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Business Contract Review Report
Commercial Lease — Sydney CBD Office, 5-Year Term
Executive Summary
This is a 5-year commercial office lease over approximately 412 m² in the Sydney CBD, with two 3-year options. The document is commercially typical in many respects but contains nine clauses worth careful review before signing — particularly the make-good obligation (full strip-out and reinstatement at the tenant's cost), an unusually large 6-month bank guarantee, a director's personal guarantee that is both continuing and uncapped, a demolition clause that gives the landlord 6 months' notice at any time without compensation, and an outgoings definition that sweeps in capital works. A tenant signing this lease on the standard form would be accepting meaningful downside exposure at end of term and in the event of redevelopment.
4Good Points
6Fair / Standard
9Watch Points
Good Points For You
Terms that appear favourable or helpful to the tenant.
Two Options to Renew (3 + 3 years)The lease grants two separate 3-year renewal options exercised by written notice 9 months before expiry. This gives the tenant up to 11 years of tenure control, useful for business planning and goodwill protection.
Fit-Out Incentive — 4 Months Rent-FreeThe landlord is providing 4 months rent-free at commencement as a fit-out contribution. Although it is clawed back on early surrender (see watch points), for a tenant intending to stay the full term it is a real economic benefit.
Rent Reviews Capped in Years 4 and 5Annual CPI reviews apply in years 2 and 3, and fixed 3.5% reviews apply in years 4 and 5. The absence of a market review during the initial term protects the tenant from a sharp uplift if CBD rents move.
Air-Conditioning Included in Base RentHVAC operating hours (7am–7pm weekdays) are included in the base rent, not passed through as a separate outgoing. After-hours HVAC is charged at a disclosed hourly rate — a cleaner position than many CBD leases.
Fair & Standard Points
Neutral or commercially standard terms, explained in plain English.
Rent Paid Monthly in AdvanceBase rent and outgoings are paid on the first of each month, in advance. Standard practice for Australian commercial office leases.
Permitted Use — Commercial OfficesUse is restricted to commercial offices, matching the granted use. A change of use requires landlord consent, not to be unreasonably withheld.
Assignment / Sublet with Landlord ConsentAssignment and sublet require written landlord consent, not to be unreasonably withheld, subject to standard conditions (financial capacity, similar use, payment of the landlord's legal costs).
Tenant Insurance RequirementsPublic liability $20m, plate glass, workers comp, and fit-out cover are required — in line with current Sydney CBD office standards.
Quiet Enjoyment CovenantA standard covenant for quiet enjoyment, subject to the landlord's rights of entry on notice for repairs and inspections.
Dispute Resolution via NSW Supreme CourtDisputes are resolved under NSW law with jurisdiction in the NSW Supreme Court. Standard for an office lease outside the Retail Leases Act.
Things To Watch Out For
Clauses that may be one-sided, costly, or worth careful review before signing.
Full Strip-Out Make-Good at End of TermClause 14.3 requires the tenant, at its own cost, to remove the entire fit-out (cabling, partitioning, floor coverings and ceiling works) and reinstate the premises to bare "base building" condition at end of term. On a 412 m² office this typically costs $80,000–$180,000. No cap, no offset against the incentive, no option to hand back in working condition.
Bank Guarantee — 6 Months Gross RentSchedule 2 requires a bank guarantee equal to 6 months gross rent. Market in Sydney CBD is typically 3 months, occasionally 4. This ties up meaningful working capital for the full 5-year term and is worth negotiating down.
Director's Guarantee — Unlimited and ContinuingClause 26 requires the director to sign a personal guarantee that is unlimited in amount, continuing, and survives any assignment of the lease. The guarantor is not released even if a financially stronger tenant takes over. A significant personal exposure.
Demolition Clause — 6 Months Notice, No PayoutClause 18.4 allows the landlord to terminate on 6 months' written notice at any time to redevelop. The tenant receives no compensation, no fit-out payout, and no waiver of the make-good obligation. For a business relying on this location, a material risk.
Outgoings Definition Includes Capital WorksThe definition of "outgoings" in Schedule 1 expressly includes capital works, lift upgrades, and essential services upgrades — typically excluded from recoverable outgoings in office leases. Could add several dollars per square metre annually.
Incentive Clawback on Early TerminationIf the tenant exits early for any reason — including termination for landlord breach — the 4 months rent-free is clawed back on a straight-line basis. The clause does not carve out termination for landlord default, which is unusual.
