The letter of offer
Most commercial leases start with a letter of offer, sometimes called heads of agreement. It records the main commercial terms. The landlord’s lawyer usually prepares the lease from it, so a point you give away in the letter of offer is hard to win back later.
Is a letter of offer binding?
It depends on its words and on what the parties intended. Many letters of offer say they are not binding until a formal lease is signed, and generally neither side is bound until then. But where the essential terms are agreed and the document shows the parties meant to be bound straight away, a court may find a binding agreement for lease even though a formal lease was still to come. The High Court’s decision in Masters v Cameron is the starting point. Check the wording, and when any deposit paid with the offer is refundable.
For a retail lease, the Retail Leases Act 2003 (Vic) defines a lease to include an agreement for a lease, whether or not it is in writing. A retail lease is entered into when the tenant goes into possession with the landlord’s consent, starts paying rent, or the lease is signed by all parties, whichever happens first. So collecting the keys or paying rent can mean you have entered into the lease for the purposes of the Act, even though nothing is signed.
What to negotiate
Rent and incentives
Landlords often offer incentives instead of a lower rent: a rent-free period, a contribution to the fit-out, or reduced rent for the first year. Agree how each incentive works and whether any part is repayable if the lease ends early, and put it in the lease documents. Many leases have an “entire agreement” clause, which can make a promise in an email hard to rely on.
Rent reviews
Check when the rent is reviewed and on what basis: a fixed percentage, CPI, a fixed amount or market rent. Under a retail lease, a cap on a CPI or market review is allowed, so you can ask for one, such as CPI but no more than 5%. A clause that stops the rent going down at a market review is void in a retail lease but may be valid in other leases. See rent reviews.
Outgoings
Ask which outgoings you pay, how your share is worked out, and what they were last year. Under a retail lease, you pay only the outgoings the lease specifies, you receive an itemised estimate before the lease is entered into, and land tax and commercial and industrial property tax cannot be passed on. Outside the Act, as in many office and warehouse leases, they can be passed on if the lease says so. See outgoings.
Term, options and use
Match the term and options to your plans and to the fit-out you need to pay off. A retail lease, including options, must generally run for at least 5 years unless you obtain a waiver certificate from the Victorian Small Business Commission and give it to the landlord. Check each option’s conditions and how the renewal rent is set. The permitted use should cover the whole business, including what you may add later, because a narrow use clause can also put off a buyer when you sell.
Make good
Agree the condition the premises must be returned in, ideally the condition at the start allowing for fair wear and tear, and record it with photos. See make good.
Assignment, subleasing and security
Under a retail lease, the landlord can refuse consent to an assignment only on limited grounds, and on the sale of an ongoing business, a tenant who gives an accurate assignment disclosure statement is released from liability for the buyer’s defaults, with its guarantors. Under other leases, the Property Law Act 1958 (Vic) says consent is not to be unreasonably withheld unless the lease expressly provides otherwise, but release is not automatic, so negotiate it. A retail landlord may keep an absolute discretion over subleases. Limit any director’s guarantee by amount and time. A retail tenant’s cash deposit must be held in an interest-bearing account and returned within 30 days after the lease ends if the tenant has met its obligations.
Relocation, demolition and the landlord’s works
Under a retail lease, the Act requires a genuine proposal and at least 3 months’ written notice of a relocation or 6 months’ of a demolition. If you relocate, the landlord pays your reasonable relocation costs; on a demolition, it compensates you for fit-out it did not provide. Under other leases, the clause sets the terms. If the landlord is to do works before you move in, list them with a completion date and what happens if they are late. Under a retail lease, a clause making you pay for fit-out is void unless the cost was disclosed in the disclosure statement.
Retail leases: the rules during negotiation
- At the start. As soon as negotiations begin, the landlord or its agent must give you a copy of the proposed lease and the Small Business Commission’s information brochure.
- Fourteen days before. The disclosure statement and the completed lease must be given at least 14 days before the lease is entered into, with any changes from the earlier copy pointed out. If they are late, the term is taken to start 14 days after you receive them.
- The landlord’s legal costs. The landlord cannot claim its costs of negotiating, preparing or signing the lease, or of obtaining its mortgagee’s consent, from you. If a retail letter of offer asks you to pay them, raise it.
- Unconscionable conduct. Landlords and tenants must not engage in unconscionable conduct in connection with a lease or proposed lease, so the rule applies during negotiations. The factors the Act lists include pressure to accept less than the 5-year minimum term and whether the parties acted in good faith.
For the other rules, see our guide to the Retail Leases Act 2003 (Vic).
How we negotiate
- Your priorities first. Your budget, timing and plans for the business decide what is worth pushing for.
- The letter of offer. If it is not yet signed, we suggest changes before it becomes the basis of the lease.
- A short list. We review the draft lease and any disclosure statement, and rank the changes.
- In writing, then checked. We negotiate with the landlord’s agent or lawyer, and check the final lease against what was agreed before you sign.
The review itself is our commercial lease review. To prepare, work through our commercial lease checklist.
How we help
- A free 15-minute phone call about the offer in front of you.
- Reviewing a letter of offer or heads of agreement before you sign it.
- A lease review: $1,100 including GST ($1,000 + GST) for most leases.
- Negotiating the changes. We quote in writing before we start.
Common questions
Can’t see your question? Call 1800 776 529 or send us a message.
It depends on what it says and what the parties intended. Many say they are not binding until a formal lease is signed. Under a retail lease, taking possession or paying rent can mean you have entered into the lease, so get advice first.
Yes. Most terms can be negotiated, and there is most room before the letter of offer is signed.
Under a retail lease, the landlord cannot claim them from the tenant. Under other leases, it depends on what is agreed.
The landlord must give you the disclosure statement and the proposed lease at least 14 days before the lease is entered into.
Law referred to
- Retail Leases Act 2003 (Vic) ss 3 (definition of lease), 7 (when a lease is entered into), 15, 17, 20, 21, 24, 35, 39, 46, 50, 51, 55, 56, 60, 62 and 77.
- Property Law Act 1958 (Vic) s 144.
- Masters v Cameron (1954) 91 CLR 353.
- Aldi Foods Pty Ltd v Northcote Shopping Centre Pty Ltd [2024] VSC 799; Northcote Shopping Centre Pty Ltd v Aldi Foods Pty Ltd [2026] VSCA 140.
Last reviewed: October 2026, by a Victorian solicitor with a current practising certificate. This page is general information about Victorian law as at October 2026. It is not legal advice about your lease.
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