What Tenants Ask Most: Top FAQs in Melbourne Commercial Leasing

Signing a commercial lease in Melbourne isn’t quite the same as renting a house – there’s a lot more to consider, and the financial stakes are significantly higher. Whether you’re looking at office space, a retail shop for lease, or an industrial warehouse, understanding exactly what you’re committing to can make the difference between a smart business decision and a costly mistake.

At NRG, we work with tenants every day who come to us with the same concerns: hidden costs, confusing lease clauses, and worries about what happens when things change down the track. The good news? Most of these concerns can be sorted out with the right questions upfront. Below, we’ve tackled the six most common questions Melbourne tenants ask us about commercial leasing – and the answers you need before you sign on the dotted line.​

What is my true monthly occupancy cost once outgoings, utilities, and GST are included, and how will these be reconciled across the year?

 

Here’s the thing most first-time commercial tenants don’t realise: the base rent is just the starting point. Your true occupancy cost includes rent, outgoings, utilities, and GST – and these can add a fair chunk to your monthly bill.​

Outgoings typically cover council rates, land tax, body corporate fees, building insurance, property management fees, and common area maintenance. Your lease will specify which outgoings you’re responsible for, and these are usually charged monthly based on an estimated annual budget. For example, if the landlord estimates annual outgoings at $10,800, you’ll pay $900 per month plus GST.​

Now, about that GST – this catches a lot of tenants off guard. Here’s where it gets a bit tricky: even if the landlord hasn’t paid GST on certain outgoings themselves (think council rates or water bills), they still have to charge you GST when they pass those costs along. Why? Well, the ATO sees outgoings as part of the whole package you’re paying for when you lease the premises. So if your monthly outgoings bill comes to $900, you’ll actually be up for $990 once they whack the GST on top.

Come the end of each financial year, the landlord tallies everything up. The landlord totals up the actual outgoings expenditure and compares it to what you’ve paid. If the actual costs were lower, you’ll get a refund; if they were higher, you’ll receive an additional invoice. That’s why you want to get your hands on a detailed breakdown of past outgoings before you put pen to paper. Having a look at the actual numbers from previous years gives you a much better sense of what you’re really in for. We always tell our clients to ask for at least two years’ worth of outgoings history – it helps you spot whether there are any unusual jumps or patterns you should know about.

Which rent review method applies (fixed, CPI, or market), on what dates, and are there any ratchet clauses that stop your rent from dropping at market review?

 

Rent reviews can have a big impact on what you’re paying over the long haul, so getting your head around how they work in your lease is really important. In Melbourne, you’ll mainly come across three types: fixed increases, CPI reviews, and market reviews – and they all play out pretty differently.

Fixed increases are pretty simple: your rent bumps up by an agreed percentage or dollar figure each year (usually somewhere between 3–5%). This gives you predictability for budgeting, which is why many tenants prefer it. CPI reviews tie your rent to the Consumer Price Index, so it moves with inflation. These reviews usually happen annually on a specified date, and the increase is calculated based on the change in CPI over the previous 12 months.​

Market reviews reset your rent to the current market rate for comparable premises. These typically occur at the end of a lease term or at longer intervals (every 3–5 years). The challenge with market reviews is that they can result in significant rent increases if the market has heated up, or decreases if it’s cooled down.​

This brings us to ratchet clauses – and here’s where Victorian tenants need to pay close attention. A ratchet clause prevents your rent from decreasing below a certain minimum (usually the previous year’s rent), even if a market review would result in a lower figure. In Victoria, ratchet clauses in retail leases are expressly void under section 35(3) of the Retail Leases Act 2003. However, a recent Supreme Court decision confirmed that caps (upper limits) on rent increases are permitted – so a clause saying “CPI review but no greater than 6% increase” is valid.​

The key takeaway? Check your lease carefully for the review method, the exact review dates, and whether there’s a ratchet clause. If you’re entering a retail lease, any ratchet provision can be challenged. For non-retail commercial leases, you’ll need to negotiate this point upfront if market conditions might shift in your favour.​

What incentives are available (rent-free or contribution), how are they structured, and what will my net effective rent be over the term?

