice giving the tenant a reasonable opportunity to remedy. Termination without proper notice is a common and expensive landlord mistake.

Re-entry

Re-entry (retaking possession) must comply with the lease and the Property Law Act. Peaceable re-entry is possible but risky; in most cases court proceedings are safer for landlords.

Dispute resolution and the VSBC

The Retail Leases Act requires most retail lease disputes to go through mediation at the Victorian Small Business Commission before VCAT or court proceedings can be commenced. Mediation is low-cost and often resolves disputes without the need for adjudication.

VCAT and court proceedings

If mediation fails, retail-lease disputes proceed to VCAT. Non-retail commercial-lease disputes may go to the Magistrates', County or Supreme Court depending on quantum.

Registration of longer leases

Leases with a term (including options) of more than three years may be registered against the title under the Transfer of Land Act 1958 (Vic). Registration protects the tenant's priority against later encumbrances. It is not compulsory, but often prudent for longer terms and business-critical premises.

A lease-review checklist

For tenants:

• Retail or non-retail? Is the Retail Leases Act likely to apply?
• Permitted use lawful under the planning scheme?
• Term and options — dates diarised and clear notice mechanics?
• Rent reviews reasonable? Ratchet clauses permitted?
• Incentive documented and clawback understood?
• Outgoings scope and reconciliation obligations clear?
• Repairs allocation compatible with the age and condition of the premises?
• Make-good scope pinned to initial condition report?
• Personal guarantee capped and time-limited?
• Assignment mechanics workable if the business is sold?

For landlords:

• Disclosure statement complete, accurate and given at least 14 days before entry.
• Rent, outgoings and GST clearly set out.
• Security deposit or bank guarantee appropriate for tenant covenant.
• Personal guarantees taken where required.
• Insurance obligations and evidence procedure.
• Relocation and demolition clauses drafted correctly if relevant.
• Registration considered for longer leases.
• Option notification obligations diarised.

How we can assist

Our commercial-property lawyers regularly draft, review and negotiate commercial and retail leases in Victoria — for landlords, tenants and business-sale buyers taking assignments. Legal review before signing typically prevents years of contested outgoings, rent reviews and make-good disputes.

This article is current as at 16 July 2026 and provides general legal information about commercial and retail leases in Victoria. It is not legal advice on a specific lease. Whether the Retail Leases Act applies, and how a particular clause operates, depends on the facts.