A commercial lease negotiation in Melbourne is not a formality you squeeze in between service periods. The rent you agree to, the way it is reviewed, and what you must hand back at the end can determine whether a venue survives its first five years. Hospitality margins are tight, hours are long, and the difference between a workable lease and a punishing one often comes down to a handful of clauses.
Before you sign anything, work through the areas below against the draft lease. Each one has a direct effect on your cash flow, your ability to trade the hours you need, and what happens when you sell.
First, Does the Retail Leases Act Apply to Your Venue?
Victoria’s Retail Leases Act 2003 (RLA) governs many hospitality leases. Premises used predominantly for the retail sale of goods or the retail provision of services fall within the definition of retail premises. A cafe, restaurant or bar usually fits, but the answer depends on the permitted use in your lease and on ministerial determinations made under the Act.
Two exclusions matter. Premises drop out of the Act where occupancy costs exceed the threshold set by regulation. Check the current prescribing regulation before you rely on any figure, because the threshold is updated from time to time. Premises also fall outside where the tenant is a listed corporation or a subsidiary of one.
The RLA gives tenants protections a plain commercial contract does not. Minimum terms, limits on outgoings recovery, restrictions on key money and mandatory mediation all sit inside it. If your lease is outside the Act, you are relying on the contract and general law alone.
Disclosure Before You Sign
The landlord must give you a prescribed disclosure statement and a copy of the proposed lease at least 14 days before the lease is entered into. This applies to all retail premises leases, not just shopping centre leases. The 14 day period replaced an earlier 7 day period on 1 October 2020. If the landlord gives you the disclosure statement and proposed lease less than 14 days before the lease is to be entered into, the term of the lease is taken to commence 14 days after the statement and lease are given.
If no statement is provided, you can serve notice between 7 and 90 days after entering the lease, withhold rent until the statement arrives, and terminate within 7 days of receiving it. Where a statement is false, misleading or materially incomplete, a separate termination right applies for 28 days after the last of three events: receiving the statement, receiving the lease copy, and entering the lease.
The landlord also cannot recover its legal costs for negotiating, preparing or executing the lease. Key money and payment for the goodwill of a business at the premises are prohibited, with limited exceptions.
Term, Options and the Five Year Minimum
The term including any options must be at least 5 years. A shorter lease is not invalid, but the term is extended to 5 years. The Victorian Small Business Commission can certify a waiver where it has explained the effect to you, which removes the protection.
Check the option clause carefully. The lease should state the last date for exercising the option, how it is exercised, and how rent for the further term is set. At least 3 months before that last date, the landlord must give you written notice of the last exercise date, the rent payable for the first 12 months of the renewed term, the availability of an early rent review and a cooling off period, and any changes to the most recent disclosure statement other than rent. If the landlord fails to give that notice, or omits any of that information, your deadline extends to 3 months after the landlord gives the notice. Where that extended date falls after the lease expiry date, the lease continues on the same terms until then.
If your option provides for a market review, you can request an early rent review within 28 days after receiving the landlord’s notice. This lets you know the new rent before you commit. If a specialist retail valuer does not notify you of the determination at least 14 days before your deadline, the deadline extends to 14 days after you are notified. If you exercise the option without requesting an early review, you have a 14 day cooling off period in which to withdraw.
Where there is no option, the landlord must give written notice 12 to 6 months before the term ends, either offering renewal on stated terms or confirming no offer will be made. An offer cannot be revoked for 60 days without your consent. If the landlord gives this notice late, the lease is extended on the same terms until 6 months after the notice is given.
Rent Review Clauses
Rent review is where hospitality leases cause the most damage over time, particularly when a review lands in a quiet trading period. The RLA sets out the permitted methods: a fixed percentage, an independently published price or wage index, a fixed annual amount, current market rent, or a method prescribed by regulation. The lease must state when reviews happen and how they are calculated. A review clause that does not specify the method is void.
Watch for ratchet clauses. The RLA voids any clause that prevents or limits a rent reduction on a market review. The exception is that fixed percentage, index and fixed amount reviews can still operate as ratchets. So a market review that cannot fall below current rent is void, but a fixed 4 per cent annual increase is permitted.
Caps on rent increases are a different matter. In 2026 the Court of Appeal confirmed that a cap on a CPI or market review, such as a CPI increase capped at 6 per cent, does not breach the rule that each review must use a single method. A cap protects you against a large increase in a rising market, so it is worth negotiating.
On market reviews, market rent is defined as what a willing landlord and willing tenant would agree at arm’s length. The valuation excludes the value of goodwill you have built and the value of your fixtures and fittings. It does take into account rent concessions offered to prospective tenants of vacant retail premises, which can work in your favour in a soft market. If the parties cannot agree, a specialist retail valuer is appointed by agreement or by the VSBC, with costs shared equally.
Timing matters too. The review should be conducted as early as practicable within the period the lease allows. If the landlord has not started it within 90 days after that period ends, you can initiate it yourself.
