Guide to Leasing Industrial Strata in NSW

Leasing industrial strata property in NSW can be a strategic move for your business if you are seeking a flexible warehouse, factory or storage space. Renting industrial strata units involves individually owned strata lots within a larger strata scheme where leases are governed by general contract law. Unlike Retail or Residential Leases, Commercial Leases for industrial properties are largely unregulated, allowing for greater negotiation but requiring careful attention to terms. This guide provides an overview of key considerations for prospective tenants, focusing solely on Commercial Leases. Remember this is not legal advice – always consult a solicitor for your specific situation.

It is highly recommended that you engage a solicitor experienced in Commercial Leases – ideally before making any offer. They can review the Draft Lease, negotiate changes, advise you of your obligations, and ensure compliance with the Lease Agreement. Costs typically range from $1,500 to $2,500, but this investment prevents costly disputes.

In NSW, commercial leases, such as those for industrial strata, differ significantly from retail and residential leases. Commercial leases are governed by common law, the Conveyancing Act 1919, and the terms negotiated in the lease agreement, with minimal statutory protections for tenants. Retail leases fall under the Retail Leases Act 1994, which mandates disclosures, prohibits certain clauses (like ratchet rent increases), and provides dispute resolution through the NSW Civil and Administrative Tribunal (NCAT). Residential leases are regulated by the Residential Tenancies Act 2010, offering strong tenant protections, including standard terms, bond requirements, and eviction safeguards. For industrial strata, the lease will generally be classified as commercial to avoid unintended retail regulations, which apply if the space is used for certain retail purposes.

To gauge fair market rent, research recent leases in similar industrial strata complexes nearby such as in neighbouring suburbs. Search for leased listings on realcommercial.com.au or commercialrealestate.com.au and ring the leasing agents. Asked them what they leased the property for, the lease term, and if there were any incentives offered. Ask the leasing agent for the property you are looking at to send you some comparable leases. For accuracy, compare net or gross rents apples-to-apples, and adjust for incentives offered in comparable deals.

Always inspect a property before you make an offer. Ask to take photos at the inspection. During inspections, assess structural integrity, including ceiling heights, floor loading capacity, and access for vehicles. Check for existing damage and ask the agent if there are any known roof leaks. In strata properties, inspect common areas like loading docks or roofs, as these are managed collectively. Test utilities, such as power supply for industrial equipment, and note any fitout needs. Remember it is your reasonability to ensure the property is suitable for your use. If unsure, re-inspect the property and bring the relevant expert or trade (e.g., electrician or mezzanine installer)

Once you are interested in a property, request the draft lease from the Agent. This document outlines all terms, including rent, duration, and responsibilities. In NSW commercial leases, there's no mandatory disclosure statement (unlike retail), so review it thoroughly before committing. Ask for any annexures, such as strata by-laws or plans, to understand shared facilities.

Typical terms for industrial strata leases range from 3 to 10 years, often with options to renew (e.g., 3+3 or 5+5). If the term is equal to or less than three (3) years (including options) the Lease Agreement may be prepared by the Leasing Agent for a fee. Terms greater than three (3) years will need to be prepared by the Lessor's solicitor, usually at the cost of the Tenant. The longer the lease, the higher the likelihood that you can demand discounts or incentives from Lessors.

In a gross lease, rent includes outgoings such as council rates, strata levies, water rates, property management fees and land tax – simpler for budgeting but potentially higher overall. A net lease requires the Tenant to pay outgoings separately, offering transparency but variable costs. Industrial strata properties often use net leases, with tenants charged back as each cost arises or part of a monthly budget which is balanced / reconciled at each anniversary date. Clarify which type applies with the Leasing Agent to avoid surprises. Request an estimate of the outgoings or ask for a copy of the most recent actuals.

Submit a formal offer via a Heads of Agreement (HOA) or Lease Advice, detailing proposed rent, term, incentives, and any special conditions. Negotiate flexibly, as commercial leases allow bespoke terms. Once both parties have agreed, this will form the basis for the final lease - whether prepare by the Leasing Agent or Lessor's Solicitor. Remember that you are not bound legally until the Lease Agreement is executed.

Lessors may offer incentives to secure tenants, including rent-free periods (e.g., 1-3 months) or rent abatements (reduced rates initially). These are negotiable in Commercial Leases and can offset setup costs. Ensure incentives are documented clearly and included in the Lease Agreement.

Tenants typically must hold and keep current public liability insurance (minimum $20 million) and glass insurance if applicable. In strata schemes, the Owners Corporation insures the building structure and common property. This does not cover your contents. It is highly recommended that you take out your own contents and business interruption insurance. Remember, damage to your property caused by fire, flooding, or water damage, will not be covered by the strata building insurance or your public liability insurance. In most cases you will still be required to keep paying rent.

Expect upfront costs like legal fees, stamp duty (if applicable), registration fees (for leases over 3 years), and fitout expenses. Security bonds or bank guarantees are common, often equalling three (3) months' gross rent or six (6) months' gross rent where no guarantor is provided. Generally, you should budget for the following:

1. One (1) months' rent in advance.
2. Security bond equal to three (3) months' gross rent.
3. Agent or Lessor's solicitor's fee to prepare the Lease Agreement.
4. Cost for legal advice from your appointed solicitor.

