Commercial Leases (Part 1): Lease Terms, Options & Expiry

Velocity Legal

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Key Insights

Lease length should be considered carefully at the start. Short and long initial lease terms can have different advantages and disadvantages for both landlords and tenants. A shorter term may offer flexibility, while a longer term may provide greater certainty. The right approach depends on the commercial needs of each party and what they want from the leasing arrangement.
Options can materially affect the lease relationship. Lease options matter because they can give a tenant a pathway to continue occupying the premises after the initial term. They also affect the landlord’s position at the end of the lease. Both parties should understand how the option works and what needs to happen for it to be exercised properly.
The end of the lease should not be an afterthought. If no action is taken before lease expiry, landlords and tenants may find themselves dealing with uncertainty about what happens next. Make-good clauses can also create unexpected costs for tenants at the end of the term. These issues should be understood before the lease is signed, not only when the lease is about to expire.

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What should landlords and tenants consider when entering or exiting a business lease?

A commercial lease is not only about the rent. The length of the lease, whether options are available, and what happens at the end of the term can all have practical consequences for both landlords and tenants.

In Part 1 of this Explain That series on commercial leases, Andrew Henshaw is joined by Joel Garrett to discuss the fundamentals of business leases, including lease terms, options and lease expiry.

The discussion covers:

the pros and cons of short and long initial lease terms;
how lease options work and why they matter;
different priorities for landlords and tenants;
what happens at lease expiry if no action is taken; and
make-good clauses and the hidden costs that can arise at the end of a lease.

A practical discussion for landlords, tenants, business owners and advisers who want to understand the basics of commercial leases before entering or exiting a business lease.

For advice on commercial leases, lease terms, lease options, lease expiry or make-good obligations, contact Velocity Legal’s Property team.

This podcast in no way constitutes legal advice. It is general in nature and is the opinion of the author only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this podcast.

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