CRE lease review.
Rent review, make-good, demolition.
Ratchet rent reviews. Demolition clauses with 6 months notice. Make-good obligations costing more than a fit-out. Kontractually reviews commercial real estate leases against your standard playbook before signing.
No credit card required. First 3 reviews free.
What changes when you review every lease clause.
You sign a 5-year retail lease with a ratchet rent review clause buried on page 14. Market rents drop 15% in year three. Your rent stays at the peak. Over two years, you overpay by $48,000 with no ability to negotiate down.
Kontractually flags the ratchet clause before signing. You negotiate a market-based review mechanism with CPI floor instead. When rents drop, your review reflects actual market conditions.
A tenant vacates at lease end. The make-good clause requires full strip-back to base building condition. The landlord presents a $180,000 quote. You had no cap negotiated at lease commencement and no leverage to dispute the scope.
Kontractually catches make-good clauses without caps or buyout options during lease review. You negotiate a $40,000 make-good cap at signing when you still have bargaining power.
You acquire a leased investment property. Three months after settlement, you discover a tenant has an undisclosed rent abatement side letter reducing effective yield by 2.3%. The vendor warranty clause didn't cover side arrangements.
Kontractually flags gaps in vendor warranty coverage during purchase agreement review - specifically, whether all tenancy variations, side letters, and incentive arrangements are warranted as disclosed.
6 provisions to review in every commercial lease.
A ratchet clause in a commercial lease means that rent can only increase (or stay the same) at each review - it cannot decrease even if market rents have fallen. Ratchets are common in retail leases and some office leases. They mean that if market rents fall, you remain locked in to the higher historical rent until the next review date. This can significantly affect the real cost of a commercial tenancy over a long term.
Standard negotiation approaches: a fixed dollar cap on make-good obligations (e.g., maximum $30,000 regardless of actual scope), a landlord buyout option at a pre-agreed amount, or exclusion of specific items from make-good (e.g., carpet replacement excluded if replaced within last 5 years). Make-good is most effectively negotiated at lease commencement - it is almost impossible to renegotiate at lease end when the landlord holds all the leverage.
Outgoings are the operating costs of the property that the landlord passes through to tenants under a net lease. They typically include council rates, water rates, land tax, building insurance, common area maintenance, and management fees. Tenants pay a proportionate share based on their lettable area. Each year, the landlord issues an outgoings reconciliation comparing estimated charges paid during the year against actual costs. Tenants should review reconciliation statements carefully - management fees and capital expenditure items are common areas of dispute. Some leases cap management fees at a percentage of gross rent (typically 3-5%), which limits landlord overcharging.
A demolition clause gives the landlord the right to terminate the lease early to demolish or redevelop the building. Key items to check: the minimum notice period (6 months is common but 12 months is preferable for business continuity), whether compensation is payable for unamortised fit-out costs and relocation expenses, whether the tenant has a right to a replacement tenancy in the redeveloped building, and whether the clause can be triggered during an option period the tenant has already exercised. In shopping centre leases, demolition clauses are particularly aggressive and may allow termination with minimal compensation. Kontractually flags demolition clauses and checks the notice period, compensation terms, and scope against your playbook standards.
Assignment transfers the tenant's lease obligations to a new party - typically when selling the business that operates from the premises. Most commercial leases require the landlord's consent to assign, and legislation in most Australian states says that consent cannot be unreasonably withheld. However, landlords can impose conditions: requiring the assignee to demonstrate financial capacity, requiring directors' personal guarantees, requiring the outgoing tenant to remain liable for the remainder of the term (a guarantee tail), or requiring payment of the landlord's legal costs for processing the assignment. Unreasonable assignment restrictions reduce the sale value of the business because buyers face uncertainty about whether they can secure the lease. Kontractually flags assignment clauses that impose conditions beyond standard market terms.