Commercial subleasing in Victoria: quick wins, real risks, and how to structure them

A well structured sublease also lets two businesses grow together. The head tenant converts surplus space into income and shares fixed costs such as utilities and cleaning on a fair, transparent basis. The subtenant secures a fitted space in a prime location with lower upfront capital and faster commencement. When the permitted use, access, branding rights, services and trading hours are aligned, the businesses can cross refer customers, share foot traffic and collaborate on promotions without operational friction. Clear rules on noise, deliveries, storage and shared equipment prevent conflicts, so both parties benefit from a stable, predictable arrangement that supports revenue growth for each.

Start with the head lease. Most Victorian retail and commercial leases either prohibit subletting or require landlord consent on reasonable grounds. Many also impose preconditions such as no existing defaults, a minimum rent covenant from the subtenant, and recovery of the landlord’s legal costs. Before you negotiate commercial terms, read the alienation clause, any assignment and subletting schedule, and any prohibition on parting with possession. If the premises is retail, the Retail Leases Act 2003 (Vic) will usually continue to apply to the sublease if the sublease is for all or part of the retail premises; this affects outgoings disclosure and some rent review mechanics.

Secure landlord consent early and in writing. A short heads of agreement with the essential terms will streamline consent: identity of the subtenant, permitted use, sublease area with a marked plan, rent and outgoings, term and options, works, make-good, and any incentives. Provide basic financials or references for the subtenant to shorten the landlord’s diligence cycle. Align the sublease expiry to fall at least one day before the head lease expiry to avoid accidental holding over beyond your own rights.

Match the permitted use and compliance obligations. The subtenant’s use must be allowed under the head lease and planning scheme. Confirm whether the use triggers building code upgrades, occupancy permits, trading hours limits, or signage controls. If you are carving out part of the premises, check whether services can be separately metered or whether a fair apportionment method is required for electricity, HVAC and cleaning.

Protect the rent waterfall and default remedies. The sublease should make clear that head rent is paid first from any sub rent received. Include an express right to terminate the sublease if the head lease ends or is forfeited, and require the subtenant to attorn to the head landlord if the landlord elects to keep them in possession. Obtain a personal guarantee or bank guarantee that mirrors the security under the head lease, with aligned claim periods. If you offered incentives to your head landlord, ensure the sublease does not accidentally pass those on unless intended.

Get outgoings and make-good right. Tie the subtenant’s outgoings contribution to the same definitions and exclusions as the head lease and include a clear method for part-premises apportionment. Require the subtenant to remove their works and reinstate, subject to any landlord-owned base building or fit out items. If you inherited an existing make-good obligation under the head lease, ensure your sublease recovers those costs from the subtenant on exit.

Document works and base building interfaces. No works should start without landlord approval where required by the head lease. Set who pays for approvals, code compliance and rectification. Record existing condition with a photo schedule to reduce end-of-term disputes.

Mind the Retail Leases Act. If the sublease is a retail sublease, provide a disclosure statement to the subtenant on time and ensure rent review clauses comply with the Act. Remember key rules such as prohibition on recovery of certain landlord costs and restrictions on ratchet clauses.

Three common pitfalls. First, informal occupancy without consent that later blocks an assignment or triggers default. Second, misaligned terms, where the sublease runs longer than the head lease or contains options you cannot grant. Third, vague descriptions of the subleased area that make outgoings and access unworkable.

A well drafted consent package and sublease can be agreed in days, not weeks. The commercial return can be strong, particularly where surplus space is monetised. The legal essentials above will preserve flexibility, protect cash flow and reduce exit friction.

Looking to sublet part or all of your premises or to take a sublease quickly? MLS LEGAL prepares landlord consent packs and short-form Victorian subleases that mirror your head lease risk profile and can usually be turned within five business days.