Lease incentives have become a standard part of Melbourne’s commercial property landscape, and understanding them can save you thousands over your lease term. Landlords offer incentives to attract tenants while maintaining their face rent (the advertised rental rate) to preserve property values.​

The two most common incentives are rent-free periods and cash contributions (often called fitout contributions). A rent-free period might give you one to six months without rent payments, usually at the start of the lease to help cover your setup and fitout costs. Cash contributions are direct payments from the landlord, typically used for renovations, shopfitting, or relocating your business.​

The incentive is usually calculated as a percentage of the total lease value. For example, on a five-year lease at $50,000 per year ($250,000 total), a 20% incentive would be worth $50,000. This might be structured as three months rent-free plus a $37,500 cash contribution.​

What really matters is your net effective rent – the actual rental cost after factoring in incentives. This figure is always lower than the face rent. If your face rent is $50,000 per year but you’ve negotiated $50,000 worth of incentives over five years, your net effective rent is $40,000 per year. This is the true cost you should use for your business planning.​

Right now, with higher vacancy rates in parts of Melbourne, tenants have more negotiating power for incentives. Don’t be shy about asking – incentive levels are often more negotiable than base rent. Just make sure everything is documented in your lease agreement, including exactly when rent-free periods apply and how cash contributions will be paid (usually linked to milestones or upon lease commencement).​

What are my make-good obligations at lease end, and can we agree on a condition report and capped make-good to avoid disputes later?

Make-good obligations are one of the biggest sources of disputes in commercial leasing – and they can cost tens of thousands if you’re not clear on what’s expected. Essentially, a make-good clause sets out what you must do to restore or repair the premises before handing back the keys.​

Make-good obligations typically fall into three categories: redecoration (repainting, re-carpeting, cleaning), reinstatement (removing your fitout, partitions, and signage), and repairs (fixing damage beyond fair wear and tear). Some leases require you to return the premises to “original condition” or even an “empty shell,” which can be extremely expensive if you’ve done significant fitout work.​

Here’s the crucial bit: although there’s no statutory requirement in Victoria for commercial premises condition reports, doing one before you move in is absolutely essential. Get a detailed report with dated photographs of every room, fixture, and surface. This becomes your benchmark for what “original condition” actually means and protects you from claims about pre-existing damage.​

You can also negotiate a capped make-good in your lease. This sets a maximum dollar amount you’ll be required to spend on make-good works – for example, $15,000. If the actual cost exceeds that amount, it becomes the landlord’s responsibility. This gives you peace of mind and caps what you’re up for when the lease wraps up.

Some leases also let you do a “make-good payment instead” – basically, you hand over an agreed amount of cash rather than actually doing the work yourself. This can be way easier and cheaper in the long run, but you’ve gotta specifically haggle it out and get it written into your lease.

For retail leases covered by the Retail Leases Act 2003, landlords have to spell out the make-good obligations in their disclosure statement before you sign on the dotted line. If they don’t mention something upfront, they mightn’t be able to hold you to it later on. Get everything down in black and white, including who’s meant to do what, and don’t go trusting verbal promises – they’re not worth a cracker.

Can I assign or sublease if my business is sold or restructured, and what conditions or landlord approvals will apply?