Option to Renew Conditional on "No Breach"The renewal option can only be exercised if there has been "no breach" during the initial term — any technical breach (even one later cured) could invalidate it at the landlord's discretion. Market practice limits this to "no subsisting material breach" at the exercise date.
Default Interest at 10% Above Cash RateLate payment attracts default interest at 10% over the RBA cash rate. Market is typically 3%–5% above cash rate. On a $420,000 annual rent, an unpaid month accrues materially more interest than a comparable office lease.
Landlord Right of Entry — 24 Hours NoticeThe landlord may enter on 24 hours' notice for inspections, repairs, or to show the premises in the last 12 months of the term. 24 hours is on the short end and worth raising to 48–72 hours for tenant planning.
Key Obligations
What the tenant is expected to do under this lease.
Pay base rent monthly in advanceYear 1: $420,000 + GST per annum, paid monthly in advance on the 1st of each month.
Pay recoverable outgoings monthlyEstimated $98,000 + GST for year 1 (land tax, council, water, insurance, management, lift maintenance, common-area cleaning). Reconciled annually.
Maintain public liability insurance of $20m and fit-out coverCertificates of currency must be provided annually, and within 10 business days on request.
Keep premises in good repair (excluding fair wear and tear)Includes non-structural repairs, lamps, filters, and tenant-installed equipment. Structural repairs remain the landlord's responsibility.
Strip out and reinstate at end of termFull make-good obligation at tenant's cost, per clause 14.3 (see Watch Points).
Fees, Penalties & Trigger Points
Bank Guarantee — 6 months gross rent (~$260,000)Provided at commencement and held for the full term. Not returned until after make-good is completed and verified.
Director's Personal Guarantee — UnlimitedPersonal exposure to the full rent, outgoings, make-good and default costs for the life of the lease, continuing past assignment.
Make-Good Cost Exposure — $80,000 to $180,000Full strip-out cost at end of term, payable by tenant in addition to final month's rent. No cap.
Landlord Legal Costs — Tenant Pays on AssignmentLandlord's reasonable legal costs for consenting to any assignment, sublet or variation are payable by the tenant. No cap disclosed.
Default Interest — Cash Rate + 10%Applied daily to any overdue amount. Materially above market. On $35,000 of unpaid rent for 30 days this is approximately $380 in interest alone.
Incentive Clawback on Early ExitUp to 4 months rent (~$140,000) recoverable by the landlord, pro-rated for time already elapsed.
Questions You Could Raise Before Signing
- Can the make-good obligation be capped at a dollar figure, or limited to returning the premises in clean "business ready" condition rather than full base-building strip-out?
- Will the landlord accept a 3-month bank guarantee in line with Sydney CBD market, or reduce to 4 months after 24 months of on-time payments?
- Can the director's personal guarantee be capped (e.g. 6 months rent + outgoings) and released on any future assignment to a tenant of equal or greater covenant strength?
- If the demolition clause is exercised, will the landlord pay a pro-rata fit-out buy-out and waive the incentive clawback and make-good?
- Can the definition of "outgoings" be amended to exclude capital works, lift upgrades and essential services upgrades in line with standard office lease practice?
- Can the incentive clawback clause be limited to tenant-caused early termination only (not termination for landlord default)?
- Will the landlord amend the option-to-renew precondition from "no breach" to "no subsisting material breach" at the date of exercise?
- Can default interest be reduced to cash rate + 4%, more aligned with Sydney CBD office lease market?
Suggested Next Steps
Before signing, put the 8 questions above in writing to the leasing agent and request written responses that can be incorporated into the lease as special conditions.
Get an independent fit-out cost estimate for full make-good on 412 m² and budget for it on a straight-line basis over the 5-year term — this is real cash out the door at end of lease.
Consult the director before signing the personal guarantee, and consider independent legal advice specifically on the personal exposure (some lenders now require an ILA certificate for guarantees of this scale).
Ask the landlord to mark up the lease (Word track-changes) rather than refusing amendments on the "standard form" — negotiation of 3–4 of these watch points is typical for a Sydney CBD office transaction.
Keep a signed, dated copy of the executed lease, the fit-out schedule, and all side letters in one folder. Diarise the option exercise date (9 months before year-5 expiry) now.
Important notice. This Business Contract Review Report is a plain-English review based on the document uploaded and the context provided. It is informational only and is not legal advice. Claim Done is not a law firm and does not certify any document as enforceable, lawful, or safe. For complex, high-value, or time-sensitive matters, consult a qualified Australian lawyer before signing or taking action. This sample has been redacted for illustration; figures shown are typical for a Sydney CBD office lease in this size range but are not representative of any specific transaction.