A physio I know in Joondalup signed a five-year commercial lease on a beautiful street-level clinic space about three years ago. Loved the location, loved the foot traffic, loved the fitout she had done. Then, eighteen months in, she got a letter from the landlord’s property manager advising that her outgoings contribution was being adjusted. What she thought was a fixed annual amount turned out to be a proportional share of the building’s total operating costs, and those costs had increased substantially because the landlord had decided to repaint the exterior, upgrade the air conditioning plant, and resurface the car park. Her outgoings bill went from around $8,000 per year to just over $19,000. In one hit.

She called me in a bit of a state and asked if the landlord could actually do that. I told her to dig out her lease and read the outgoings clause. She did. It was three paragraphs of dense language that she admitted she had not properly read before signing. When she took it to a professional for review, the verdict was clear: the clause was drafted broadly in the landlord’s favour, it was enforceable, and she had very limited room to challenge it. The additional $11,000 per year she was now paying for the remaining three and a half years of her lease was going to cost her close to $40,000 that she had never budgeted for.

That story captures something that happens to Perth business owners far more often than it should. Commercial leases are complex legal documents drafted by people who understand commercial law and whose job is to protect the landlord’s interests. Tenants who sign these documents without having them properly reviewed by someone acting on their behalf are not saving money. They are gambling with their financial future. And as the Perth property market continues to tighten in certain sectors, the stakes are only getting higher.

Understanding Why Commercial Law Makes Lease Agreements So Tricky

Here is the thing that surprises most first-time commercial tenants. A commercial lease in Australia is fundamentally different from a residential lease. Residential tenants are protected by a thick layer of consumer legislation that limits what a landlord can charge, how often rent can increase, and what conditions can be imposed. Commercial tenants get almost none of those protections. The lease is a private commercial contract between two parties, and the principle of freedom of contract means that the parties can agree to almost anything, even terms that are heavily one-sided.

In Western Australia, the Commercial Tenancy (Retail Shops) Agreements Act 1985 provides some protections for retail tenants, but its scope is limited and many commercial tenants fall outside its coverage entirely. Office tenants, industrial tenants, and tenants in premises above certain size thresholds often operate entirely outside the retail tenancy framework, which means the lease document itself is their only protection.

For a broader understanding of how commercial tenancy law operates in Australia, the Commercial property in Australia overview on Wikipedia provides useful context on the principles and structures that underpin commercial property transactions. Understanding this broader framework helps you appreciate why the specific terms of your lease matter so much.

This is where proper legal advice becomes not just helpful but essential. A lease is a binding contract that commits you to a financial obligation potentially spanning five, ten, or even fifteen years including option periods. The total financial commitment over that term, when you add up rent, outgoings, make-good obligations, and incidental costs, can easily run into hundreds of thousands of dollars. Signing without professional review is, bluntly, reckless.

The Five Lease Pitfalls That Catch Perth Businesses Most Often

After talking to dozens of business owners, property professionals, and legal advisers across Perth, the same five issues come up again and again. They are not obscure technicalities buried in the fine print. They are fundamental terms that directly affect how much you pay, how long you are locked in, and how much flexibility you have to run your business. Here they are.

Pitfall 1: Make-Good Clauses That Cost a Fortune at Lease End

A make-good clause requires the tenant to return the premises to its original condition, or a specified condition, at the end of the lease. This sounds reasonable in principle. But in practice, the scope and cost of make-good obligations can be staggering, and most tenants do not understand what they have agreed to until it is time to move out.

I have seen Perth businesses hit with make-good bills exceeding $50,000 for relatively modest premises. Stripping out a fitout that the tenant paid for and installed. Removing partitioning walls, floor coverings, and signage. Repainting. Repairing. Replacing. Reinstating the premises to a shell condition that the landlord can then offer to the next tenant. The irony is that the incoming tenant often strips everything out again and starts from scratch, but that is the landlord’s prerogative under a standard make-good clause.

The time to address make-good obligations is before you sign the lease, not when you are about to vacate. Negotiate the scope. Push for a reasonable standard such as fair wear and tear rather than original condition. Try to cap the financial exposure. And if possible, negotiate a clause that allows you to leave your fitout in place if the landlord or incoming tenant wants it, avoiding the absurdity of ripping out perfectly good improvements.

