Commercial Leases Explained: Net, Gross, Outgoings and WALE

Commercial lease types explained in one line: the lease type decides who pays the running costs. Under a net lease the tenant pays rent plus most outgoings, under a gross lease the landlord pays them out of a single rent, and a semi gross lease splits them. Investors also need to understand rent reviews, options, security, make good and WALE, plus the retail leases law in their state.

Key takeaways

• Outgoings are the costs of running the property, such as rates, insurance and maintenance. The lease type decides who pays them.
• Rent reviews can be fixed, linked to CPI or set at market, and the lease sets the method and timing.
• Options give the tenant the right to renew, but they must be exercised exactly as the lease requires.
• WALE (weighted average lease expiry) shows how much lease term is left across a property, weighted by rent.
• Each state has its own retail leases law, with rules on disclosure, outgoings and minimum terms for many shop leases.

What are the main types of commercial lease?

Commercial leases are usually described by how the rent and outgoings are split. Outgoings are the costs a landlord incurs in operating and maintaining the property, such as council rates, water rates, building insurance, repairs, common area cleaning and management fees.

Net lease. The tenant pays a base rent plus most or all of the outgoings. The landlord’s rent is close to the money they actually keep, which makes the income easier to read.

Gross lease. The tenant pays one rent figure, and the landlord pays the outgoings from it. The tenant has a predictable cost, while the landlord carries the risk that outgoings rise faster than the rent.

Semi gross lease. The tenant pays some outgoings, for example a share of rates and insurance, and the landlord pays the rest. The lease should list exactly which items sit with whom.

The label on the lease matters less than the detail. Always read the outgoings clause and the outgoings schedule (our property investing glossary defines the common terms), and check them against your state’s retail leases law if the lease is a retail lease.

How do outgoings work in a commercial lease?

When a tenant pays outgoings, the landlord usually gives an estimate at the start of each year, the tenant pays monthly instalments, and the figures are reconciled once the actual costs are known.

Retail leases laws add rules. In Queensland, the Small Business Commissioner explains that a retail shop lease tenant only has to pay outgoings if the lease specifies them and how they are worked out and recovered. Landlords there cannot charge certain costs, such as land tax, and an audited annual outgoings statement is typically given to the tenant by 30 September each year.

In NSW, the Small Business Commission says outgoings should be set out in the disclosure statement, and outgoings that were not disclosed may not have to be paid. For an investor, an outgoings recovery you were counting on may not be enforceable if it was not documented properly.

How do rent reviews work: CPI, fixed or market?

A rent review is a set point in the lease when the rent changes. In retail leases they are commonly yearly. The three common methods are:

• Fixed increase. The rent rises by a set percentage on each review date. Both sides know the figure in advance.
• CPI review. The rent moves in line with the Consumer Price Index published by the ABS, so it follows inflation.
• Market review. The rent is reset to what the market would pay, usually by agreement or by a valuer if the parties cannot agree.

The NSW Small Business Commission notes that if a landlord and retail tenant cannot agree on market rent, a specialist retail valuer determines it and the costs are shared equally. Retail leases laws in several states also restrict which rent review methods a retail lease can use, so check the law before you rely on a review clause.

What is an option to renew?

An option is a right for the tenant to take a further lease term on the same terms as the current lease. A lease described as 5 + 5 has a five year term plus one five year option.

Options must be exercised in writing within a set window, often some months before the lease ends. The Queensland Small Business Commissioner warns that a tenant who does not exercise an option correctly and in strict accordance with the lease can lose the right to renew. Under Queensland’s retail shop leases law, the landlord must also remind the tenant of the option deadline.

For an investor, options are worth reading closely. They add possible term, but the tenant decides whether to use them, so they are not the same as a firm lease.

What is a bank guarantee and how does it differ from a bond?

Most commercial leases ask the tenant for security in case they do not pay rent or meet other obligations.

Bond. A cash amount held for the term of the lease. Rules on where it is held vary by state. In NSW, a retail landlord must lodge a cash bond with NSW Fair Trading within 20 business days. In Victoria, a retail security deposit must be held in an interest bearing account.

Bank guarantee. A written promise from the tenant’s bank to pay the landlord up to a set amount on request. The NSW Small Business Commission notes that a landlord may draw on it without first telling the tenant, and should release it within two months of the tenant leaving unless money is owed.

When you buy a leased property, make sure the bond or bank guarantee is transferred or reissued in your name at settlement.

What does make good mean in a commercial lease?

Make good is the tenant’s obligation at the end of the lease to return the premises to an agreed condition. That can mean removing the fitout, patching and repainting, or restoring partitions.

The clause should say what condition is required and whether a condition report applies. A vague make good clause can leave a landlord with a costly strip out between tenants, so it is worth reading before you buy.

What is WALE and how do you calculate it?

WALE stands for weighted average lease expiry. It tells you, on average, how many years of lease are left across a property, weighted by how much rent each tenant pays.

