$83,000 a Year Turned on One Word: What Commercial Lease Parties Must Get Right

A commercial lease is often signed with a handshake and a sense of relief that the deal is done. But the document that is filed away can come back to bite either party years even decades later, when the relationship has changed hands and the original intentions are a distant memory. The wording of the lease is what governs, and a single defined term can be worth tens of thousands of dollars a year.

A recent decision of the Supreme Court of New South Wales, Hoang v Hungry Jack’s Pty Ltd [2026] NSWSC 775, is a striking example. A landlord and a national tenant went to court over how the rent on a Taree fast-food site should be calculated, a difference of about $83,000 every year, and the answer turned largely on what the word “Premises” meant in the lease. For anyone who grants, takes, buys or sells a commercial lease, the case is a masterclass in why the fine print matters.

The lease is the contract, and words are everything

A commercial lease is a contract, and the courts interpret it using ordinary principles of contractual construction. That means the Court asks what a reasonable businessperson would have understood the words to mean, reading the document as a whole so that its clauses work together sensibly. Crucially, where a lease is registered on the title (as most longer commercial leases are), the material a court can look at to interpret it is limited: generally only what appears on the face of the registered documents, not the parties’ private negotiations or earlier drafts.

Two other concepts feature heavily in this case. The first is the rent review clause – the mechanism by which rent is reset periodically, often to “current market rent” as assessed by an independent valuer. What the valuer is told to value, and what to include or ignore, is set by the lease’s wording. The second is the law of fixtures: the general rule that whatever is permanently attached to land becomes part of the land (“whatever is affixed to the soil becomes part of it") and so belongs to the landowner unless the lease provides otherwise or the item is a removable “tenant’s fixture”. Whether a building put up by a tenant is part of the land or remains the tenant's can be decisive.

Finally, commercial leases in New South Wales may attract the Retail Leases Act 1994 (NSW) if they are for retail premises, bringing disclosure obligations and other protections, and the parties’ own statements about whether that Act applies can come back to shape later disputes.

The facts: who pays rent on the building the tenant built?

In 2004, Hungry Jack’s took a lease of a then-vacant corner site in Taree, on the state’s mid-north coast. Under an agreement for lease, Hungry Jack’s built a drive-through restaurant on the land at its own cost, and a ten-year lease (with options) followed, registered on the title. The lease was later varied twice, in 2014 and again in 2015, extending the potential term out to 2039.

In 2015, Ms Hoang bought the site for $2 million, subject to the existing tenancy. She read the registered lease documents and engaged a solicitor; she did not see the original agreement for lease between the previous owner and Hungry Jack’s.

The fight was about the rent review. When market rent fell due, the landlord’s valuer assessed it by reference to the whole property — the land plus the building and improvements. Hungry Jack’s said that was wrong: because it had built the restaurant, the rent should be assessed on the bare land only, ignoring the building. The gap between the two approaches was about $83,000 a year, a very large sum across a lease that could run to 2039.

Hungry Jack’s ran three main arguments: that the leased “Premises” was only the ground, not the building; that the building was never a fixture (so it remained Hungry Jack’s property, not part of the land); and that, even if the building was a fixture, it was a “Lessee’s fixture” that the rent review clause required the valuer to disregard. As a fallback, it argued that charging rent on a building it had paid to construct was statutory unconscionable conduct under the Australian Consumer Law.

The decision: the words of the lease won

Justice Pike rejected every one of Hungry Jack’s arguments and found for the landlord.

On the central question, what were the “Premises”? the Court went to the definitions. The lease defined “Premises” as “the Building and all other structures” at the address and separately defined “Building” as the structure erected on the land. Reading those words naturally, the Premises plainly included the building. The Court also noted that the lease contained a separate definition of “Land”; if the parties had meant to lease only the ground, they could simply have leased the “Land”. They did not, they leased the “Premises”, a defined term that captured the building. Numerous other clauses (about insurance, alterations, signage and de-imaging) only made sense if the building was part of the leased Premises.

