For any ophthalmic practice, securing the right premises lease is a critical commercial decision. Whether opening a new clinic, relocating, or renewing an existing arrangement, the lease will shape occupancy costs, operational flexibility, and long-term business strategy.
Yet leases are still too often treated as standard form documents – something to be finalised once the location is agreed. That approach carries risk. The commercial terms agreed at the outset can either support growth and business success, or quietly undermine both.
Ophthalmology and optometry remain strong-performing sectors. In many markets, that places tenants in a relatively strong negotiating position. Used well, that leverage can deliver leases that properly support practitioners, patients, and strategic objectives. Used poorly, or not at all, it can leave practices locked into arrangements that no longer reflect how they operate, including aggressive rental reviews, onerous make-good obligations, and uncommercial security requirements.
When negotiating a new lease, five areas regularly deserve closer attention.
Outgoings: The Real Cost of Occupation
Outgoings can materially affect the feasibility of a lease, yet they are frequently given less attention than headline rent. The starting point is understanding both the commercial deal and the legislative framework that governs what a landlord can recover.
A key threshold question is whether the lease falls within state or territory retail leasing legislation. Many ophthalmic practices do. Where it applies, the landlord is generally required to disclose estimated outgoings to the tenant before the lease is entered into. In some jurisdictions, failure to provide that disclosure can give the tenant rights to withhold payment of outgoings or termination rights.
Retail leasing legislation also limits what can be recovered from the tenant by the landlord. Capital expenditure and certain property taxes are commonly excluded. Other costs, such as rate notices and building insurances, may remain recoverable when properly disclosed.
Capital expenditure and certain property taxes are commonly excluded. Other costs, such as rate notices and building insurances, may remain recoverable when properly disclosed.
Rent Reviews: Compounding Cuts Both Ways
Rent review provisions determine whether rent remains commercially appropriate over the life of the lease.
Most leases rely on fixed increases, consumer price index (CPI) reviews, market reviews, or a combination. Fixed annual increases are often favoured by landlords, but when compounded over the long term, leases can outpace market rents and become unsustainable.
Depending on the local market, negotiating a market review at renewal or, periodically during the term, may offer protection. That said, market reviews are not tenant-only protections. In tightly held or rising markets, they can favour landlords just as easily. The structure needs to reflect the specific premises, market conditions, and the practice’s business plan rather than default positions. Protections in the lease that cap how high the rent can increase during a market review can be considered to avoid excessive increases and provide a degree of certainty.
Incentives: Value Left on the Table
In the current market, landlords are frequently prepared to offer meaningful incentives to secure high-quality, long-term tenants. Ophthalmic practices, in particular, are well placed to negotiate favourable packages.
Failing to raise incentives early can mean leaving significant value behind. Given the bespoke nature of ophthalmic fit-outs, incentives often take the form of landlord contributions to works, rent-free periods, or a combination of both. Cash contributions provide immediate capital for fit-out expenditure; rent-free periods preserve cash flow while the practice is not yet operating at full capacity.
Tenants should also be alert to incentive clawback provisions if the lease ends early, and ensure those provisions are clearly defined and proportionate. Critically, incentives should be documented in the lease itself, not buried in side letters or heads of agreement, to ensure they remain enforceable, carry through to renewals or assignments, and are considered during a market review as they can substantially influence the outcome of a rent determination by a valuer.
Security: Balancing Risk and Liquidity
Security is another area where default positions often go unchallenged. Landlords typically seek security by way of personal guarantees, bank guarantees, cash bonds, or a combination.
Tenants generally prefer to avoid personal guarantees, but alternatives can quarantine significant capital for the duration of the lease. Bank guarantees, in particular, should be reviewed carefully, as some require top-ups or replacement during the term, for example, on rent reviews.
Many tenants are now exploring electronic or insurance-backed guarantee products that offer greater flexibility. Whether these are acceptable will depend on the landlord, but they are increasingly part of commercial negotiations.
Ultimately, the amount and form of security should reflect the actual risk being taken, including the length of the lease, the tenant’s covenant strength, and the extent of any incentive or fit-out contribution.
Make Good: The Exit Cost Nobody Budgets For
Make-good obligations govern how premises are returned at lease end and are a frequent source of dispute – and unexpected cost.
Standard clauses often require tenants to reinstate premises to their original ‘base’ condition and remove all alterations. Left unqualified, those obligations can require the removal of valuable, functional fit-outs that may still be attractive to successor tenants and become a costly obligation to perform for an outgoing tenant.
Tenants should consider early whether it makes commercial sense to retain some or all of the fit-out and negotiate accordingly.
In many cases, it is reasonable to limit make-good obligations to removing tenant fixtures, repairing damage caused by their removal, and returning the premises in a clean and tidy condition.
Drafting matters! The lease should reflect the commencement condition, the nature of the tenant’s installations, and the intended use of the premises and provide a clear, commercial pathway to exit.
A timely review helps ensure the lease aligns with the clinical realities of the practice, complies with retail leasing legislation, and supports the long-term value of the business.
Legal Advice: Timing Matters
Finally, timing is critical. Legal advice is most effective when obtained early – before heads of agreement are finalised and again before the lease is executed.
The heads of agreement stage often crystallises key commercial assumptions. Leaving legal input until after those terms are ‘agreed’ can significantly limit negotiating leverage during the lease phase.
A timely review helps ensure the lease aligns with the clinical realities of the practice, complies with retail leasing legislation, and supports the long-term value of the business.
Securing the right lease is a strategic investment in your practice’s future. If you’re entering into, renewing, or renegotiating a lease, we would welcome the opportunity to help you achieve the best possible outcome.
Jared Cartoon and Michelle Cohen are members of the property team at Burke Lawyers. With extensive experience across all aspects of property law, including due diligence, acquisitions and disposals, development, leasing, structuring and dispute resolution, the team works collaboratively to guide clients through complex transactions with confidence. Committed to practical solutions and strong relationships, the team supports developers, investors, operators and businesses alike, at every stage of the property lifecycle. Visit: burkelawyers.com.au.