Business circumstances change, and you need flexibility in your lease to deal with those changes. Assignment and subleasing are your two main options, but they work quite differently.​

An assignment transfers your entire interest in the lease to a new tenant (the assignee). Once the assignment is formalised through a Deed of Assignment, you’re typically released from all obligations under the lease – the new tenant steps into your shoes completely. This is the cleanest exit strategy if you’re selling your business or relocating permanently.​

Subleasing, on the other hand, lets you lease part or all of the premises to a subtenant while you remain the head tenant. You stay on the hook for all obligations to the landlord, but you can earn rental income from the subtenant. This works well if you’re downsizing, need to offset rent costs, or want to vacate temporarily.​

In almost all cases, you’ll need the landlord’s written consent before you can assign or sublease. Your lease will usually lay out how this works, but typically, the landlord will want to check out whoever you’re proposing as the new tenant. They’ll ask for financial statements, business history, ID documents, and references to make sure the new person can actually meet the lease obligations.

In Victoria, landlords can’t unreasonably say no to an assignment or sublease – but what counts as “reasonable” really depends on the situation. The landlord’s fair enough to refuse if the person you’re proposing has dodgy finances, a track record of breaking lease terms, or wants to use the space in a way that doesn’t match up with what the lease allows.

Check that your lease has clear assignment and sublease provisions written in. Look for sections that spell out the approval process, how long the landlord has to respond, and what happens if they don’t get back to you. For retail leases, the Retail Leases Act 2003 gives you extra protections and sets out specific requirements around assignment.

Does my lease fall under the Retail Leases Act 2003 (Vic)? What disclosures do I need to get, and what protections or timelines does that give me?

Whether the Retail Leases Act 2003 (Vic) covers your lease matters a lot to your rights as a tenant, so you need to know where you sit. The Act applies to premises used mainly or completely for selling or hiring out goods or services to the public, where the lease runs for 12 months or longer.

Common examples are cafes, restaurants, gyms, hairdressers, clothing shops, and professional services offices that deal face-to-face with customers. The Act doesn’t cover purely office or industrial spaces, or leases that are shorter than 12 months or have really high annual rents (currently over $1 million a year).

If the Act covers your lease, you get some pretty solid protections. The landlord has to give you three important documents before offering you the lease: a draft copy of the proposed lease, a disclosure statement from the landlord, and an official info brochure that explains your rights and obligations. The disclosure statement has to include details about outgoings, how rent reviews work, your make-good obligations, and any known problems with the premises.

The Act also stops landlords from slugging you with certain costs as a retail tenant – specifically land tax and capital expenses like major building upgrades. This can save you a bucketload over the life of the lease.

More importantly, the Act kicks ratchet clauses to the curb – those dodgy bits that stop your rent from dropping even when the market goes down at review time. It also lays out strict rules for handing over the lease, rent reviews, and sorting out any blues that crop up. If a dispute arises, you have access to low-cost mediation through the Victorian Small Business Commission before any court proceedings.​

Timing matters too. The landlord has to give you at least 14 days to look over the disclosure statement and draft lease before you need to sign anything. If they don’t tick all the disclosure boxes properly, they can cop penalties, and you might have grounds to challenge bits of the lease down the track.

If you’re scratching your head about whether the Act actually applies to your place, it’s probably worth having a yarn with a lawyer before you put pen to paper. Recent court rulings have actually stretched what counts as retail premises, so more properties might be covered by the Act’s protections these days.

Getting It Right From the Get-Go

Commercial leasing in Melbourne doesn’t have to be a headache or a gamble – but you’ve gotta ask the right questions and get straight answers before you jump in boots and all. Working out what your occupancy’s really gonna cost you, how the rent reviews tick along, what sweeteners are up for grabs, what you’re on the hook for when you move out, whether you can hand over the lease to someone else, and what legal protections you’ve got – sorting all that out means you’re calling the shots when it comes to your leasing decision.

At NRG, we’re all about helping Melbourne tenants get their heads around this stuff without the drama. Whether you’re leasing your first office or branching out into new retail digs, taking the time to nut out these six key bits and pieces will save you a world of stress, hard-earned cash, and blue fights down the track. And here’s the thing: everything needs to be in black and white. Handshake deals and verbal promises don’t mean squat when things go pear-shaped, so make sure your lease spells out exactly what you’ve agreed to.