Pitfall 2: Rent Review Mechanisms That Only Go Up

Every commercial lease includes provisions for rent to be reviewed during the term, and the mechanism used for those reviews has a massive impact on your total occupancy cost. The three most common mechanisms in the Perth market are fixed percentage increases, CPI-linked increases, and market reviews.

Fixed percentage increases are the most straightforward. Your rent goes up by, say, 3.5 per cent or 4 per cent every year regardless of what the market is doing. In a rising market, this feels fine. In a flat or declining market, it means you are paying above-market rent and have no mechanism to bring it back into line. Over a five-year term with 4 per cent annual increases, your rent in the final year is over 21 per cent higher than your starting rent. If the market has only moved 10 per cent in that time, you are significantly overpaying.

Market reviews can go either way in theory, but many leases include a ratchet clause that prevents the rent from being reduced below the current level even if the market valuation comes in lower. This means the review can only increase your rent, never decrease it. It looks like a fair market mechanism but functions as a one-way ratchet. Always push for a genuine market review that can move in both directions, or at minimum, negotiate CPI-linked increases that track real inflation rather than arbitrary fixed percentages.

Pitfall 3: Outgoings That Blow Your Budget

Outgoings are the operating costs of the building that the landlord passes through to tenants. These can include council rates, water rates, insurance, management fees, cleaning, security, lift maintenance, air conditioning servicing, and a long list of other items depending on how the outgoings clause is drafted.

The problem is not that outgoings exist. They are a normal part of commercial tenancy. The problem is that many leases define outgoings so broadly that the landlord can pass through costs the tenant never anticipated. Capital expenditure items like roof replacements or facade upgrades. Land tax, which can fluctuate significantly. Marketing levies for shopping centre promotions that may not benefit your particular business. Management fees calculated as a percentage of gross outgoings, which means the property manager earns more when outgoings increase.

Protecting yourself requires demanding a detailed, itemised outgoings schedule before signing. Know exactly what is included and what is excluded. Negotiate caps on annual outgoings increases. Exclude capital expenditure items or require them to be amortised over their useful life rather than charged in a lump sum. And pay close attention to the outgoings reconciliation process to ensure you are not being overcharged.

Pitfall 4: Option Terms That Do Not Actually Protect You

An option to renew gives the tenant the right, but not the obligation, to extend the lease for an additional term at the end of the initial period. For most businesses, options are critical because they provide security of tenure and protect your investment in the location, your fitout, and your customer base.

The pitfall is that options are only valuable if they are properly documented and correctly exercised. I have seen Perth businesses lose their option rights because they missed the exercise window by a few days. Many leases require the tenant to give written notice of their intention to exercise the option within a specific timeframe, sometimes as narrow as three to six months before the current term expires. Miss that window and the option evaporates, regardless of how much money you have invested in the premises.

There are also situations where the option terms are vague about the rent that will apply during the renewed term, leaving it to be determined by market review at the time of renewal. This can result in a nasty surprise if the market has moved significantly since you signed the original lease. Wherever possible, negotiate option terms that specify the rent review mechanism for the renewal period, and set a reminder well ahead of the exercise deadline so you never miss it.

Pitfall 5: Personal Guarantees That Put Your Family Home at Risk

This is the one that keeps people up at night, and with good reason. Most commercial landlords in Perth require the directors of the tenant company to provide a personal guarantee of the lease obligations. This means that if the business fails, or if the company cannot meet its obligations under the lease, the landlord can pursue the guarantor personally for the outstanding rent, outgoings, make-good costs, and any other amounts owing under the lease.

The exposure can be enormous. If you have three years remaining on a lease with rent of $80,000 per year plus outgoings and make-good, the total liability under a personal guarantee could easily exceed $300,000. That is not a theoretical risk. That is a potential claim against your personal assets, including your family home, your savings, and anything else the guarantor owns.

Negotiating the terms of a personal guarantee is one of the most important things you can do when entering a commercial lease. Push for a cap on the guarantee amount. Negotiate a sunset clause that releases the guarantee after a certain period of satisfactory tenancy. Explore whether a bank guarantee or security deposit can be offered as an alternative. And always, always understand the full extent of your personal exposure before you sign.

