Can You Renovate a Commercial Lease? 

Unlike residential rental properties, leased commercial properties are generally not ready for move-in without a fit-out. Most businesses will need to renovate or at least fit-out a commercial property before moving in.

Most commercial leases in Australia involve some level of fit-out, where the tenant is responsible for installing fixtures, fittings, finishes, and  internal walls to suit the operation of the business.

Whether it’s a retail store, office, café, or dental clinic, a commercial fitout is the opportunity to customise the space based on the business’s operations and brand. Renovation work for a commercial lease can involve everything from flooring, lighting, cabinetry and signage to full-scale structural alterations.

Regulations for Renovating a Commercial Lease in NSW

When planning to renovate a commercial property in New South Wales, tenants are bound by the regulations set out in the lease agreement, as well as the Retail Leases Act 1994 (NSW), which outlines the legal requirements and rights for tenants to carry out a commercial fit out.  

One of the most important steps for tenants is to obtain the lessor’s written consent before starting any work. Depending on the lessor’s preferences, this agreement may come with specific conditions covering design limitations or minimum contractor qualifications. 

The fit out must comply with various building codes, health regulations and council requirements, which requires the expertise of an architect or a builder.  All construction work in Australia requires an accompanying DA (Development Approval) and/or CDC (Complying Development Certificate) from the local council. Some cases of minor works may be considered Exempt Development, where no approval is required. Contractors working on the fit-out must also have public liability and workers’ compensation insurance in place. 

Who is Responsible for the Costs of a Commercial Fitout?

Tenants will bear the bulk of the commercial lease renovation cost. The main expenses tenants will have to budget for include:

• Interior design and architectural planning
• Fixtures, fittings, and finishes
• Plumbing, electrical, and HVAC installation
• Signage and branding

Tenants may also be responsible for some or all of the lessor’s costs of preparing the premises for the fit-out. This may involve upgrading electrical boards, installing basic services, or modifying base building features to make the premises suitable for the planned fit out. 

Lessors must disclose any required contributions in the Lessor’s Disclosure Statement, and tenants must agree in writing to the maximum cost of the required works before the lease starts. Without this written agreement, lessors cannot lawfully demand payment for the work.

Considerations for a Commercial Fit Out

Tenants should have a clear vision in mind for the renovation before starting any work on the premises. The ideal commercial fit out should be functional, cost-effective, and compliant at least for the duration of the lease. Generally, the best way to tackle a commercial renovation is to work with an architect who specialises in commercial design and renovation.

Sustainable Design

Energy costs will be a consistent overhead for the business. Energy-efficient elements such as LED lighting, energy-efficient HVAC systems, or thermal insulation considerations can go a long way in reducing reliance on appliances, saving energy costs. Beyond energy savings, sustainable design options can also meet future compliance issues as building regulations change. 

Quality Over Cost

Choosing the cheapest fit-out or fittings is tempting – especially if you’re overspending on your lease and want to reduce renovation costs. However, a cheap fit out will ultimately cost more in the long run. Poor workmanship and lower quality materials will wear out faster, leading to more frequent repairs and replacements. A low cost fit out may also lead to an outcome that is not aligned with your brand values, risking your ability to attract or retain your ideal customers. Do your research and work with experienced professionals who have delivered successful commercial renovations in your space. 

Set a Realistic Budget

Commercial fit outs are a big investment. The renovation cost for an average-sized office space of 1,000 square metres (assuming a cost of $1,000 per square metre) can total up to $1,000,000. Tenants are also required to pay rent during the renovation period, which adds to the cost of setting up the business.

Tenants can negotiate for a rent-free period to reduce the pressure on cash flow during the renovation period. It’s better to be upfront about your financial capacity and timeline than to underestimate the costs. 

The Commercial Lease Renovation Process

1. Pre-lease Planning

Work with an architect before signing the lease. An experienced architect can assess the space, identify the limitations and advise on what’s possible for the renovation work. This step avoids signing a lease for a space that won’t fit your business needs.

2. Lease Negotiation

Try to get a rent-free fit out period, clarify the end-of-lease obligations, and agree in writing the works and costs that the lessor is required to carry out. 

3. Design and Documentation

Once the lease is signed, you will collaborate with either your architect or builder on the renovation design. A good architect will outline the specifics of the fit out, including the layout, selection of materials, and overall concept. An architect can also collaborate with your creative agency to make sure your physical space is coordinated with your message, branding concept, and values. When you’re happy on the final design, it will be finalised in documents for council approval applications and construction.

4. Approval Stage

Council timelines in Sydney can vary and must be factored in early to avoid costly delays. Architects like Crush can find a quicker way to gain approval, whether it’s DA, CDC, or a combination of both.

5. Construction Stage

Construction work will begin once the necessary approvals are granted. Architects will oversee the process to ensure the design is accurately implemented and that timelines are met.

6. Certification and Handover

The OC (Occupation Certificate) is released by the PCA (Private Certifier Appointed) once the work is completed or reaches a practical completion stage. From this point on, the building will be ready for commercial use. 

Crush Architecture is an award-winning commercial architecture firm in Sydney with a team specialised in Commercial and Retail fitouts. We have worked and collaborated with top brands in the commercial industry, such as Nike, Yobe, Canali, Juventus, Papaya Clinic, and Future Brand. We design commercial fit outs that are tailored to your business brand and operations, and are familiar with the process of applying for the necessary council approvals to help you launch your business sooner. If you’re planning a commercial renovation, get in touch with our team to discuss your project.