Commercial Lease Agreement - who has the Duty to Maintain and Repair?

Last revision: Last revision:26th July 2019

A commercial lease is an important document which may be used when one party (the tenant) is renting commercial property from another party (the landlord).

If you are planning to enter a commercial lease agreement, then it is important that you take the time to read it and to get your head around the terms contained within it. The lease will set out all of the rights and obligations of both parties.

In particular, the lease should make it clear who is responsible for various maintenance and repairs of the relevant property. This is certainly something that you ought to be clear about, before diving in and signing the lease.

Tenants beware

It is worth keeping in mind that in the vast majority of cases, commercial leases are prepared by the landlord. Most of the time, the tenant will be given a copy of a standard lease, much of which, the landlord might say, is not open for negotiation. As a consequence, many of the terms of the lease may strongly favour the landlord.

Commercial leases and retail leases

It is also worth noting that there are two different types of lease that may be used for commercial properties in Australia – commercial leases and retail leases.

Each state and territory in Australia has specific legislation which says that some types of commercial property can only be rented through a "retail lease" (rather than a general commercial lease).

The law also imposes more restrictions on retail leases than it does for commercial leases. This means that a commercial lease may be more flexible, and a landlord may be able to avoid some of the obligations regarding repairs and maintenance which the landlord would ordinarily face under a retail lease.

Generally, if the property is going to be rented through a retail lease, then the landlord may be obliged to take on more responsibility for repairs and maintenance than would be the case under a commercial lease.

The exact circumstances in which a retail lease will apply (rather than a commercial lease) vary from one state or territory to the other, but it is often a question of the size of the property being leased and/or what it is going to be used for. In general, retail shops and similar businesses are likely to be affected by "retail leases". Other commercial property such as scrap yards or warehouses may not be affected.

Landlords who have property that fits within this retail tenancy legislation must only rent the property out using a retail lease. They are likely to face penalties if they fail to do this.

Therefore, it is important to determine whether or not a property being rented is going to be affected by the retail tenancy legislation in the relevant state or territory. Each state and territory government has an office or department that deals with fair trading or small business matters, (such as the "Small Business Commissioner" or the office of "Consumer Affairs and Fair Trading"). This is usually a good place to go for information about retail leases in the relevant state or territory.

This guide is primarily focused on commercial leases.

Check the lease

The lease will outline the responsibilities of both the landlord and the tenant regarding maintenance and repairs. Therefore, as a first step, you should check your lease.

If you have not yet signed your lease, and there are particular maintenance or repair items that you believe the other party should be responsible for, then make sure to bring these up, and have them included in the lease, before you sign it.

If you are unsure about any of your rights or obligations under the lease, then you may consider obtaining legal advice.

General maintenance and repair obligations

Each lease is different, so you will need to check your own lease to confirm the maintenance and repair terms within it. However, there are some common features which appear in many commercial leases in Australia.

In most cases, the landlord will be required to maintain and repair the bigger ticket items, such as the roof, foundations or other structural matters. In addition, the landlord may be responsible for capital expenditure on equipment which is attached to the property, such as an air conditioning system.

The tenant, on the other hand, may be required to maintain and repair such items as the floors, curtains, fixtures and fittings, interior walls, lawns and gardens (if applicable) and other similar items. This usually includes an obligation to keep the property reasonably clean.

Usually, however, the tenant is not required to repair "fair wear and tear". For example, if the tenant's use of the property has caused ordinary wear and tear to the carpet, then in most cases, the tenant may not be required to actually repair or replace the carpet, although the tenant may be required to clean it.

What if there is a dispute?

Unfortunately, it is all too common for disputes to arise regarding these repair and maintenance obligations. Landlords and tenants may both claim that the other party is responsible for certain repairs, and in many cases, the lease may not provide a clear-cut answer.

These disputes can be extremely problematic, particularly if the property is damaged in a way that is affecting the tenant's business. Understandably, the tenant will want the property to be repaired as soon as possible so that they can get on with their business. Meanwhile, the landlord may want the repairs to be organised as soon as possible to avoid further damage to the property (for example, in the case of a leaking roof, leading to water damage within the property). However, many repairs are very expensive, and neither party may be willing to pay for something which they do not believe is their responsibility.

Therefore, if you find yourself in such a situation, it is a good idea to seek legal advice as soon as possible. A lawyer may be able to help you reach a commercially sensible solution, in a timely manner.

However, an even better approach is to avoid these situations in the first place, by taking the time to make sure that the lease adequately deals with all of the relevant repair and maintenance obligations.

In conclusion

Commercial leases in Australia can take many different forms, as can the properties to which they relate. In most leases, the landlord will be responsible for some types of repairs and maintenance, and the tenant will be responsible for others. However, disputes can arise if the parties are not careful when preparing the lease in the first place, leading to uncertainty about certain repair and maintenance obligations.

By taking the time to prepare a good lease in the first place, and to make sure that the lease actually says what it should about repair and maintenance obligations, the parties can prevent many such disputes from arising.

If you have any doubts about your own rights or obligations under a commercial lease, then you should strongly consider seeking legal advice.

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