Ambiguity In Commercial Lease Agreements: A Risk Too Often Overlooked

When parties enter into a commercial property lease, they expect the terms to be clear and enforceable. Yet, many leasing disputes stem from ambiguity – terms or clauses that can reasonably be interpreted in more than one way. This is particularly problematic in long-term leases, where substantial investments and operational planning rely on predictable, well-defined contractual obligations.

Common sources of ambiguity in leasing contracts

Ambiguity in commercial leases may arise from vague language, inconsistent provisions, or undefined terminology. Examples include:

• Undefined triggers or milestones: A clause stating "lease commencement upon occupation" can be problematic if the lease does not define what constitutes "occupation" – does it mean physical entry, practical completion, or approval from the local authority?
• Variable rent or escalation terms: Phrases such as "market-related increase" or "escalation to be agreed annually" invite differing interpretations, particularly in volatile economic environments.
• Repair and maintenance obligations: A common area of dispute, especially when terms like "fair wear and tear" or "maintain in good order" are left undefined or subjectively applied.
• Termination or renewal provisions: If notice periods or rights of renewal are not clearly stipulated, parties may disagree about timeframes, procedural steps, or enforceability.

In multi-tenant or sectional title developments, ambiguity can also arise when lease terms intersect with building rules, body corporate regulations, or shared-use agreements.

Commercial impact

Ambiguous leasing terms can lead to delayed occupancy, payment disputes, operational interruptions, or even early termination. Where interpretation is contested, the dispute may be referred to arbitration or court, where external adjudicators will assess the language, the context, and the conduct of the parties. However, by that stage, control over the outcome has been lost, and reputational or financial consequences may already have been incurred.

Mitigating the Risk

To reduce the risk of ambiguity:

• Define key terms in the lease, especially those relating to performance milestones, escalation clauses, and maintenance standards.
• Avoid general or subjective language such as "reasonable," "timely," or "industry norm" unless those concepts are clearly anchored by objective criteria.
• Ensure internal consistency by cross-checking that clauses throughout the agreement do not contradict each other.
• Align the lease with other governing documents, including building rules, title deed conditions, or development agreements, particularly in sectional title or mixed-use settings.
• Engage experienced legal professionals early in the lease negotiation or drafting phase, not just during a dispute.

In commercial property, the strength of a lease lies not only in its enforceability but in its clarity. A well-drafted agreement should leave no room for doubt about the parties' rights, obligations, and expectations. Ambiguity is not merely a drafting flaw, it is a potential dispute in waiting.

Property owners and managers are encouraged to have their lease agreements reviewed by legal professionals – particularly where the contract has been provided by a leasing agent or broker. While such templates may be convenient, they are not necessarily tailored to the specific risks, structures, or commercial realities of a particular property.

At Barnard, we assist landlords and property managers in refining their leasing contracts to ensure they are both commercially sound and legally robust.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.