Quick Reference: Common Lease Pitfalls and Protections

The table below summarises the most common lease pitfalls Perth business owners encounter, what typically goes wrong, and how to protect yourself:

Pitfall	What Typically Goes Wrong	How to Protect Yourself
Make-Good Clauses	Tenant signs without understanding the obligation to restore premises at lease end	Negotiate the scope upfront and cap the financial exposure before signing
Rent Review Traps	Fixed percentage increases or market reviews that only ratchet upward	Insist on CPI-linked reviews or genuine market reviews that can move both ways
Outgoings Blowouts	Vague outgoings definitions that let landlords pass through unexpected costs	Demand a detailed outgoings schedule and cap annual increases by percentage
Option Terms	Missing or poorly worded renewal options that leave tenants with no security	Ensure options are clearly documented with specific exercise conditions
Permitted Use	Narrow permitted use clauses that prevent business pivoting or diversification	Draft permitted use broadly enough to cover current and foreseeable activities
Personal Guarantees	Directors personally guaranteeing lease obligations without understanding the exposure	Negotiate guarantee limits, sunset clauses, or bank guarantee alternatives
Assignment Rights	Restrictions that make it nearly impossible to transfer the lease if selling the business	Ensure reasonable assignment rights with clear criteria for landlord consent
Demolition Clauses	Landlord retains the right to terminate early for redevelopment purposes	Negotiate adequate notice periods and compensation if demolition clause is triggered

What Perth Business Owners Should Do Before Signing Any Lease

The single most effective thing you can do to protect yourself in a commercial lease negotiation is to engage a qualified professional to review the lease before you sign it. Not after. Not during. Before. The cost of a professional lease review is typically between $1,500 and $3,000 depending on the complexity of the lease and the extent of the negotiation required. Compare that to the tens or hundreds of thousands of dollars that a bad lease can cost you over its term, and the decision is not even close.

Beyond professional review, there are practical steps every prospective tenant should take:

• Read the entire lease document yourself before the professional review, noting every clause you do not fully understand
• Request a disclosure statement from the landlord covering outgoings, planned capital works, and any known issues with the premises
• Get a building condition report before signing to establish a baseline for make-good purposes
• Research comparable rents in the area so you have a benchmark for negotiating both the initial rent and the review mechanism
• Understand the total occupancy cost including rent, outgoings, fitout amortisation, insurance, and make-good provisions
• Set calendar reminders for every critical date in the lease including option exercise deadlines, rent review dates, and lease expiry

How the Perth Commercial Property Market Creates Additional Risk

Perth’s commercial property market has its own dynamics that amplify the risks inherent in any commercial lease. The city’s economy is heavily influenced by the mining and resources sector, which means commercial property demand and values can swing significantly with commodity cycles. A lease that seemed reasonable when iron ore was at $130 per tonne might feel very different if prices drop and your revenue contracts while your rent obligations remain fixed.

The relatively small size of Perth’s commercial market compared to Sydney or Melbourne also means less liquidity. If you need to assign or sublease your premises, the pool of potential assignees or subtenants may be smaller, particularly in suburban or industrial locations. This makes assignment rights and sublease provisions in your lease more important than they might be in a larger, more liquid market.

Perth also has a significant stock of older commercial buildings, particularly in the CBD and inner suburbs, where building condition and landlord maintenance standards vary widely. Taking on a lease in an older building without a thorough building inspection and a clear understanding of who is responsible for structural maintenance and capital repairs is a recipe for unpleasant surprises.

The Western Australian government’s approach to land tax also creates a unique dynamic. Land tax is calculated on the unimproved value of the land, and in areas where land values have increased significantly, the land tax component of outgoings can be substantial and volatile. Understanding how land tax is treated in your lease and whether there are any caps or limitations on the amount that can be passed through to tenants is essential.

Negotiating From Strength: What Most Tenants Do Not Realise

Here is something that a lot of Perth business owners do not appreciate. A commercial lease is a negotiation, not a take-it-or-leave-it proposition. The document the landlord presents to you as the lease is their opening position. It is drafted by their legal team to protect their interests. Every clause has been carefully worded to favour the landlord. That is not sinister. It is just how the process works. But it means that accepting the lease as presented without negotiation is accepting terms that are deliberately tilted against you.

The amount of leverage you have in a negotiation depends on market conditions, the desirability of the premises, the strength of your covenant as a tenant, and the landlord’s circumstances. In a tight market with low vacancy, your leverage is reduced. In a softer market, or where the premises have been vacant for a while, you may have significantly more room to negotiate.