Hypothetical example. A property has two tenants. Tenant A pays $40,000 a year with 4 years left. Tenant B pays $20,000 a year with 1 year left. Multiply each rent by its years left: 160,000 plus 20,000 equals 180,000. Divide by total rent of 60,000. The WALE is 3 years.

A longer WALE generally means more certain income. It does not say anything about tenant strength or rent levels, so read it alongside the leases, not instead of them.

Which retail leases laws apply in each state?

Retail leases laws mostly protect tenants, but they change what an investor can recover and what must be disclosed. Our team keeps this state by state quick reference for the commercial briefs we work on. Each line was checked against the regulator’s own page on 8 November 2026.

• Victoria. The Retail Leases Act 2003. The Victorian Small Business Commission says the term, including options, must be at least five years, although a tenant can ask for a shorter term. The landlord must give a disclosure statement at least 14 days before the tenant enters the lease, and cannot pass on the cost of preparing the lease.
• New South Wales. The Retail Leases Act 1994 applies to retail leases of between six months and 25 years. The NSW Small Business Commission says the landlord’s disclosure statement must be given at least seven days before the lease starts or is renewed.
• Queensland. The Retail Shop Leases Act 1994. The Queensland Small Business Commissioner explains that it generally covers retail shops under 1,000 square metres, and some non retail businesses inside a retail shopping centre.
• Western Australia. The Commercial Tenancy (Retail Shops) Agreements Act 1985. The Small Business Development Corporation says it generally applies to premises with a lettable area of 1,000 square metres or less, most tenants are entitled to a minimum lease period of up to five years, and disclosure documents should be given at least seven days before the tenant enters the lease.
• South Australia. The Retail and Commercial Leases Act 1995. The Small Business Commission SA says a landlord or agent who gives a proposed lease must also give the Commissioner’s Retail and Commercial Leasing Guide, with a penalty of up to $8,000 for not doing so.
• Tasmania. Retail tenancies are covered by the Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998, listed by Consumer, Building and Occupational Services.
• Australian Capital Territory. The Leases (Commercial and Retail) Act 2001 regulates both commercial and retail leases, including retail premises and small commercial premises.
• Northern Territory. The Business Tenancies (Fair Dealings) Act 2003 mainly targets retail shop leases, with some sections applying to all business tenancies. NT Consumer Affairs runs a tenancy unit for business landlords and tenants.

Whether a particular lease is covered depends on the property, its size and use, and the tenant. A lawyer can confirm this. Our guide to conveyancing and contracts explains how the legal side of a purchase fits together.

What should investors check in a lease before buying?

When you buy a leased property, you step into the landlord’s shoes and take on the lease as it stands. Add these lease checks to our due diligence checklist before you sign:

• The term left, any options and the dates to exercise them.
• The rent, the review method and the next review date.
• Which outgoings the tenant pays and whether they were properly disclosed.
• The security held and how it will transfer to you.
• The make good clause and any incentives still owing to the tenant.
• Whether retail leases law applies and how it affects the lease.

A pre purchase property review can help you work through these points with your lawyer. We buy industrial, retail and medical or childcare property for investors, and the lease review is always one of the first things we do.

Frequently asked questions

What is the difference between a net lease and a gross lease?

Under a net lease the tenant pays rent plus most or all outgoings. Under a gross lease the tenant pays one rent figure and the landlord pays the outgoings from it. A semi gross lease splits the outgoings between them.

What are outgoings in a commercial lease?

Outgoings are the costs of operating and maintaining the property, such as council rates, water rates, insurance, repairs and management fees. The lease, and any retail leases law that applies, decides which ones the tenant pays.

What does WALE mean?

WALE stands for weighted average lease expiry. It is the average time left on the leases in a property, weighted by the rent each tenant pays.

What is make good in a lease?

Make good is the tenant’s obligation at the end of the lease to return the premises to an agreed condition. That can include removing the fitout and repainting.

What is the minimum term for a retail lease in Victoria?

The Victorian Small Business Commission says a retail lease term, including options, must be at least five years. A tenant can ask for a shorter term.

Sources

• Victorian Small Business Commission: Entering into a retail lease
• NSW Small Business Commission: Retail Tenancy Guide
• Queensland Small Business Commissioner: What is a retail shop lease in Queensland?
• Queensland Small Business Commissioner: Outgoings
• Queensland Small Business Commissioner: Options to renew
• Small Business Development Corporation WA: Commercial Tenancy Act
• Small Business Commission SA: Retail and Commercial Leasing Act
• Consumer, Building and Occupational Services Tasmania: Legislation
• ACT Legislation Register: Leases (Commercial and Retail) Act 2001
• NT Consumer Affairs: Business tenancies

Citadel Agency is a licensed buyers agency (licence 092247L) that also buys commercial property for investors.

Want a second set of eyes on a commercial lease? Book a free strategy call with our team.

General information only. It does not take into account your objectives, financial situation or needs. Speak to a qualified professional before acting.

General information only. It does not take your objectives, financial situation or needs into account and is not financial, tax, credit or legal advice.