On fixtures, the Court held the building was indeed part of the land. The test looks at the degree and, especially, the object of annexation – was the thing attached permanently or only temporarily? A purpose-built restaurant constructed from the ground up was obviously intended to remain for a substantial, perhaps indefinite, period. Tellingly, it was the landlord — not the tenant — who had the power under the lease to decide, at the end of the term, whether the building stayed or went. That was inconsistent with the tenant “owning” the building.

On the “Lessee’s fixture” argument, the Court found the building could not be a removable tenant’s fixture because the tenant had no right to sever and remove it; that decision rested with the landlord. Nor did the building fall within the defined “Lessee’s Property”, which pointed to things on or in the Premises not the Premises (the building) itself.

The Court also declined to be swayed by the original agreement for lease, which contained some wording about the tenant owning the “Building Structure”. That earlier agreement was not incorporated into the registered lease, was overtaken by the lease’s own terms and its “entire agreement” clause, and importantly was not something a later purchaser like Ms Hoang could be expected to have known about when construing a registered lease.

Finally, the unconscionability claim failed. The Court was not persuaded there was any “paying twice”: there was no evidence the original rent had been struck to recover the building cost, and for the first ten years there was no market review at all. Ms Hoang had simply bought the site, read the registered documents, taken advice, and later sought to enforce the lease as written. Enforcing a contract according to its terms between two commercial parties who had legal advice, with no special disadvantage on either side, is not conduct that offends conscience. (For good measure, the Court also held that an earlier 2019 valuation, which had wrongly ignored the building, was not binding and could be redone.)

The lessons for commercial lease parties

Hoang v Hungry Jack’s is essential reading for landlords, tenants, buyers and sellers of leased premises alike.

Definitions are not boilerplate they are the deal. The entire case turned on the defined terms “Premises”, “Building” and “Land”. Before you sign, read every definition and test how it flows through the operative clauses, especially the rent review. If “Premises” means something you did not intend, you may be paying or charging rent on it for decades.

Be crystal clear about what the rent review captures. If the commercial intention is that the tenant’s building is to be ignored on review (as is common in a genuine ground lease), the lease must say so in plain, express words for example, that the valuer is to assess rent “ignoring any value attaching to improvements made at the tenant’s expense”. Leaving it to be implied from labels like “ground lease” is a recipe for an expensive fight.

Know who owns what a tenant builds. Absent clear words, structures a tenant erects generally become part of the land and belong to the landlord. If a tenant expects to own or remove what it builds, the lease must expressly create that right. And if a landlord expects the improvements to revert to it, that too should be spelled out.

Registered leases are read on their face. Side agreements, earlier drafts and pre-lease negotiations may carry little or no weight when a registered lease is later interpreted – particularly against a new owner who never saw them. Everything you are relying on should be in the registered lease. Inconsistent documents (here, the agreement for lease and the lease said different things about the building) are dangerous.

“Entire agreement” clauses do real work. Such clauses can shut out earlier understandings you assumed still applied. Do not rely on a prior promise that is not carried into the final, registered document.

Due diligence on purchase is critical. Ms Hoang won, but the risk cut both ways: a buyer of leased premises inherits the lease exactly as written. Before buying, have the lease (and every variation) reviewed so you know precisely what income and what disputes you are acquiring.

Get the terms right at the start. Almost every problem here traces back to imprecise drafting in 2004 that was never cleaned up across two later variations. Careful drafting and review at each renewal is far cheaper than litigation over an $83,000-a-year question.

How Shire Legal can help

Commercial and retail leases are among the most valuable and most litigated documents a business will sign. At Shire Legal, we help landlords and tenants across the Sutherland Shire and beyond to negotiate, draft and review leases, rent review and option clauses, and agreements for lease; to navigate the Retail Leases Act; and to carry out lease due diligence when buying or selling tenanted property. Where disputes arise over rent, construction or enforcement, we act to protect your position.

If you would like advice on a commercial lease, contact Shire Legal or book an appointment to speak with our team.

This blog provides general information and should not be construed as legal advice. Laws may have changed since the publication of this content. We recommend consulting with a qualified legal professional to ensure compliance with current legislation and to address specific circumstances.