Even in a competitive market, there are almost always terms that can be improved. Make-good scope, outgoings caps, rent review mechanisms, option exercise windows, personal guarantee limits, and assignment rights are all commonly negotiated, and the savings over the life of the lease can be substantial. The key is knowing what to push for and having someone in your corner who understands both the legal framework and the commercial realities of the Perth market.

DFG Legal works with commercial tenants across Perth on lease reviews and negotiations. Having a professional who understands the specific dynamics of the WA commercial property market and can identify the clauses that carry the most risk for your particular situation is an investment that pays for itself many times over during the term of the lease.

If you are based in Perth and about to enter a commercial lease, or if you are already in one and concerned about terms you may not fully understand, visiting https://dfglegal.com.au/ is a practical first step. Having a qualified professional review your lease before you commit, or advise you on your rights under an existing one, can save you from the kind of expensive surprises that catch so many Perth tenants off guard.

The Hidden Costs That Add Up Over a Lease Term

Most tenants focus on the headline rent when evaluating a lease, and that is a mistake. The total occupancy cost of a commercial premises includes rent, outgoings, insurance, fitout costs amortised over the lease term, and the make-good liability at the end. When you add all of these up, the true cost of occupying the space can be 30 to 50 per cent higher than the rent alone.

Fitout costs are particularly significant for businesses that need specialised premises. A medical practice, a restaurant, a gym, or a technology company may invest $200,000 or more in a fitout that is specific to their business. If the lease does not provide adequate security of tenure through properly drafted option terms, that investment is at risk every time the lease approaches expiry. And if the make-good clause requires you to strip out the fitout at lease end, you are effectively writing off the entire investment.

Insurance is another cost that tenants sometimes overlook during lease negotiations. Most commercial leases require the tenant to maintain certain types of insurance, including public liability, plate glass, and sometimes building insurance for the tenant’s fitout. The cost of this insurance should be factored into your total occupancy budget from the outset.

Moving costs at lease end are also worth considering. If you are forced to relocate because your option was not properly documented, or because the landlord exercised a demolition clause, the cost of moving a business, setting up a new fitout, updating your marketing materials, and notifying your customers can run into tens of thousands of dollars. These are all risks that can be managed or eliminated through proper lease negotiation upfront.

When to Walk Away From a Lease

Not every lease is worth signing. Sometimes the smartest thing you can do is walk away from a premises that does not work for you commercially or legally, no matter how attractive the location seems. Knowing when to walk is just as important as knowing how to negotiate.

Walk away if the landlord refuses to negotiate on terms that expose you to significant financial risk. Walk away if the outgoings are opaque and the landlord will not provide a detailed breakdown. Walk away if the personal guarantee requirements are excessive and non-negotiable. Walk away if the building condition is poor and the landlord is unwilling to commit to necessary repairs. And walk away if the rent review mechanism is structured so that your rent can only increase, never decrease, regardless of market conditions.

There are always other premises. Perth has a diverse commercial property market across the CBD, inner suburbs, and outer suburbs, with options ranging from premium office towers to suburban retail strips to industrial estates. The right premises at the wrong terms is still the wrong deal. Be patient, be disciplined, and never sign under pressure.

Protecting Your Business for the Long Term

A commercial lease is one of the largest and longest financial commitments most businesses will make. The terms you agree to on the day you sign will affect your cash flow, your flexibility, and your risk profile for years to come. Getting those terms right is not about being adversarial with the landlord. It is about making sure the arrangement works for both parties and that you are not exposed to risks you did not understand or anticipate.

The Perth commercial property market is competitive, dynamic, and full of opportunities for businesses that approach it with the right knowledge and the right support. The businesses that thrive in this market are the ones that take the time to understand what they are signing, engage qualified professionals to protect their interests, and negotiate terms that give them the security and flexibility they need to grow.

Every lease clause that catches a tenant off guard is a clause that could have been identified, explained, and either negotiated or factored into the business plan before the ink was dry. The cost of that professional guidance is measured in hundreds or low thousands of dollars. The cost of the problems it prevents is measured in tens or hundreds of thousands. The maths is not complicated. Get the advice. Read the lease. Negotiate the terms. And sign with your eyes wide open.