A security bond, usually in the form of a cash bond or bank guarantee, protects the landlord against breaches. It is usually equal to three (3) months' gross rent. It's refundable at lease end if obligations are met. Amounts can be negotiated, unlike the regulated bonds in residential tenancies, but it's ultimately up to the Lessor to accept.

Prepare or request a condition report at lease commencement, documenting the property's state with photos. This protects against disputes over damage at handover. While not mandatory in Commercial Leases, it's best practice. Take lots and lots of photos once you gain access and ensure they are time stamped.

Tenants are generally responsible for internal maintenance of their lot, including repairs to fixtures, cleaning, electrical, and plumbing. The Lease Agreement will specify your obligations but generally you take the property as-is and it is assumed that you have done your due diligence before signing the Lease Agreement. Obligations may include maintaining and servicing to manufacturer specifications the A/C system, the hot water system, and electric motor for the roller door. Ensure you request service records from the Agent. Report issues to the Lessor or Property Manager promptly to avoid escalation.

The Lessor is generally responsible for structural repairs to the building and compliance with building codes. In strata schemes, the Owners Corporation handles common property maintenance via levies paid by Owners (often passed to Tenants in net leases). Tenants maintain their unit, comply with by-laws, and pay rent/outgoings. Avoid altering common property without approval at all costs as this may trigger a new set of liabilities. Remember, withholding rent for outstanding maintenance issues may be a serious breach of the Lease Agreement.

For example, assume there is a roof leak that is damaging your property, and you decide to withhold rent. You even demand that the Lessor reimburse you for the damaged property! Well in a strata scheme, the roof is considered common property, and the Lessor is limited to what he can do to fix the leak as touching the roof may make them responsible for the entire roof moving forward. As you can imagine, why would the Owner want to assume full reasonability of the roof when costs to maintain it are divided by all Owner in the strata scheme. The Owners Corporation may take their time to get multiple quotes and vote on the issue. They are under no obligation to "hurry up". Withhold rent in this scenario would likely be considered a serious breach of the Lease Agreement. As for the damaged property, good luck getting strata to pay for it. It is assumed that you have contents insurance for your property.

For example, assume you start the lease and the A/C unit has never been serviced but is working when you start the term. A few days later the entire unit breaks down, and it needs to be replaced. There are no service records provided. In this scenario the Lessor would likely be responsible. But assume there are records provided and the system is working fine but over the term you never service the unit, and it fails right before the end of the lease. It is likely that the tenant would have to fix this or replace the unit if the cause was due to the negligence of the Tenant.

Common property, like roofs, certain doors, driveways, or external walls, is generally managed by the Owners Corporation. For issues like roof leaks affecting your Premises, notify the Lessor or Property Manager as repairs are funded by strata levies. Remember, Strata can often be slow to get maintenance items actioned as it has to go through a process of multiple quotes and approval. This can complicate things as Lessors have their hands ties in most circumstances, especially if they are not part of the Owners Corporation. If a Lessor or Tenant undertake unauthorised works, they may assume financial reasonability for the area they tempered with - a major financial burden for the Lessor.

Breaches, such as non-payment of rent or outgoings, or unauthorised alterations, will trigger consequences outlined in the Lease Agreement. The Lessor may issue a formal breach notice giving time to remedy (e.g., 7-14 days). Failure can lead to termination, damages claims, or forfeiture of the bond. Serious breaches will result in lockout or re-entry by the Lessor.

If you seriously breach your Lease Agreement, the Lessor can terminate the Lease and re-enter the Premises. Most Commercial Lease Agreements allow peaceful re-entry for rent defaults. Unlike residential evictions (via NCAT), commercial processes are contractual and may involve Supreme Court proceedings for complex disputes. Tenants should negotiate to surrender the lease or negotiate to exit early from the lease to avoid eviction. Always seek urgent legal advice if facing eviction.

Breaking a Commercial Lease early is not straightforward, as there are no statutory break rights like in Residential Leases. Options include negotiating a mutual surrender with the Lessor, where you may pay a fee or forfeit the bond to end the lease early. You could assign the lease to a new tenant (transferring obligations) or sublet the space, if permitted by the lease terms, to mitigate costs while remaining liable. Contact your Leasing Agent as soon as possible to check your options. Breaching without agreement can result in legal claims for lost rent and re-letting costs, so professional advice is essential. Remember, you are committing to the entire term.

If the Lessor breaches the Commercial Lease, the Tenant can issue a formal notice to remedy the breach as outlined in the Lease Agreement. Remedies for the Tenant may include seeking rental credit, specific performance, or termination of the lease without penalty. Commercial Leases in NSW offer limited statutory protections for Tenants, so outcomes depend on lease terms and common law. Tenants should avoid self-help actions like withholding rent or not paying outgoings without legal advice, as this could lead to counter-breaches. Consult a solicitor immediately to evaluate options and pursue resolution through negotiation or legal action if necessary.

As a tenant, read the entire lease and by-laws / building rules. Ensure you understand all the costs, restrictions, and obligations. Key things to look out for include who is responsible for paying what, maintenance clauses, make-good requirements at lease end, and limitations on permitted uses (e.g., mechanics uses or heavy machinery in strata schemes). Check for compliance with strata by-laws, which may restrict modifications or operations. Also, verify the property's zoning under local council rules to ensure it suits your industrial needs, such as manufacturing or logistics.

Leasing industrial strata in NSW offers opportunities but demands diligence. By understanding these elements and seeking legal advice were applicable, you can secure a lease that supports your business growth.