If your lease includes turnover rent, the clause must specify how rent is determined. You must provide monthly turnover statements within 14 days of month end unless the lease allows longer.
Outgoings: What Can Actually Be Recovered
Outgoings recovery is limited to provisions that specify which outgoings are recoverable, how they are determined and apportioned, and how they are recovered. Several categories cannot be recovered from you, either because the Act voids the clause or because they fall outside the statutory definition of outgoings:
- Capital costs of the building, common areas or plant
- Depreciation
- Sinking fund contributions
- The landlord’s borrowing costs
- Head lease rent and costs of other land
The landlord must give an itemised written estimate before the lease is entered into and one month before each accounting period. You are not liable for outgoings until you receive it. An outgoings statement is due within 3 months after each accounting period, prepared under Australian Accounting Standards with an auditor’s report. An audit is not required where every outgoing is supported by an invoice, assessment or receipt.
Management fees are void unless they relate to managing the building or centre and the amount and calculation method are specified. Land tax has not been recoverable from retail tenants since 1 July 2003. Since 2024, the landlord also cannot pass on the new commercial and industrial property tax (CIPT) to a tenant under a lease covered by the RLA. Strike out any clause that makes you liable for either tax.
Fit-Out, Contributions and Refit Clauses
Kitchen fit-outs are where hospitality tenants spend serious money, and the fit-out cost provisions of the RLA are relevant. Where you are in a retail shopping centre and pay for works to alter electrical reticulation, sprinklers, power or gas supply, air-conditioning ducts, exhaust locations or cabling, a maximum cost or formula must be agreed in writing before works begin. If you cannot agree, an independent quantity surveyor appointed by the VSBC decides, with costs shared. You cannot be charged more than that maximum. Exhaust and gas work sits squarely in this territory for restaurants.
Where the landlord is obliged to complete fit-out and rent starts on possession, you do not pay rent or outgoings until the landlord has substantially complied. Refit clauses are void unless they set out the general nature, extent and timing of the work.
Assignment, Sale of Business and Make Good
If you plan to sell the business, the assignment provisions matter. The RLA sets out the only grounds on which a landlord can refuse consent to an assignment. These are that the proposed use is not permitted, that the assignee lacks sufficient financial resources or business experience, that you have not complied with reasonable assignment provisions, or that, for an ongoing business, you have not provided 3 years of business records. The landlord is taken to consent if it does not respond in writing within 28 days of a compliant request.
On make good, the RLA contains no specific statutory rule. Your obligations come from the lease and general law. That is exactly why the make good clause deserves close attention before signing, and why make good disputes are among the most common retail tenancy conflicts. If you are preparing to sell, our pre-sale audit checklist covers the timing issues that sit alongside lease obligations.
Demolition, Relocation and Damage
The RLA allows a landlord to terminate on demolition grounds only with details showing a genuine proposal to demolish within a reasonably practicable time, and at least 6 months’ written notice. You may terminate earlier on at least 7 days’ notice. Compensation is payable for the fit-out the landlord did not provide, whether or not demolition proceeds. If demolition does not happen within a reasonably practicable time, compensation for early termination damage is payable unless the landlord established a genuine proposal at the time of notice.
On relocation, the landlord needs a genuine refurbishment or redevelopment proposal that cannot proceed without vacant possession, and must give at least 3 months’ notice with details of reasonably comparable alternative premises. The new lease runs on the same terms for the remaining term, with rent adjusted for any difference in commercial value. The landlord must also pay your reasonable relocation costs, including dismantling, reinstalling, modifying or replacing fixtures and fittings, and legal costs. For a venue with a commercial kitchen, that obligation is significant.
Rent and outgoings abate where premises become unusable or inaccessible, or their use is reduced, unless you caused the damage.
Disputes and Mediation
Retail tenancy disputes must be referred to the VSBC for mediation before VCAT proceedings. VSBC mediation fees are $300 including GST for a half day and $600 including GST for a full day, for applications received from 1 September 2023. A cancellation fee of $900 for a half day or $1,350 for a full day may be charged where a session does not proceed, including where a party attends without full authority. If you cannot attend, you must notify the VSBC at least five working days before the session. Check current fees before relying on these figures.
Each party generally bears its own VCAT costs, though VCAT may order costs where a party acted vexatiously or refused to take part in, or withdrew from, mediation.
Using This Checklist
Work through each section against the draft lease before you sign. Where a clause is void under the RLA, you can still ask for it to be removed, because leaving it in creates argument later. Where a clause is permitted but commercially harsh, such as a fixed percentage ratchet, that is a negotiation point rather than a legal one.
If you are buying a venue with an existing lease, or transferring a liquor licence as part of the deal, the lease and licensing questions overlap. Our guide to transferring a liquor licence in Victoria covers the licensing side, and our article on AML/CTF compliance sets out the identity and source of funds checks that now apply to venue transactions.
For general background on what is negotiable in a commercial lease, the Victorian Small Business Commission publishes plain English guidance on retail leasing that reflects Victorian law.
This information is general in nature. Contact us for advice specific to your venue.
