Top 3 Commercial Leasing Concerns For Victorian Landlords & How To Stop Them Keeping You Up At Night

Owning commercial property in Victoria can be a smart long-term investment, but it’s not without some stress. Whether you’re leasing out a retail shopfront or multi-office premises, there are common issues that consistently cause headaches for landlords. 

Here are the top three commercial leasing concerns we see time and time again, and what you can do to manage them effectively, so you can sleep a little easier. 

1. Tenant defaults and rent recovery. 

Late rent, missed payments, or outright tenant default is one of the most common, and financially damaging, issues a landlord can face. Recovering rent or taking legal action is often costly, time-consuming, and emotionally draining. 

How can you mitigate it?

• Screen tenants carefully before entering into a lease. Look beyond their business pitch by requesting their financials, conducting credit checks, and checking out their rental history. 
• Require security in the form of a personal guarantee, bank guarantee, or security deposit. These forms of security offer leverage if things go wrong! 
• Ensure your lease agreement includes clear clauses around default, termination rights, and enforcement steps, so that all the correct and vital information is stated at the beginning. 
• Act early if payment delays start. You should speak to your tenant to resolve issues before they escalate and seek legal advice as soon as possible. 

Note: A good lease includes interest on late payments and reimbursement of legal costs for enforcement. 

2. Lease compliance and property maintenance. 

Disputes over responsibilities are very common, especially at the end of the lease. These disputes could include issues with tenants who breach lease terms, misuse the property, fail to maintain it, or leave behind costly repairs.

How can you mitigate it?

• Be clear upfront in your lease agreement. Your lease should clearly define maintenance responsibilities, permitted use, fit-out obligations, and make-good requirements. 
• Ensure tenants maintain adequate insurance coverage, including public liability and business insurance where appropriate. Regularly request updated certificates of currency to confirm policies are active and reduce potential financial exposure if damage, injury or third-party claims arise.
• Review provisions relating to rent review mechanisms, outgoings, holding over arrangements, relocation rights and demolition clauses, particularly in long-term leases.
• Conduct regular inspections to check for compliance and address issues early. Make sure that you give proper notice if you do this!
• Keep everything in writing: Always confirm verbal agreements or notices in writing to avoid disputes down the track. 
• Document condition reports at lease commencement and exit (with photos) to strengthen your position if damage occurs. 

Note: You can include an indemnity clause for damage or third-party liability arising from tenant negligence. 

3. Market shifts and lease flexibility.

Leasing is not static and market conditions continue to change. So, it’s important for landlords to remain flexible and adapt to changing tenancy demands and business needs.

How can you mitigate it? 

• Implement more flexibility, where possible: Consider shorter lease terms with options to renew, or periodic rent reviews linked to Consumer Price Index (CPI) or market rates. 
• Understand your lease type and know what applies before you draft or renew a lease: If your lease falls under the Retail Leases Act 2003 (Vic), you’ll have additional obligations.
• Create a plan for exit and redevelopment options in the lease, especially if you’re considering selling or repurposing the property in future.
• Consider fit-out incentives or temporary rent reductions to attract and retain good tenants in slower markets. 

Obligations Under the Retail Leases Act 2003 (Vic)

Under the Act, additional legal obligations may apply to landords. For example,

• Minimum disclosure obligations: Landlords may be required to provide disclosure statements before the lease is signed, outlining important information such as estimated outgoings, rent review mechanisms and key lease terms.
• Prohibition on certain recovery of costs: The Act places restrictions on the types of expenses and outgoings landlords can recover from tenants, particularly where those costs have not been properly disclosed.
• Mediation through the VSBC: Retail lease disputes in Victoria are often required to proceed through the Victorian Small Business Commission (VSBC) before court action can commence, encouraging parties to resolve disputes more efficiently and cost-effectively.

Landlords should ensure their lease agreements are clearly drafted and understand whether the Retail Leases Act applies to help manage risk.

Don’t set and forget your lease.

Commercial leasing isn’t just a set-and-forget exercise and if you’re a landlord in Victoria, you should always stay on top of your legal obligations and regularly review your lease terms.

Need help reviewing your commercial leasing? Our Aintree Group Legal team can help!

This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your lawyer.